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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED MAY 31, 1996
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-11969
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-2408186
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
4020 Newberry Road
Gainesville, Florida 32607
(Address or principal executive offices)
Registrant's telephone number, including area code: (352) 373-2565
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.01 par value
Common stock purchase warrant, entitling the holder to purchase one
share of common stock at $1.25 per share to December 7, 1996
Unit, consisting of (a) four shares of common stock and (b) four common
stock purchase warrants
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $2,351,945.
The approximate aggregate market value of the voting stock of the Registrant
held by nonaffiliates of the Registrant as of August 21, 1996 (based upon the
closing bid and asked prices as reported by the Nasdaq Stock Market, Inc.) was
approximately $72,506,350.
The number of shares outstanding of the Registrant's class of common stock, as
of August 21, 1996 is 41,085,513.
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Item 1. BUSINESS
General
MEHL/Biophile International Corporation (the "Company") is a
technology transfer company presently concentrating on patented hair removal and
cosmetic dermatological products. The Company also makes early stage investments
in core technologies and companies that management believes are strategic to the
Company's business or will yield a higher than average financial return. The
Company's initial focus will be on removal of unwanted hair through use of
cosmetic lasers and consumable multiple hair removal systems.
The Company's short term goals focus on removal of unwanted
hair in revenue sharing licenses with physicians worldwide. The Company's medium
term focus will be to license other cosmetic applications to the Company's
licensed partners for treatment of skin resurfacing, wrinkles, leg veins,
pigmented lesions, port wine stains and other cosmetic procedures. In addition,
the Company desires to become the dominant company with both professional laser
hair removal as well as consumer hair removal technologies on a worldwide basis,
providing multiple options for consumers. Longer term goals involve industrial
laser applications and other related technologies.
The initial phase of entry into the hair removal market will
involve licensing distribution of the CHROMOS 694 laser, which was developed by
SLS (Wales) Ltd., a majority owned subsidiary located in Wales, England. This
device has already been introduced to ten locations and currently awaits
clearance for marketing by the Food and Drug Administration ("FDA") in the
United States. The CHROMOS 694 process involves absorption of the light energy
from the laser by melanin contained within the hair stem cells and follicle.
This energy is transformed into heat which consequently disables the cells that
produce the hair. This method is covered by the Zaias patent (United States) and
Clement patents pending (worldwide) which are believed by the Company to be
dominant for its depilation application. See "Technology - Zaias License", "Mehl
License" and "SLS (Biophile) Ltd."
The method utilized by the Company's laser hair removal
technologies differs from other techniques for hair removal in both convenience
and simplicity. It offers an alternative to the sometimes painful and time
consuming process of electrolysis which reportedly accounts for over $1 billion
in revenues annually. Unlike other techniques, the Company's method using the
CHROMOS 694 laser does not require pre-treatments such as waxing or the use of
messy lotions.
The Company believes that the financial pressures placed on
physicians due to the cost containment policies of managed care organizations
provides a market opportunity for the Company's products. The Company intends on
forming alliances with physicians in a mutually beneficial licensing arrangement
whereby the physicians will oversee the provision of hair removal services in
doctors offices, clinics and hospitals while the Company will employ marketing
strategies to increase awareness about this service and its available locations.
The Company believes that its arrangements with physicians providing wide access
to consumers coupled with the simplicity of the method will allow for expansion
of the hair removal market.
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The Company also intends to commence marketing of its
consumable multiple hair removal patch outside the United States in 1997 and
intends to apply for 510(k) pre-market clearance from the FDA in 1997.
The Company is the result of the merger on June 4, 1996 of
Classy Lady by Mehl of Puerto Rico, Inc., a privately-held company, with a
subsidiary of Selvac Corporation. As a result of the merger, the shareholders of
Classy Lady assumed control of the Company, which was renamed MEHL/Biophile
International Corporation. On June 4, 1996, the Company also acquired an 81%
interest in SLS (Wales) Limited, a privately-held Welsh company engaged in
developing, manufacturing and selling lasers for dermatologic use, including
hair removal. See "Recent Developments".
Recent Developments
Merger with Classy Lady by Mehl of Puerto Rico, Inc.
On June 4, 1996, Classy Lady by Mehl of Puerto Rico, Inc., a
privately-held Puerto Rico company ("Classy Lady"), merged with and into a
wholly-owned subsidiary of the Company (the "Merger"). In consideration for the
Merger, the Company issued an aggregate of 25,000,000 shares of Common Stock,
$.01 par value per share, to the shareholders of Classy Lady. As a result of the
Merger, the former Classy Lady shareholders own, in the aggregate approximately
55.2% of the outstanding Common Stock of the Company, thereby resulting in a
change of control of the Company.
In exchange for the issuance of the shares of the Company
issued pursuant to the Merger, the Company obtained all of the stock of Classy
Lady, which owns the exclusive licensing rights granted to Classy Lady by Dr.
Nardo Zaias for a laser hair removal technology and by Thomas L. Mehl, Sr. for
a radio frequency and direct current multiple hair removal technology. Upon
completion of the Merger, all of the assets and liabilities of Classy Lady
became the property of the Company's wholly-owned subsidiary and the separate
corporate existence of Classy Lady ceased.
The Merger was completed in accordance with the terms of the
Second Amended and Restated Agreement and Plan of Merger dated as of June 4,
1996 (the "Merger Agreement"). Pursuant to the Merger Agreement, (i) the name of
the Company was changed to MEHL/Biophile International Corporation, (ii) Thomas
L. Mehl, Sr. ("Mehl"), the President and a principal shareholder of Classy Lady,
was elected as Chairman of the Board of Directors, President and Chief Executive
Officer of the Company; and (iii) the Board of Directors of the Company was
expanded to seven members, five of whom were designated by Mehl.
Acquisition of SLS (Wales) Limited
On June 4, 1996, the Company completed the purchase of capital
stock representing in the aggregate of 81% interest in SLS (Wales) Limited, a
privately held Welsh company which has been renamed SLS (Biophile) Ltd. ("SLS")
engaged in developing, manufacturing and selling lasers for dermatologic use,
including hair removal. The consideration for the acquisition of the SLS shares
consisted of a cash payment of approximately $1.9 million and the assumption of
certain liabilities and obligations of SLS and the issuance of 25,044 shares of
the Company's Common Stock. The
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consideration paid was based upon arms-length negotiations between the Company
and the holders of the SLS shares.
SLS holds patents pending, invented by Marc Clement, Ph.D.,
which are compatible with the Zaias patent exclusively licensed to the Company
in the field of laser depilation. At its research and manufacturing facility in
Wales, SLS has been developing and clinically evaluating laser depilation
technology since 1993 and presently manufactures and markets its CHROMOS 694
"long-pulse" ruby laser depilation system. SLS abides by European Union ("EU")
regulations for the manufacture and sale of the CHROMOS 694 depilation laser in
Europe. SLS also provides a mobile laser depilation service in the United
Kingdom which allows the CHROMOS 694 system to be brought directly to hair
removal clinics and doctor's offices.
The Company intends to continue the use of the assets of SLS
acquired for the development, manufacture and sale of laser systems. Together
with SLS, the Company is currently negotiating additional licenses for the
CHROMOS 694 depilation laser system. The Company also intends to offer a range
of laser based technologies already established by SLS, including skin
resurfacing, wrinkle removal and the treatment of vascular lesions. The SLS
CHROMOS 585 dye laser for vascular lesions also meets EU regulations for
manufacture and sale in Europe.
Recent Financings
On May 15, 1996, the Company completed a private placement
offering exempt under Regulation D promulgated under the Securities Act of 1933
of 10,000 shares of 5% Cumulative Convertible Preferred Stock, Series C, par
value $10 per share (the "Series C Preferred Stock"), for an aggregate purchase
price of $10,000,000. Holders of the Series C Preferred Stock are entitled to
receive dividends payable at the annual rate of 5% per annum.
The Series C Preferred Stock is convertible into Common Stock
of the Company at the lesser of (i) 80% of the average market price on the five
trading days prior to conversion and (ii) $7.50, but in no event shall be below
$3.00. The Company has filed a registration statement covering the public sale
of the shares of Common Stock receivable upon conversion of the Series C
Preferred Stock which was declared effective by the Securities and Exchange
Commission on July 12, 1996; no holder is entitled to convert Series C Preferred
Stock into Common Stock, if after such conversion, the number of shares of
Common Stock beneficially owned by such holder would exceed 4.9% of the issued
and outstanding Common Stock of the Company.
On April 18, 1996, the Company completed a private placement
sale of 8% Convertible Debentures (the "Debentures") which resulted in gross
proceeds to the Company of $3,000,000. The Debentures bear interest at the
interest rate of 8% per annum and mature on March 31, 1997. The Debentures were
convertible in whole or in part into shares of Selvac Common Stock at the
conversion rate of 80% of the fair market value of the Selvac Common Stock at
the time of conversion, based upon the average closing bid price of Selvac
Common Stock on the five trading days preceding such conversion. In
consideration for services performed as brokers in connection with the foregoing
private placement, the Company agreed to issue an aggregate of 90,000 shares of
Common Stock to two individuals, neither of whom are otherwise affiliated with
the Company or Classy Lady in any respect. As of July 20, 1996, all of the
Debentures had been converted into an aggregate of 610,042 shares of Common
Stock and no Debentures remain outstanding.
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Technology
The Company's principal technology assets consist of the
exclusive licensing rights held by the Company's wholly owned subsidiary granted
by Thomas L. Mehl, Sr. for radio frequency and direct current multiple hair
removal technology and by Dr. Nardo Zaias for a multiple hair removal laser
technology. In addition, SLS owns rights to the CHROMOS 585 laser for treatment
of vascular lesions, the CHROMOS 694 depilation laser and other technologies
under development.
Zaias License
In December 1995, Classy Lady also entered into a License
Agreement with Dr. Nardo Zaias (the "Zaias License") pursuant to which Dr. Zaias
granted to Classy Lady an exclusive license to make, use and sell products
incorporating the laser method of hair removal invented by Dr. Zaias and which
is represented by U.S. Patent No. 5,059,192 dated October 22, 1991 (the "Zaias
Patent").
The Zaias Patent is directed to a method of hair depilation
using a laser to substantially destroy multiple hair follicles. The method uses
a pulse of laser energy of a wavelength that is readily absorbed by melanin, a
pigment found within the hair in the papilla at the base of the hair follicle.
The laser energy is applied vertically over the hair follicle opening, and has a
radiant exposure dose of sufficient energy and duration to damage the papilla to
prevent hair regrowth while avoiding scarring surrounding skin.
In consideration for granting the exclusive license, Classy
Lady agreed to issue to Dr. Zaias 5,000 shares of Classy Lady Common Stock, pay
to Dr. Zaias $100,000 prior to June 3, 1996 and pay to Dr. Zaias a royalty of 5%
on all revenues derived by Classy Lady in connection with the laser hair
removal invention covered by the above patent. Classy Lady also agreed to pay to
Dr. Zaias a minimum royalty of $50,000 per year.
Mehl License
In December 1995, Classy Lady also entered into a License
Agreement with Thomas L. Mehl, Sr. (the "Mehl License") pursuant to which Mr.
Mehl granted to Classy Lady an exclusive license to make, use and sell the
following products.
- a method and system for the removal of multiple hairs
invented by Mr. Mehl represented by U.S. Patent No.
5,470,332 dated November 28, 1995 (the "Mehl
Patent");
- a consumer radio frequency hair removal tweezer
device invented by Mr. Mehl and represented by U.S.
Patent No. 5,049,149 dated November 17, 1991; and
- a consumer hair removal conductive solution to be
used to provide for improved conductivity when used
in conjunction with the tweezer device
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which was invented by Mr. Mehl and is represented by
U.S. Patent No. 5,364,394 on November 15, 1994.
The Mehl Patent is directed to devices for multiple hair
removal using radio frequency and direct current. The Mehl Patent describes
several embodiments, including a multi-layer device. The multi-layer device is
comprised of a non-conductive adhesive wax layer, a structural layer, and a
conductive adhesive layer between the non-conductive and structural layers. In
use, the device is pressed against the skin surface with the non-conductive
layer in contact with the skin. Hair to be removed extends through the
non-conductive layer and contacts the conductive layer. The conductive layer is
connected to a power source, which is turned on for a predetermined time period.
The hairs serve as paths by which power is transmitted to the root areas of the
hairs, which are thereby damaged. The non-conductive layer guards against
discomfort when the device is in use. The adhesive layers adhere to the treated
hairs to thereafter facilitate their removal from the skin.
The hair removal system licensed by Classy Lady from Thomas L.
Mehl, Sr. has also received patent protection in the European Community and a
Canadian patent for such system has been granted in February 1996. These patent
rights are also exclusively licensed by Classy Lady together with the U.S.
patents described above. Patent applications for Classy Lady's licensed multiple
hair removal products are pending in approximately 50 additional foreign
countries.
In consideration for the grant of the exclusive license,
Classy Lady agreed to pay Mehl a royalty of 5% of the wholesale price of all
products covered by the above patents sold by Classy Lady or its distributors
worldwide. Under the Mehl License, Classy Lady agreed to pay Mehl a minimum
annual royalty of $50,000. 10% of all royalty payments are to be made to Classy
Lady's patent law firm of Schlesinger, Arkwright & Garvey ("SA&G") until the
aggregate of such payment to SA&G reaches $1 million.
Mr. Mehl and Dr. Zaias have each agreed to share with the
other a portion of the royalty revenues derived from the License Agreements
described above. Accordingly, 25% of all payments to be made to Mr. Mehl under
his license agreement are to be paid to Nardo Zaias until such time as Dr. Zaias
notifies Classy Lady that Mehl is no longer obligated to make such payments and
50% of all royalty payments due to Dr. Zaias are to be paid to Mr. Mehl.
SLS (Biophile) Limited
SLS designs, develops, manufactures and distributes
opto-electronic based solutions to problems in healthcare and industry. SLS has
specialized in generating technological solutions to problems identified in
industry and healthcare. Its core discipline is that of opto-electronics, the
application of light to solve problems. SLS has developed several highly complex
machines for healthcare applications which contain advanced hardware and
software control systems, and sophisticated thermal, mechanical and optical
design. SLS believes that these technologies may be utilized for other
industrial sectors.
The Company has focused primarily on the applications of
lasers in plastic surgery, dermatology and cosmetic applications. Its current
focus is the area of hair depilation, the removal of unwanted body hair. SLS was
formed in 1992 to complete the management buy-out in May 1992 of
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the assets of Shanning Laser Systems Limited ("Shanning"). After its acquisition
by the Company in June 1996, SLS changed its name to SLS Biophile Limited in
August 1996.
Shanning entered the healthcare market in 1988, when it
developed its SIRIUS range of carbon dioxide lasers. The product range was
successful and attracted numerous design awards including the Prince of Wales
Award for Innovation. In August of 1990, at the request of the UK Secretary of
State for Health, the Company developed a dye laser to treat vascular lesions,
known as the CHROMOS 585, which was fully developed and tested by the first
quarter of 1992. The CHROMOS 585 has full approval for sale in the European
markets and SLS has sold 63 CHROMOS 585 lasers to date. Dye lasers utilize
complex chemicals in a liquid state as the laser medium. Dye lasers are
considered one of the most complex laser technologies, incorporating
sophisticated mechanical, optical and chemical design, together with the
advanced hardware and software demand. The CHROMOS 585 is covered by two United
Kingdom patents protecting the concept of using the fast pulse for treating
vascular lesions and the design of certain optical hand pieces used with the dye
laser. This patent provides coverage in all countries which are party to the
Patent Convention Treaty ("PCT").
SLS believes that its experience with dye lasers has
positioned it to move rapidly into emerging areas of laser technology. SLS
believes that it will be able to expand the use of the CHROMOS 585 laser for use
in skin resurfacing and wrinkle removal and has filed a patent in the United
Kingdom protecting the concept of non-traumatic treatment of wrinkles by
shrinking the collagen without burning the upper layers of skin.
In 1992 SLS decided to develop technology capable of
depilation. The company had been aware for many years of the possibilities of
using selective optical phenomena for the suppression hair growth. In 1993,
following extensive mathematical and computer modelling, system design and
clinical trials, SLS filed its first laser depilation patent, which is
compatible with the Zaias patent exclusively licensed to the Company.
SLS has been developing and clinically evaluating laser
depilation technology since 1993 and presently manufactures its CHROMOS 694
"long pulse" ruby laser depilation system. The CHROMOS 694 long pulse ruby laser
is designed to remove unwanted hair on any part of the body using a pain free
process. This is undertaken over a course of treatments and initial tests
suggest permanency can be achieved. SLS has filed a patent to protect the
concept of illuminating tissue with a range of wavelengths which penetrate the
surface of the skin and target the melanin in the hair deep beneath the surface.
Protection is throughout the PCT countries. The Company believes that the SLS
patent, if granted, will give the Company a very strong commercial position in
this substantial market. Laser energy is deposited in hair and then converted to
thermal energy, i.e. heat. The optical parameters of the laser (wavelengths,
energy, energy density and, importantly, pulse duration) have been carefully
selected to destroy, in a controlled manner, the stem cells and cauterize the
blood supply to the hair follicle.
SLS intends to significantly expand its development,
manufacturing and deployment of laser systems throughout the world. To date, SLS
has sold all of its products for cash, utilizing its own sales force in the U.K.
and agents and distributors in Europe. SLS and the Company intend to convert all
future distribution of products to be distributed through licensing arrangements
with physicians, clinics and hospitals which will, if successfully implemented,
provide ongoing revenues to SLS and the opportunity to provide new technology
developed by SLS to its licensees.
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SLS is considering, in certain geographic areas, granting
exclusive licensing rights for minimum sales and installation commitments.
Together with the Company, SLS is currently negotiating the licensing of the
CHROMOS 694 depilation system with strategic partners in New Zealand, Australia,
South Africa, Switzerland, Denmark, Germany, France, Spain, UK, Austria,
Bulgaria, Sweden, Holland, Italy, Israel, Egypt, UAE, Thailand, Taiwan, Korea,
Japan and Hong Kong.
SLS also provides a mobile depilation service in the UK which
allows the CHROMOS 694 system to be brought directly to doctors' offices. The
company also intends to offer a wide range of laser based technologies
including skin resurfacing, wrinkle removal and the treatment of vascular
lesions.
The SLS Development Team, supported by its relationships with
academic institutions, has in development further products which will address
such substantial markets as skin resurfacing, wrinkle removal and teeth
whitening. At an earlier state of development, is a range of healthcare products
which have emerged from SLS's industrial product development program. SLS is
conducting trials to develop a range of radio frequency based intelligent
sensing and tagging products, also for the healthcare market.
Selvac Division
Prior to the Merger and the SLS acquisition, the Company's
principal activities consisted of the manufacturing and distribution of the
Finally Free hair removal system.
On April 22, 1985, the Company acquired all of the outstanding
capital stock of (a) The Mehl International Corporation ("MIC") and (b)
Nutrolysis International Corporation ("Nutrolysis") for 1,000,000 and 100,000
shares, respectively, of common stock of the Company. Certain additional cash
payments were made, and royalty payments of 2% of net Finally Free Hair Remover
("Finally Free") worldwide sales collections are being made to the stockholders
of Mehl. As part of the acquisition, the Company was assigned the rights to an
exclusive License Agreement with Thomas L. Mehl, Sr., the inventor of Finally
Free, for the licensed patent rights to his invention. The agreement calls for
payments of $1.50 per unit royalty for the first 500,000 units and $1.00 per
Finally Free unit thereafter for the life of the patents. All royalties are
based on net unit sales. Royalty expense paid to the shareholders of MIC under
the agreements for fiscal years ended May 31, 1996, 1995 and 1994, was
approximately $39,000, $53,000 and $64,000, respectively. An additional 100,000
shares of common stock of the Company were issued by the Company to an
investment banker for services in connection with the acquisition. MIC was the
owner of the Finally Free hair removal appliance described below.
The Company entered the personal care appliance business in
1985 with its acquisition of MIC and Nutrolysis, which were merged into the
Company in 1988. MIC owned the rights to a proprietary patented method of hair
removal that uses directed radio frequency waves. This technology is employed in
two products - a consumer appliance sold under the trade name Finally Free and a
professional appliance sold under the trade name NU-Trolysis.
Both Finally Free and NU-Trolysis use the same energy and
radio frequency. The unit's patented plated tips grasp the unwanted hair above
the skin line. There is no needle, no head, and no
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pain. The radio frequency is transmitted from the unit to the hair where it
works to weaken the chemical structure of the hair so that it can be easily
removed.
The Company has the worldwide rights to manufacture and sell
products sold under the patented Mehl method for hair removal. The United States
patents relating to hair removal system expire in 1996. The Company holds
trademarks for the names "Selvac", "Finally Free", and "NU-Trolysis". Expiration
of US patents is not expected to have a significant impact on the Company's
operations or financial condition.
The FDA determined that the Company did not have the
appropriate marketing approval to sell Finally Free domestically. The Company
filed a number of appeals as well as developed and submitted new data in an
attempt to gain marketing approval. On June 28, 1991, the United States District
Court for the Eastern District of Pennsylvania approved a settlement, in which
the Company denied allegations of the complaint but agreed, among other things,
that the Company would not manufacture, process, pack, label, promote,
advertise, distribute, or sell Finally Free unless and until it received
marketing authorization from FDA. On December 6, 1991, FDA requested that the
Company provide additional information for its 510(k) filing as part of the
marketing authorization process. In February of 1992, Selvac received export
approval for existing domestic units of Finally Free to Canada from the FDA. In
July 1994, the FDA determined that Finally Free shall be considered a Class III
device under the Food, Drug and Cosmetic Act and accordingly, will require
premarket approval before it is sold, manufactured or distributed in the U.S.
The Company is currently considering refiling a 510(k) application for the
Finally Free product.
Finally Free has represented the single largest part of the
Company's sales since its acquisition. The uncertainty raised by the FDA
situation caused the Company to look toward its foreign markets for new
marketing opportunities. Hair removal is practiced worldwide, and the Company
moved aggressively to open new markets, distributors, and sources of supply. The
Finally Free sales base has shifted to international distribution primarily in
Canada, England, Japan, Australia, Spain, and Korea. Manufacture of the Finally
Free is through a manufacturer in the United Kingdom.
Export sales primarily of Finally Free products, amounted to
$2,283,000, $2,733,000 and $2,897,000 in 1996, 1995 and 1994, respectively. The
1996 export sales were $2,083,000 to Japan and $184,000 to Europe. The 1995
export sales were $2,090,000 to Japan and $322,000 to Europe. The 1994 export
sales included approximately $1,846,000 to Japan and $412,000 to Europe.
Sales to major customers as a percentage of total sales for
the Company's personal care appliance segment were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
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<S> <C> <C> <C>
Ikeda Corporation 89% 76% 68%
Impromedia S.L. 10% 25%
</TABLE>
Any substantial decrease in sales to Ikeda Corporation would have a significant
detrimental impact on the Company's operations and financial condition.
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The NU-Trolysis unit is sold to dermatologists, estheticians
and salons for use on their patients/clients. NU-Trolysis is offered for sale
both domestically and internationally. The NU-Trolysis system is marketed in the
United States pursuant to Section 510(k) Notification K780348, which was cleared
by the FDA on May 18, 1974. To the best of its knowledge, the Company is in
compliance with all manufacturing and annual registration requirements for this
product.
The Company has moved its focus on skin care products
overseas. The Finally Firm Facial Toning System ("Finally Firm") is being
marketed in Korea. A test market for this unique skin care product continues in
Japan and another test market began in Taiwan in fiscal 1996. The Company will
also attempt to increase its market for Finally Firm in the United States and
Europe. While Finally Firm's sales accounted for less than 5% of revenues for
the Company's personal care appliance segment for each of the past three years,
efforts will be made to increase sales of this product in future years.
The Company is party to a Royalty Agreement with a concern
entitled to manufacturing rights for Finally Firm. The terms of this agreement
call for royalty payments of $15 per unit for sales of 25,000 units of Finally
Firm after the sale of the first 10,000 units. The Royalty amount is reduced to
3% of sales for units sold thereafter. Royalty expense for the years ended May
31, 1995, 1994 and 1993, under the terms of this agreement, were $48,000,
$25,000 and $35,000, respectively. The royalty amount related to Finally Firm
products in 1996 was not material.
The domestic personal care business has historically been
highly seasonal, with the fall selling season being its strongest period. The
consent decree with FDA has resulted in a shift in focus to international
markets and internationally, the Company believes that its business is not
seasonal in any material respect.
Research and development expenditures were less than .5% of
consolidated net sales for each of the past three years.
The Selvac division has elected not to manufacture its
products directly. In the case of Finally Free and Finally Firm appliances, the
Company owns the molds from which the plastic parts are produced as well as some
of the production equipment and uses two primary vendors for the actual assembly
work. Neither of these vendors is under contract and numerous alternative
vendors are available to produce the Company's products. No unusual quality
control, production or delivery problems have been encountered with current
suppliers.
The sales order backlog of Selvac division, at any point in
time, is negligible. Orders are shipped from inventory as received and are based
upon purchase orders.
LIL Joint Venture
On December 19, 1995, Classy Lady executed a Joint Venture
Formation Agreement with Laser Industries ("LIL"), an Israeli corporation
engaged in the development and sale of lasers for medical purposes. Under the
terms of this agreement, Classy Lady and LIL formed a new corporation, Sharplan
2000 Inc. ("Sharplan"), owned 50% by Classy Lady and 50% by LIL but having a
majority of directors appointed by LIL. The purpose of the joint venture is to
obtain FDA approval for the marketing of the laser hair removal invention
covered by the Zaias Patent and to use its best efforts to develop, market and
sell products and services derived therefrom. Classy Lady agreed
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to contribute a sublicense of the Zaias License to Sharplan and agreed that it
will issue no more than one other sublicense of the Zaias License. In June 1996,
LIL announced that it had filed a 510(k) application with the FDA for clearance
to market through Sharplan the EpiTouch ruby laser in the United States for hair
removal.
Competition
Market
It is estimated that approximately 80 million women use
alternative methods of hair removal. The market may be divided into three
different hair removal categories based upon the length of time for reappearance
of hair. Short term methods may employ shaving, chemical depilation liquids and
creams, which are low cost but require frequent use. Moderate term methods, i.e.
plucking or waxing, may last several weeks but may cost more and be painful. The
most common method used for long term hair removal is electrolysis. This
technique requires a needle-like probe to be inserted into each individual hair
follicle to deliver an electrical pulse of energy. This can be a painful,
time-consuming and costly process whereby, for example, an upper lip may take
several hours costing several hundred dollars.
Re-treatments may be required as permanent hair removal may be
achieved in as few as 30% of disabled hair follicles after the first treatment.
Given this situation, electrolysis typically is limited to small body area
locations. Legs and mens' backs are relegated to other techniques.
The American Electrology Association estimates that in the
United States approximately one million people per year use electrolysis and
that the market generates approximately $1 billion annually. The Company
believes the market for removal of unwanted hair may substantially increase with
the introduction of a less painful, more efficient process for hair removal.
Laser Hair Removal
The Company is aware of at least two other companies in the
United States engaged in laser hair removal, Thermolase Corporation
("Thermolase") and Palomar Medical Technologies, Inc. ("Palomar"). Thermolase
has received 510(k) clearance from the FDA to market services using its laser
technologies. Thermolase has opened two spas and has announced its intention to
open a number of additional spas. Palomar has announced recently that it has
received 510(k) clearance for its EpiLaser technology for dermatological uses,
but not including use of the laser hair removal application, and the Company is
not aware of Palomar's current plans to commercialize its laser hair removal
technology.
Both Thermolase and Palomar are substantially larger than the
Company in terms of financial, marketing and research and development resources.
The Company believes, however, that its technology is superior to that of both
Thermolase and Palomar in terms of effectiveness, reduced pain and permanency.
The Company further believes it has extremely strong patent rights under the
Zaias Patent and the SLS patent pending which will substantially increase its
ability to compete with these companies.
-11-
<PAGE> 12
The Company's laser hair removal technology will also be
competitive with conventional hair removal providers such as electrolysis
providers and other temporary hair removal products such as waxes, creams and
depilatories.
Consumer Hair Removal
The Company's consumable multiple hair removal patch and
Finally Free tweezers will also compete with laser hair removal technologies and
conventional hair removal methods. The Company believes that its multiple hair
removal method, when commercially developed, will offer substantial advantages
in terms of ease of use and permanency to enable the Company to compete
effectively in the hair removal market. The Company believes that its consumer
multiple hair removal patch and Finally Free tweezer will complement and expand
the Company's share of the depilation market.
United States Government Regulation
As with any manufacturer of medical devices, the testing,
manufacture and sale of the Company's products are subject to regulation by
numerous governmental authorities, principally the U.S. Food and Drug
Administration (the "FDA") and corresponding state and foreign regulatory
agencies. Pursuant to the Federal Food, Drug and Cosmetic Act (the "FDCA"), and
the regulations promulgated thereunder, the FDA regulates the preclinical and
clinical testing, manufacture, labeling, distribution and promotion of medical
devices. Noncompliance with applicable requirements can result in, among other
things, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or premarket approval for devices, withdrawal of marketing
clearances or approvals, and criminal prosecution. The FDA also has the
authority to request recall, repair, replacement or refund of the cost of any
device manufactured or distributed by the Company.
In the United States, medical devices are classified into one
of three classes (i.e., class I, II, or III) on the basis of the controls deemed
necessary by the FDA to reasonably ensure their safety and effectiveness. Class
I devices are subject to general controls (e.g., labeling, premarket
notification and adherence to good manufacturing practices ("GMP"), and class II
devices are subject to general and special controls (e.g., performance
standards, postmarket surveillance, patient registries, and FDA guidelines).
Generally, class III devices are those which must receive premarket approval by
the FDA to ensure their safety and effectiveness (e.g., life-sustaining,
life-supporting and implantable devices, or new devices which have been found
not to be substantially equivalent to legally marketed devices).
Before a new device can be introduced in the market in the
United States, the manufacturer must generally obtain FDA clearance or approval
through either clearance of a notification filed under Section 510(k) of the
FDCA or approval of a premarket approval ("PMA") application. A PMA application
must be filed if a proposed device is not substantially equivalent to a legally
marketed class I or class II device, or if it is a class III device for which
the FDA has called for PMAs. A PMA application must be supported by valid
scientific evidence to demonstrate the safety and effectiveness of the device,
typically including the results of clinical trials, bench tests and laboratory
and animal studies. The PMA process can be expensive, uncertain and lengthy, and
a
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<PAGE> 13
number of devices for which FDA approval has been sought by other companies have
never been approved for marketing.
A 510(k) clearance will be granted if the submitted
information establishes that the proposed device is "substantially equivalent"
to a legally marketed class I or class II medical device or a class III medical
device for which the FDA has not called for PMAs. The FDA has recently required
more rigorous demonstration of substantial equivalence than it has done in the
past, including in some cases requiring submission of clinical data. For some
devices, the FDA may determine that the proposed device is not substantially
equivalent to a predicate device, or that additional information, i.e., more
scientific data, is needed before a substantial equivalence determination can be
made. It generally takes from four to 12 months from submission to obtain 510(k)
premarket clearance, but it may take longer. A "not substantially equivalent"
determination, or a request for additional information, could prevent or delay
the market introduction of new products that fall into this category.
Modifications or enhancements of devices that have been cleared through the
510(k) process that could significantly affect safety or effectiveness, or that
constitute a major change in the intended use of the device, will require new
510(k) submissions.
If human clinical trials of a device are required, whether for
a 510(k) submission or a PMA, and the device presents a "significant risk," the
sponsor of the trial (usually the manufacturer or the distributor of the device)
will be required to file an investigational device exemption ("IDE") application
prior to commencing human clinical trials. The IDE application assures the
safety and adequacy of the clinical trial and therefore must be supported by
data, typically including the results of animal and laboratory testing. If the
IDE application is approved by the FDA and one or more appropriate Institutional
Review Boards ("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs without the need for FDA approval. Submission of an IDE
application does not give assurance that the FDA will approve the IDE
application and, if it is approved, there can be no assurance that the FDA will
determine that the data derived from these studies support the safety and
efficacy of the device or warrant the continuation of clinical studies.
Manufacturers of medical devices for marketing in the United
States are required to adhere to applicable regulations setting forth detailed
Good Manufacturing Practices ("GMP") requirements, which include testing,
control and documentation requirements. They must register their facilities with
the FDA so that the agency can perform periodic inspections and quality audits.
Manufacturers must also comply with Medical Device Reporting ("MDR")
requirements that a firm report to the FDA any incident in which its product may
have caused or contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, whether it would be likely
to cause or contribute to a death or serious injury. Labeling and promotional
activities are subject to scrutiny by the FDA and, in certain circumstances, by
the Federal Trade Commission. Current FDA enforcement policy prohibits the
marketing of approved medical devices for unapproved uses.
In May 1996, the Company applied for 510(k) clearance for the
CHROMOS 694 depilation laser system distributed by SLS. The Company has been
advised by its FDA regulatory advisors that the laser hair removal technologies
licensed under the Zaias Patent and used by SLS employ the use of medical lasers
which are substantially equivalent to devices which have received
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<PAGE> 14
clearance for marketing by the FDA. The Company has noted that a similar 510(k)
filing by Thermolase Corporation received premarket clearance from the FDA on
April 3, 1995. As of July 1996, Palomar filed, but has not yet received
clearance of its 510(k) for ruby laser hair removal system. There can be no
assurance that premarket clearance for the Company will be granted on a timely
basis, if at all, from the FDA. The Company has been advised by its FDA
regulatory advisors that the SLS laser is substantially equivalent to the
Thermolase laser for its depilation ability and to other lasers for its
operating characteristics.
Since January 1990, the Company has been engaged in an ongoing
dispute with FDA regarding the marketing status of Finally Free for personal
(nonprofessional) use. On June 28, 1991, the United States District Court for
the Eastern District of Pennsylvania approved a settlement agreement between the
Company and the FDA. Pursuant to the settlement agreement, the Company denied
the allegations of the complaint but agreed, among other things, that the
Company would not manufacture, process, pack, label, promote, advertise,
distribute, or sell Finally Free unless and until it received marketing
authorization from FDA. On December 6, 1991, FDA requested that the Company
provide additional information for its 510(k) filing as part of the marketing
authorization process. New data was submitted to FDA in the 510(k) as part of
the marketing approval process. In February of 1992, Selvac received export
approval of Finally Free Hair Remover to Canada from FDA.
In July 1994, the FDA determined that Finally Free shall be
considered a class III device under the FDCA and accordingly, will require PMA
before it is sold, manufactured or distributed in the U.S. At the present time,
management has no intention to seek such approval. There can be no certainty
that if such actions were taken, they would be successful.
There can be no assurance that the Company will not incur
significant costs to comply with laws and regulations in the future or that laws
and regulations will not have a material adverse effect upon the Company's
business, financial condition or results of operations.
European Community Regulation
Sales of the Company's products in Europe are subject to
voluntary standards and regulations, including directives adopted by the
European Community. A key voluntary standard provides, among other things, that
the Company comply by 1998 with International Standard ISO 9001 (European
Standard EN 29001) entitled "Model for Quality Assurance in Design, Development,
Production, Installation and Servicing." SLS has retained an ISO 9001 expert
consultant and expects to meet all standards by December 1996.
In addition, since January 1, 1996, in order to receive
Community European Marking ("CE Marking"), laser manufacturers must comply with
the Electro Magnetic Compatibility ("EMC") standards. All of the Company's
current products meet the EMC standards, and thus have been cleared for CE
Marking.
Commencing in June, 1998, laser manufacturers who market their
products in the European Community will be required to comply with the Medical
Devices Directive ("MDD"). The Company expects to meet the requirements of the
MDD by early 1997.
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<PAGE> 15
Regulatory approval to market the electronic components
employed by the Classy Lady hair removal system licensed from Thomas L. Mehl Sr.
was granted in September 1993 by the German Verband Deutscher Electrotechniker
("VDE") which enables such products to be marketed and sold in the European
Community. The Company believes that no further VDE or other regulatory
approvals are required in the European Community to market the Classy Lady
tweezers, comb or patch products which are used with such electronic components.
Accordingly, the Company believes it can currently market its multiple hair
removal products in the European Community under its existing VDE license.
Discontinued Operations
Prior to fiscal 1995, the Company's subsidiary, Video Knights, Inc., owned
and operated several retail home entertainment centers which rented and sold
videotapes, laser disks, video games and audio books in the Mid-Atlantic
region. Effective on May 31, 1994, substantially all of the assets of Video
Knights, Inc. were sold and its business discontinued.
Employee
As of August 25, 1996, the Company had 32 employees, including 18 employees
at SLS, 12 employees in the Gainesville, Florida office and two in the Selvac
division in Marlboro, Massachusetts.
Item 2. Description of Property
The Company's principal executive and administrative offices
are located in Gainesville, Florida, where the Company leases an approximately
2,500 square foot facility.
The SLS facility operates a 10,000 square foot factory and
offices in Llanelli, Wales which premises are leased from the Welsh Development
Agency. The Company is currently investigating the acquisition of additional
space for its Welsh facility to increase its laser manufacturing capacity.
The Selvac division currently operates out of a 2,500 square
foot leased facility in Marlboro, Massachusetts.
The Company believes its current facilities are in good
operating condition and repair.
Item 3. Legal Proceedings
The Company holds an exclusive license with Thomas L. Mehl,
Sr. for certain enumerated patents as well as Mehl's new inventions in the hair
removal field. See Item 1. "Business - Selvac Division." A dispute arose as to
the Company's compliance with the terms of that license and as to the
termination of the license. On March 20, 1991, the Company filed a complaint in
the Federal District Court in Massachusetts (Civil Action No. 91-10868-Z)
against Mr. Mehl. After consummation of the Merger, each of Mehl and the Company
entered into a full settlement and release on June 14, 1996 with respect to the
litigation and will dismiss all claims against each other. Neither party was or
will be paid any money or other consideration from the other in connection with
such settlement and release.
PART II
Item 4. Submission of Matters to Vote of Securities Holders:
On June 4, 1996, the Company held a Special Meeting of
Stockholders in connection with the merger with Classy Lady by Mehl of Puerto
Rico, Inc. See "Business - Merger with Classy Lady." The purpose of the meeting
was (1) to authorize the change of the Company's name to MEHL/Biophile
International Corporation, effective upon completion of the Merger and (2) to
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<PAGE> 16
authorize an increase in the number of shares of common stock to 60 million
shares in order to enable the Company to complete the merger.
Regarding the proposal to amend the Company's name, there were
9,114,759 shares voted in favor, 41,335 against and 124,655 abstaining.
Regarding the proposal to increase the number of shares of
authorized Common Stock to 60 million shares, there were 9,103,944 shares voted
in favor, 52,100 against and 124,685 abstaining.
Item 5. Market For the Common Equity And Related Stockholder Matters:
The Company's Common Stock and warrants have been traded
over-the-counter since December 6, 1983 and are currently listed for quotation
on the Small Cap Market of the Nasdaq Stock Market, Inc. under the symbols MEHL
and MEHLW, and their bid prices are reported by the Nasdaq Stock Market Inc.'s
Small Cap Market.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS*
PERIOD HIGH LOW HIGH LOW
------ ---- --- ---- ---
<S> <C> <C> <C> <C>
Year Ended May 31, 1996
Quarter ended May 31, 1996 10 2 1/8 7 3/4 1 1/4
Quarter ended February 29, 1996 2 7/8 1 3/16 1 7/16 5/8
Quarter ended November 30, 1995 1 15/16 3/16
Quarter ended August 31, 1995 7/32 3/16
Year Ended May 31, 1995
Quarter ended May 31, 1995 1/4 3/16
Quarter ended February 28, 1995 9/32 1/4
Quarter ended November 30, 1994 9/32 1/4
Quarter ended August 30, 1994 9/32 1/4
</TABLE>
* Due to the decline of the market value of the common stock, there
were no available quoted bid prices for periods prior to the quarter
ending February 29, 1996, based upon the assumption that warrants will
not be exercised or purchased for the periods presented.
The source for the price quotes of the Common Stock is as
reported by the National Association of Securities Dealers and does not include
retail markups, markdowns, commissions or other adjustments and does not
represent actual transactions.
As of August 21, 1996, there were approximately 4,500 holders
of the Registrant's common shares.
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<PAGE> 17
The Registrant has never paid any common stock cash dividends,
and no common stock dividends are anticipated at the present time.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Sales for fiscal 1996 decreased $393,000 or 14% as compared to
the previous year. This was due to a decrease in sales volume resulting from
lower orders of Finally Free products, primarily in Canada, along with price
reductions necessitated by increased competition.
Gross margin for fiscal 1995 as a percentage of sales
decreased by less than .5% from 1994. Current year sales included a greater
percentage to markets where the Company has less favorable pricing arrangements.
Additionally, 1996 revenues included approximately $43,000 of promotional sales
of Finally Firm products sold at little or no margin. The effect of these
factors was offset by improved vendor pricing and warehousing efficiency.
The Company continues to be dependent on the sales of one
product, Finally Free, which accounted for 97% of 1996 sales. As a result of a
settlement with the U.S. Food and Drug Administration, sales of Finally Free
have been restricted to foreign markets. Accordingly, expiration of the
Company's US Finally Free patents in 1996 is not expected to have a significant
impact on future operations. With further price decreases and reduced foreign
sales volume for Finally Free anticipated in future periods, the Company has
been active in its efforts towards diversification of both its product and
markets.
Product and market diversification in the personal hair
removal market was accomplished in June 1996, when a subsidiary of the Company
merged with Classy Lady by Mehl of Puerto Rico, Inc. ("Classy Lady") and the
Company purchased approximately 81% of the voting stock of SLS (Wales) Limited
("SLS").
Classy Lady owns exclusive license rights to certain multiple
hair removal and laser hair removal technologies for which, U.S. and various
foreign patents have been obtained or are pending. SLS holds patents pending for
laser hair removal technologies compatible with those licensed to Classy Lady.
Additionally, SLS develops, manufactures and sells lasers primarily for use in
the field of hair removal. Intentions are to expand the operations of Classy
Lady and SLS and to further exploit their intellectual property rights through
the establishment of licensing arrangements.
During the current fiscal year, the Company began marketing
efforts for Raywatch, a wrist or clip-on watch that contains features which
assist its wearer in measuring and monitoring exposure to ultraviolet light. The
Company is presently a non-exclusive, U.S. retail distributor for this product.
Negotiations will be considered for expanded distribution arrangements and
markets based on evaluation of initial results. Costs related to the initial
marketing of this product through May 31, 1996 were approximately $75,000.
Raywatch sales to date have not been significant. The Company is currently
investigating marketing strategies to expand distribution of the Raywatch.
Initial indications are that the effort to introduce the
Company's Finally Firm product on a test market basis in Taiwan will not be
successful. Included in the 1996 charge for inventory write downs is $151,000
for write down of inventory related to the Company's Finally Firm products.
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<PAGE> 18
Selling, general and administrative expenses for fiscal 1996
increased by $500,000 as compared to the previous year. Increased depreciation
and amortization costs as a result of changes in the estimated useful lives of
certain intangible assets and equipment and the aforementioned marketing costs
related to the Raywatch product contributed to the increase. In addition, legal,
accounting and other professional fees for 1996 increased by $175,000. These
increases were primarily attributed to costs related to the Classy Lady and SLS
acquisitions. Bad debt expense for 1996, was approximately $124,000 higher than
for the prior year, resulting primarily from a reassessment of the
collectability of accounts receivable balances from the Company's Australian
and Spanish distributors.
In January 1996, the Company received $172,000 in insurance
proceeds in connection with the theft of certain inventory being carried at
$99,000. The amount by which the insurance proceeds exceed the carrying basis,
has been reflected as other income for the year ended May 31, 1996.
No provision for income tax recovery has been provided for
1996, due to the uncertainty concerning the Company's ability to utilize the
future tax benefits of net operating losses generated during this period. For
1995, the Company's provision for income taxes was offset by a reduction in the
Company's deferred tax asset valuation allowance of $98,000 resulting from
utilization of net operating loss carryforwards.
The Company expects that the future direction of the Company
will be dependent upon its ability to enter into licensing arrangements for the
laser hair removal technologies owned by SLS and licensed by Classy Lady and to
commercialize successfully the consumable multiple hair removal patch licensed
under the Mehl Patent.
Liquidity and Capital Resources:
Debt and Equity Offerings
During the last quarter of the current fiscal year the Company
completed private placements of $3,000,000 convertible debentures with interest
at 8% and 10,000 shares of 5% Cumulative Convertible Series C Preferred Stock
("Series C Preferred Stock") with a stated value of $10,000 per share at an
aggregate purchase price of $10,000,000. Costs related to these placements were
approximately $230,000 in cash and 162,000 shares of the Company's common stock.
As of July 31, 1996, all of the holders of convertible debentures had exercised
their right to convert and the Company issued 615,042 shares of its common stock
and retired the debt and related accrued interest.
Management intends to apply a significant portion of the funds
from these offerings towards the acquisition of Classy Lady and SLS (Wales) and
to provide working capital for future expansion of the operations of these
entities.
Other Liquidity Matters
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<PAGE> 19
For the 1996 fiscal year, the Company's cash balance increased
$9.2 million, primarily resulting from funds generated by the aforementioned
private equity and debt placements. Additionally, funds were provided by
operations, the exercise of warrants and stock options, and note payments
received from CDF Acquisition Corp. ("CDF"). These resources were used to
advance funds to Classy Lady and SLS in anticipation of the pending
acquisitions.
In June 1995, the Company had renegotiated the repayment terms
of its note receivable from CDF. Under the terms of the original agreement, the
entire principal plus accrued interest, at the prime rate, was payable in May
1996. Under the terms of the new agreement, in June 1995, the Company received
$112,500 in cash and 200,000 shares of its own common stock valued at $37,500 as
payment towards the CDF note receivable. In December 1995, the Company received
an additional payment of $59,000 ($50,000 principal and $9,000 interest). The
remaining principal and accrued interest balances are to be paid on an
installment basis through June 1998. Interest on the unpaid principal balance is
at 9% through June 1996 and 7% thereafter.
In July 1995, Roadrunner Video Enterprises, Inc. was acquired
by Roadrunner Video Group, Inc. (collectively referred to as "Roadrunner"),
formerly known as Business Data Group, a publicly traded entity. In satisfaction
of Roadrunner's $750,000 note payable to the Company, Roadrunner issued 75,000
shares of $10 par value, 12% preferred stock to the Company. Each share of
preferred stock is convertible into 10 shares of Roadrunner common stock through
June 2000.
Although the preferred stock is a restricted security (not
registered for public trading) Roadrunner is obligated to register, for public
sale, a sufficient number of common shares to satisfy conversion rights attached
to the preferred shares. Management of Roadrunner originally anticipated the
completion of such registration by the second quarter of calendar year 1996.
Such registration is now anticipated in the fall of 1996. When and if the
registration has been completed, intentions are to evaluate the merit of
retaining all or part of the preferred stock.
In December 1995, the Company agreed to accept 24,368 shares
of Roadrunner restricted common stock in payment of $41,000 preferred stock
dividends. The Company also received registration rights with this stock and
anticipates that it too will be registered for public sale by the fall of
calendar year 1996.
In December 1995, the Company filed a post-effective amendment
to Form S-1 with the Securities and Exchange Commission, to register for public
sale, 881,218 shares of its common stock, issuable at $1.25 per share, upon the
exercise of outstanding common stock purchase warrants.
As of May 31, 1996, the Company had issued 509,572 shares of
common stock upon the exercise of stock purchase warrants. In addition, in
September 1995, the Company issued 75,000 shares of its common stock at $.41 per
share upon the exercise of nonqualified stock options. Proceeds from the
issuance of common stock pertaining to the warrants and stock options, net of
costs related to the aforementioned registration, were $664,000. There can be no
assurance that all or any of the remaining warrant holders will exercise their
rights under the warrants.
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<PAGE> 20
Capital Acquisitions
With the Company's present dependency on sales of one product
in limited markets, efforts had been taken to pursue investment opportunities to
enable the Company to expand and diversify its market. In this regard, on June
4, 1996 Classy Lady by Mehl of Puerto Rico, Inc., a privately-held Puerto Rico
Company ("Classy Lady"), merged with and into a wholly-owned subsidiary of the
Company (the "Merger"). Classy Lady is a development stage company and was
formed to exploit the hair removal technologies patented by two of its
principals. In consideration for the Merger, the Company issued an aggregate of
25,000,000 shares of Common Stock, $.01 par value per share, to the shareholders
of Classy Lady.
Concurrent with the Classy Lady merger, the Company's
shareholders approved an increase in the number of $.01 par value common shares
authorized to be issued from 20 million to 60 million shares.
Additionally, on June 4, 1996, the Company completed the
purchase of capital stock representing in the aggregate of 81% interest in SLS
(Wales) Limited, a privately held Welsh company ("SLS") engaged in developing,
manufacturing and selling lasers primarily in the field of hair removal. The
consideration for the acquisition of the SLS shares consisted of a cash payment
of 1,255,000 pounds sterling (approximately $1.9 million) and the issuance of
25,044 shares of the Registrant's Common Stock.
Advances to Classy Lady and SLS at May 31, 1996 were $850,000
and $3,200,000, respectively. In part, the SLS advance was applied towards the
required cash payment in the business acquisition and the balance was used to
retire SLS debt and for working capital.
The Company anticipates that it will apply a significant
portion of the proceeds from the sale of the Series C Preferred Stock, funds
derived from operations and from the exercise of warrants to develop and market
products exploiting the SLS and Classy Lady technologies. The Company
anticipates that it will require additional funds to complete its business plan
and is currently investigating the feasibility of private and public offerings
of equity and debt.
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<PAGE> 21
Item 7. Consolidated Financial Statements
and Independent Auditors' Report
YEAR ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORTS F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in
Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
Item 8. Changes in and Disagreements with Accounts on
Accounting and Financial Disclosure
Not Applicable
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<PAGE> 22
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act:
<TABLE>
<CAPTION>
Name Age Since Position with the Company
- ---- --- ----- -------------------------
<S> <C> <C> <C>
Thomas L. Mehl, Sr. 58 1996 Chairman of the Board, President and
Chief Executive Officer
Nardo Zaias 64 1996 Director
Allan Borkowski 55 1982 Vice Chairman of the Board
AnnMarie Mehl 54 1996 Director and Secretary
Pichit Suvanprakorn 54 1996 Director
Antonius H. Clemens 67 1996 Director
Robert Marc Clement 42 1996 Managing Director of SLS and Director
Paul W. Hartloff, Jr. 63 1989 Director
</TABLE>
Each director is elected for a period of one year at the
Company's annual meeting of stockholders and serves until his or her successor
is duly elected by the stockholders. Officers are elected by, and serve at the
discretion of the Board of Directors. No director receives any compensation for
services as a director other than reimbursement of expenses for attendance of
meetings of the Board.
Thomas L. Mehl, Sr. and AnnMarie Mehl are husband and wife.
The background of each director and executive officer is as
follows:
Thomas L. Mehl, Sr. has been a successful inventor and
entrepreneur in the health and beauty field for the past thirty years. From
January 1991 to the present, Mr. Mehl has been working on filing for new patents
in the United States and abroad for several inventions in the health and beauty
field. In the field of hair depilation for the consumer, Mr. Mehl was granted
three patents which have been licensed exclusively to Classy Lady and has
additional patent applications in the field of hair depilation pending.
From March 1991 to 1993, Mr. Mehl was the principal of His or
Her Products by Mehl, Inc., a private Florida corporation started by Mr. Mehl to
assist him in the research and development of his new technology in the skincare
field. From January 1992 to 1994, Mr. Mehl was the principal of Classy Lady by
Mehl, Inc., a private Florida corporation started by Mr. Mehl to assist him in
the research and development of his consumer hair removal technology. From
February 1993 to the present, Mr. Mehl has been President and Chairman of M.C.M.
Group, Inc., a private Florida corporation, which works primarily with inventors
and entrepreneurs in the area of marketing, consulting and manufacturing
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<PAGE> 23
of new technology and products. From November 1993 to the present, Mr. Mehl has
been President and Chairman of His or Her Products by Mehl of Puerto Rico, Inc.,
a private Puerto Rico corporation, which has developed and is marketing a
hand-held steam facial product.
Nardo Zaias, M.D. is a well-known dermatologist specializing
in diseases of the skin and skin cancer. From 1991 to the present, Dr. Zaias has
maintained a private medical practice at the Greater Miami Skin & Laser Center
located in Miami Beach, Florida. Dr. Zaias has published over fifty research
papers to his credit including his report on "Hair Root Damage with Mehl Method
of Depilation" and has served on three FDA Advisory Committees. Dr. Zaias is
also the inventor of a patented laser hair depilation invention, United States
Patent No. 5,059,192 issued on October 11, 1991, which was licensed exclusively
to Classy Lady.
AnnMarie Mehl is wife of Thomas L. Mehl, Sr. and has twenty
years of experience in both the professional and consumer hair depilation fields
working with Mr. Mehl's patented hair removal method and products. Mrs. Mehl
worked with Mr. Mehl in their chain of beauty salons located within Britts
Department Stores from 1965-1974, served from 1977 to 1981 as an officer of
NU-Trolysis Inc. which originally manufactured and marketed Mr. Mehl's original
professional hair removal products, and served from 1983 to 1985 as an officer
of Mehl International, Inc. which developed the permanent hair removal device.
From 1991 to 1994, Mrs. Mehl worked closely with both Mr. Mehl and Dr. Zaias in
testing the new consumer hair removal products. From 1994 to the present, Mrs.
Mehl has continued her ongoing product testing with Mr. Mehl and Dr. Zaias on
behalf of Classy Lady.
Robert Marc Clement, Ph.D., is a laser physicist and the
inventor of the CHROMOS 694 laser depilation system manufactured by SLS in
Llanelli, Wales. From 1986 to June 4, 1996, Professor Clement served as the
Technical Director of SLS. On June 4, 1996, Professor Clement became Managing
Director of SLS. Professor Clement has been the Dean of Faculty at the Swansea
Institute of Higher Education ("Swansea Institute") located in Swansea, Wales
since 1988. As the Dean of Faculty of the Swansea Institute, Professor Clement
helped secure the financing to establish the Product Development Centre ("PDC")
in 1994 within the Institute to supply industry with high quality manufacturing
and services to support the growth of existing companies and the development of
new ones. Through Professor Clement's efforts, the PDC has been supported
financially by the Welsh Development Agency and the Welsh Office. Clement has
received numerous awards for innovation and has distinguished himself as a
leader in laser based technology both in the United Kingdom and abroad.
Allan Borkowski served as Chairman of the Company from its
inception through June 4, 1996 and Chief Financial Officer since July 1989. He
was Chief Executive Officer of the Company from its inception until July 1992.
Since June 1982, he has been Chairman and Chief Executive Officer of Optivest
Technologies Corp.
Pichit Suvanprakorn is the President of Biophile Corporation,
a manufacturing and medical service company in Bangkok, Thailand. Biophile owns
and operates hospitals, dermatological clinics and a pharmaceutical company and
has extensive real estate holdings and development activities.
Paul W. Hartloff, Jr., an attorney, served as Secretary of the
Company from 1993 through June 1996. Until June 1996, for more than the past
five years, he has been engaged in the full time practice of law as a senior
partner of the law firm of Schramm Raddue and since June 1996 has been
-23-
<PAGE> 24
a senior partner of the law firm of Jarvis, Hartloff & Simon, LLP. Mr. Hartloff
is a director of the Circon Corporation.
Antonius H. (Tom) Clemens is an inventor, engineer and
healthcare marketing specialist who has worked in inventing, research and
development and marketing for several multi-national organizations including
Miles Laboratories (26 years), Seimens A.G. and Phillips N.V. From 1991 to the
present, Mr. Clemens has worked as an independent consultant in providing
engineering and marketing services of high quality consumer appliances and
medical devices. Mr. Clemens holds patents on DNA Hybridization, Histology
Systems, Nucleic Acid Probes, and Artificial Pancreas. Mr. Clemens is also the
coinventor of the Catheter Sharp Retraction System and Needle Retraction System.
From 1992 to present, Mr. Clemens has also worked as a consultant for His or Her
Products by Mehl of Puerto, Rico on Mr. Mehl's consumer steam facial machine.
From 1993 to June 4, 1996, Mr. Clemens worked as a consultant for Classy Lady by
Mehl of Puerto Rico, Inc. on Mr. Mehl's patented consumer hair removal
inventions.
The Company has established an Executive Committee consisting
of Messrs. Mehl, Borkowski and Dr. Zaias. The Executive Committee has all of the
powers of the Board of Directors, except as limited by applicable law.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the executive officers and directors of the Company and persons who own more
than ten percent of the Company's Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Such executive
officers, directors and greater than ten-percent stockholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished
to the Company and other information which has been made available to the
Company, the Company believes that during the year ended May 31, 1996, all
Section 16(a) filing requirements applicable to the executive officers and
directors of the Company and greater than ten-percent beneficial owners were
complied with.
Item 10. Executive Compensation:
James L. Leonard, who served as Chief Executive Officer and a
director of the Company until June 4, 1996 received compensation payments of
$75,000 for the fiscal year ended May 31, 1996, constituting his sole
compensation from the Company. No executive officer of the Company received a
total salary and bonus in excess of $100,000 in the fiscal year ended May 31,
1996.
Item 11. Security Ownership of Certain Beneficial Owners and Management:
The following table sets forth, as of August 21, 1996, the
number of shares of the Company's Common Stock owned by each director, by all
directors and officers as a group, and by any persons (including any "group" as
used in Section 13(d)(3) of the Securities Exchange Act of 1934), known by the
Company to own beneficially 5% or more of the outstanding Common Stock. Except
as
-24-
<PAGE> 25
otherwise indicated, the stockholders listed in the table below have sole voting
and investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage
of Beneficial Owner Beneficially Owned of Class
- ------------------- ------------------ ----------
<S> <C> <C>
Thomas L. Mehl, Sr. 9,197,000 22.39%
and AnnMarie Mehl
4020 Member of Road
Gainesville, Florida 32607
Nardo Zaias
Mount Sinai Hospital 9,197,000 22.39%
4302 Alton Road
Miami Beach, Florida 33140
Pichit Suvanprakorn 4,275,000 10.41%
Biophile Corporation
888/41-48 Mahatun Road
Ploenchit Road
Bangkok 10330, Thailand
Allan Borkowski 939,151(1) 2.29%
One Horizon Road
Fort Lee, New Jersey
Robert Marc Clement 25,044 *
11 Plas Road
Phos, Pontardawe
Swansea, Wales
Antonius H. Clemens 245,000 *
584 Schumann Drive
Madison, WI 53711
</TABLE>
- --------
(1) Includes 107,000 shares held by members of Mr. Borkowski's family, of
which Mr. Borkowski disclaims beneficial ownership. Does not include
650,000 shares held by Optivest Technologies Corporation, a corporation
of which Mr. Borkowski is Chairman and Chief Executive Officer.
* less than 1%.
-25-
<PAGE> 26
<TABLE>
<S> <C> <C>
Paul W. Hartloff, Jr. 147,000(2) *
15 West Carrillo Street
Santa Barbara, CA 93102
All officers and directors
as a group (eight persons)
(1) (2) (3) 24,025,195 58.48%
</TABLE>
* Less than 1%
Item 12. Certain Relationships and Related Transactions:
In consideration for the grant of the MEHL License, Classy
Lady agreed to pay Thomas L. Mehl, Sr. a royalty of 5% of the wholesale price of
all products covered by the above patents sold by Classy Lady or its
distributors worldwide. See Item 1. "Business-Mehl License". Under the Mehl
License, Classy Lady agreed to pay Mehl a minimum annual royalty of $50,000. 10%
of all royalty payments are to be made to Classy Lady's patent law firm of
Schlesinger, Arkwright & Garvey ("SA&G") until the aggregate of such payment to
SA&G reaches $1 million.
In consideration for granting the Zaias License, Classy Lady
agreed to issue to Dr. Zaias 5,000 shares of Classy Lady Common Stock, pay to
Dr. Zaias $100,000 and pay to Dr. Zaias a royalty of 5% on all revenues derived
by Classy Lady in connection with the laser hair removal invention covered
by the above patent. See Item 1. "Business-Zaias License". Classy Lady also
agreed to pay to Dr. Zaias a minimum royalty of $50,000 per year.
Mr. Mehl and Dr. Zaias have each agreed to share with the
other a portion of the royalty revenues derived from the License Agreements
described above. Accordingly, 25% of all payments to be made to Mr. Mehl under
his license agreement are to be paid to Dr. Zaias until such time as Dr. Zaias
notifies Classy Lady that Mehl is no longer obligated to make such payments, and
50% of all royalty payments due to Dr. Zaias are to be paid to Mr. Mehl.
Under the terms of the joint venture with LIL, Sharplan will
pay to Dr. Zaias, a royalty payment of 1.5% of the net sales derived from the
retail sale of products based on applications of the Zaias Patent. Under the
agreement, LIL agreed to advance to Dr. Nardo Zaias the sum of $100,000. Such
amounts are to be treated as a shareholder advance, bearing interest at the rate
of 5.65% per year and are to be repaid upon consummation of a private placement
or public offering or such earlier time as Sharplan shall have sufficient
capital to repay such advance or advances. See Item 1. "Business - Joint
Venture."
- --------
(2) Includes 32,000 shares held by a trust in which Mr. Hartloff has voting
power but no other beneficial interest.
-26-
<PAGE> 27
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1 Articles of Incorporation, as
amended.
Exhibit 3.2 By-laws, as amended.
Exhibit 4 Common Stock Purchase Warrants
(incorporated by Reference to
Registration Statement on Form S-1
dated August 26, 1983).
Exhibit 10.1 Second Amended and Restated
Agreement and Plan of Merger with
Classy Lady by Mehl of Puerto
Rico, Inc. dated June 4, 1996
(incorporated by reference to
Current Report on Form 8-K dated
June 4, 1996).
Exhibit 10.2 Sale and Purchase Agreement
dated June 4, 1996 by and among B.
Mair and others, and Selvac
Corporation (incorporated by
reference to Current Report on
Form 8-K dated June 4, 1996).
Exhibit 10.3 Sale and Purchase Agreement
dated June 4, 1996 by and among
Robert Marc Clement and Selvac
Corporation (incorporated by
reference to Current Report on
Form 8-K dated June 4, 1996).
Exhibit 10.4 Amended Exclusive License
Agreement for Patented Laser Hair
Removal dated December 5, 1995 by
and between Classy Lady by Mehl of
Puerto Rico, Inc. and Nardo Zaias,
M.D.
Exhibit 10.5 Exclusive License Agreement
for Patented Consumer Hair Removal
Products dated December 5, 1995 by
and between Classy Lady by Mehl of
Puerto Rico, Inc. and Thomas L.
Mehl, Sr.
Exhibit 10.6 Joint Venture Formation Agreement
between Laser Industries Limited
and Classy Lady by Mehl of Puerto
Rico, Inc. dated as of December
19, 1995.
Exhibit 10.7 Securities Purchase Agreement
with GFL Performance Fund Ltd.
dated May 15, 1996 (incorporated
by reference to Registration
Statement on Form S-3 dated July
1, 1996).
Exhibit 10.8 Registration Rights Agreement
with GFL Performance Fund Ltd.
dated May 15, 1996 (incorporated
by reference to Registration
Statement on Form S-3 dated July
1, 1996.)
Exhibit 11 Computation of Net Income (Loss) Per
Share.
Exhibit 21 Subsidiaries of the Registrant.
Exhibit 27 Financial Data Schedule.
-27-
<PAGE> 28
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last
quarter of the period covered by this report.
-28-
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on August 27, 1996.
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(Registrant)
/s/ Thomas L. Mehl, Sr.
By:---------------------------------
Thomas L. Mehl, Sr., Chairman of
the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature and Title Date
<S> <C>
/s/ Thomas L. Mehl, Sr.
- -------------------------------- August 27, 1996
Thomas L. Mehl, Sr.
Chairman of the Board,
President and Chief Executive
Officer
/s/ AnnMarie Mehl
- -------------------------------- August 27, 1996
AnnMarie Mehl
Director
/s/ Nardo Zaias
- -------------------------------- August 27, 1996
Nardo Zaias
Director
- -------------------------------- August __, 1996
Pichit Suvanprakorn
Director
</TABLE>
-29-
<PAGE> 30
<TABLE>
<S> <C>
/s/ Allan Borkowski
- ------------------------------- August 27, 1996
Allan Borkowski
Vice Chairman of the Board,
(Principal Financial and
Accounting Officer)
/s/ Marc Clement
- ------------------------------- August 27, 1996
Marc Clement
Director
/s/ Tom Clemens
- ------------------------------- August 27, 1996
Tom Clemens
Director
/s/ Paul W. Hartloff, Jr.
- ------------------------------- August 27, 1996
Paul W. Hartloff, Jr.
Director
</TABLE>
-30-
<PAGE> 31
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors
of MEHL/Biophile International Corporation:
We have audited the accompanying consolidated balance sheet of MEHL/Biophile
International Corporation and subsidiary as of May 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows, for each of the years in the two year period ended May 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Companies as of May 31, 1996,
and results of their operations and their cash flows for each of the years in
the two year period ended May 31, 1996, in conformity with generally accepted
accounting principles.
BOND, ANDIOLA & COMPANY
Raritan, New Jersey
July 11, 1996
F-1
<PAGE> 32
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MAY 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and equivalents $ 9,838,998
Accounts receivable, net of allowance for doubtful accounts of $343,416 484,182
Inventories 387,700
Marketable securities, held to maturity 477,690
Current portion of Note receivable, CDF Acquisition Corp. 105,625
Other current assets 55,660
-----------
Total current assets 11,349,855
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $741,470 5,928
PATENTS AND PATENT RIGHTS, net of accumulated amortization of $865,756 95,399
NOTES AND LOANS RECEIVABLE, net of current portion:
CDF Acquisition Corp. 147,948
Classy Lady by Mehl of Puerto Rico, Inc. 860,491
Loans and advances, SLS (Wales) Limited 3,200,000
OTHER ASSETS
Investment in non-marketable securities 750,000
Marketable securities, available for sale 38,975
-----------
$16,448,596
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 208,376
Accrued expenses 112,396
Other current liabilities 9,900
-----------
Total current liabilities 330,672
-----------
CONVERTIBLE DEBENTURES 750,000
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Serial Preferred Stock, $10.00 par value, 200,000 shares authorized:
5% cumulative convertible preferred stock, Series C, $1,000 stated value,
10,000 shares, issued and outstanding 10,000,000
Common stock, $.01 par value, authorized-20,000,000 shares:
Issued shares-18,132,516 181,325
Additional paid-in capital 12,054,929
Accumulated deficit (5,909,579)
Unrealized loss - marketable securities (3,152)
-----------
16,323,523
Treasury stock, at cost, 2,474,959 common shares (955,599)
-----------
Total stockholders' equity 15,367,924
-----------
$16,448,596
===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 33
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
---- ----
<S> <C> <C>
REVENUES $ 2,351,945 $ 2,744,620
COST OF SALES 1,330,726 1,562,898
----------- -----------
GROSS MARGIN 1,021,219 1,181,722
----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 1,586,300 1,087,462
Loss on sale of property and equipment 0 20,361
Charge for inventory write down 186,675 0
Loss on sale of marketable securities 0 7,822
----------- -----------
1,772,975 1,115,645
----------- -----------
(751,756) 66,077
OTHER INCOME (EXPENSES):
Investment income 120,700 126,537
Other income 72,728 0
Interest expense (32,544) 0
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (590,872) 192,614
PROVISION FOR INCOME TAXES 0 48,386
----------- -----------
NET INCOME (LOSS) $ (590,872) $ 144,228
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ (.05) $ .01
=========== ===========
INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (635,705) $ 86,028
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 34
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ADDITIONAL
PREFERRED STOCK STOCK ISSUED PAID-IN
----------------------- ------------------ ---------
SERIES A 1985 SERIES SERIES C SHARES AMOUNT CAPITAL
-------- ----------- -------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED MAY 31, 1995
Balance, May 31, 1994 $ 240,000 $ 245,000 $ 0 16,256,485 $162,565 $ 8,813,998
Cash dividends on preferred stock:
Purchase of treasury stock
Net income
--------- --------- ----------- ---------- -------- -----------
Balance, end of year 240,000 245,000 0 16,256,485 162,565 8,813,998
YEAR ENDED MAY 31, 1996
Cash dividends on preferred stock
Treasury stock acquisitions
Common stock issued:
Conversion of preferred stock (240,000) (245,000) 776,000 7,760 477,240
Exercise of warrants and options 584,572 5,846 657,869
Conversion of debt 353,459 3,534 2,148,442
Debt acquisition costs 90,000 900 188,100
Private placement of preferred stock 10,000,000 72,000 720 (230,720)
Unrealized loss on marketable securities
Net loss
--------- --------- ----------- ---------- -------- -----------
Balance, end of year $ 0 $ 0 $10,000,000 18,132,516 $181,325 $12,054,929
========= ========= =========== ========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
TREASURY LOSS ON
ACCUMULATED STOCK MARKETABLE
DEFICIT AT COST SECURITIES
----------- -------- ----------
<S> <C> <C> <C>
YEAR ENDED MAY 31, 1995
Balance, May 31, 1994 $(5,380,735) $(687,218) $ 0
Cash dividends on preferred stock: (58,200)
Purchase of treasury stock (228,580)
Net income 144,228
----------- --------- -------
Balance, end of year (5,294,707) (915,798) 0
YEAR ENDED MAY 31, 1996
Cash dividends on preferred stock (24,000)
Treasury stock acquisitions (39,801)
Common stock issued:
Conversion of preferred stock
Exercise of warrants and options
Conversion of debt
Debt acquisition costs
Private placement of preferred stock
Unrealized loss on marketable securities (3,152)
Net loss (590,872)
----------- --------- -------
Balance, end of year $(5,909,579) $(955,599) $(3,152)
=========== ========= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 35
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (590,872) $ 144,228
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss on sale of property and equipment 0 20,361
Loss on sale of available for sale marketable securities 0 7,822
Depreciation and amortization 308,045 172,104
Deferred taxes 0 48,386
Changes for inventory write downs 186,675 0
Provision for bad debts 258,588 163,660
Marketable securities received in payment of preferred
stock dividends and accounts receivable (42,127) 0
Interest paid with issuance of common stock 24,160 0
Changes in operating assets and liabilities:
Accounts receivable (111,173) 123,362
Inventories (38,420) (103,904)
Other operating assets (8,959) 50,448
Accounts payable 124,155 (365,882)
Accrued expenses 23,583 (88,430)
Other operating liabilities 350 2,400
------------ ------------
Net cash provided by operating activities 134,005 174,555
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held to maturity marketable securities (473,951) 0
Increase in notes and loans receivable (4,050,000) 0
Proceeds from sale of discontinued operations 0 350,000
Proceeds from sale of property and equipment 0 6,900
Proceeds from sale of available for sale marketable securities 0 29,256
Property and equipment acquisitions (579) (11,856)
Notes receivable repayments 171,500 319,300
------------ ------------
Net cash provided (used) by investing activities (4,353,030) 693,600
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of:
Convertible debentures 3,000,000 0
Series C Preferred stock, net of issuance costs 9,800,000 0
Common stock, net of issuance costs 663,715 0
Note repayment 0 (140,000)
Preferred stock dividends paid (36,900) (58,200)
Treasury stock acquisitions (2,301) (228,580)
------------ ------------
Net cash (provided) by financing activities 13,424,514 (426,780)
------------ ------------
CASH USED BY DISCONTINUED OPERATIONS 0 (145,727)
------------ ------------
INCREASE IN CASH FOR THE YEAR 9,205,489 295,648
CASH, beginning of year 633,509 337,861
------------ ------------
CASH, end of year $ 9,838,998 $ 633,509
============ ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 36
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
---- ----
<S> <C> <C>
SUPPLEMENTAL SCHEDULES OF NON-CASH ACTIVITIES:
Marketable securities received in payment of:
Accounts receivable $ 702 $ 35,984
=========== ===========
Preferred stock dividends $ 41,425
===========
Receipt of non-marketable securities as payment of notes receivable $ 750,000
===========
Receipt of stock into treasury in payment of note receivable $ 37,500
===========
Conversion of preferred stock into common stock $ 485,000
===========
Conversion of debentures into common stock $ 2,250,000
===========
Common stock issued as payment of:
Debt and equity acquisition costs $ 491,400
===========
Interest expense $ 24,160
===========
CASH FLOWS FROM DISCONTINUED ACTIVITIES ARE COMPRISED OF:
Operating activities $ (145,727)
===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 37
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS OF COMPANY:
Mehl/Biophile International Corporation, formerly Selvac Corporation,
(the Company) is engaged in the sale and distribution of appliances and
machines utilizing a patented hair removal system. Until May 31, 1994
Video Knights, Inc. (VKI), its wholly owned subsidiary, had owned and
operated unique concept- based home entertainment centers which rented
and sold videotapes, laser discs, video games and audio books.
Effective at the close of business on May 31, 1994, the company sold
substantially all of the assets of VKI to Roadrunner Video Enterprises,
Inc. Accordingly, substantially all operations of Video Knights, Inc.
were discontinued effective June 1, 1994. Additionally, VKI is
authorized to sell franchises in several Mid-Atlantic states.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Video Knights, Inc. All
material intercompany balances and transactions have been eliminated.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or
market.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. The Company uses the
straight-line method of providing for depreciation and amortization for
financial reporting purposes and accelerated methods for tax purposes.
Repair and maintenance expenditures are charged to income as incurred.
PATENTS AND PATENT RIGHTS:
The patents and patent rights are recorded at cost and are amortized on
the straight-line method over periods ranging from six to seventeen
years.
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED:
The excess of the cost over the fair value of net assets at the date of
acquisition of acquired businesses is being amortized on the
straight-line method over periods ranging from ten to eleven years.
DEFERRED FRANCHISE COSTS:
Deferred franchise costs are recorded at cost and amortized on the
straight line method over a period of ten years.
INCOME TAXES:
In accordance with FASB 109, deferred income taxes are recorded to
reflect the tax consequences on future years of differences between the
tax bases of assets and liabilities and their financial reporting
amounts at each year-end. The tax benefit related to operating loss and
tax credit carryforwards are recognized if management believes, based
on available evidence, that it is more likely than not that they will
be realized.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
MARKETABLE SECURITIES:
The Company classifies its marketable debt securities as "held to
maturity" if it has the positive intent and ability to hold the
securities to maturity. All other marketable securities are classified
as "available for sale." Securities classified as "available for sale"
are carried in the financial statements at fair value. Realized gains
and losses, determined using the first-in, first-out (FIFO) method, are
included in earnings;
F-7
<PAGE> 38
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unrealized holding gains and losses are reported as a separate
component of stockholders' equity. Securities classified as held to
maturity are carried at amortized cost.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, cash and cash equivalents include
money market funds and other liquid investments maturing within 90 days
of acquisition.
CONCENTRATION OF CREDIT RISK:
During the normal course of business, the Company maintains cash
balances in excess of FDIC insurance coverage limits. At May 31, 1996
cash funds in excess of such insurance coverage limits were $9,572,400.
Private insurance in the amount of $25,000,000 is carried on a portion
of these funds comprising approximately $9,500,000 of this balance. The
Company has not experienced any losses related to these investments.
At May 31, 1996 two separate wholesale customers accounted for 47% and
34% respectively of the Company's total accounts receivable balance.
The Company does not require collateral, and payment terms offered in
certain circumstances by the Company are for periods in excess of those
general provided typical business situations. Reserves for potential
credit losses are maintained. Management feels such reserves are
adequate.
2. CONTINGENCIES:
LITIGATION:
Since January 1990, the Company has been engaged in an ongoing dispute
with the United States Food and Drug Administrative (FDA) regarding the
marketing status of Finally Free Hair Remover for personal
(non-professional) use.
In July 1994, the FDA determined that Finally Free shall be considered
a Class III device under the Food, Drug and Cosmetic Act and
accordingly, will require premarket approval before it is sold,
manufactured or distributed in the U.S. Discussions have taken place
between management and a major U.S. Corporation in the personal care
appliance industry concerning the pursuit of required FDA approval in
this regard. These discussions are in their preliminary stage and there
can be no certainty that such actions will be taken, or if they are,
that they will be successful.
At May 31, 1996, the carrying value of intangibles relating to domestic
Finally Free product is not material.
In March 1991, the Company initiated an action relating to several
ongoing royalty issues with the licenser of its radio frequency
epilation technology whereby the licenser has asserted the Company
underpaid its obligations under certain royalty agreements. Concurrent
with the Classy Lady acquisition (Note 4), the parties agreed to
dismiss the action which was pending in Federal District Court, Boston,
Massachusetts.
INSURANCE CLAIM:
In January 1996, the Company received insurance proceeds of $172,000 in
connection with the theft of certain inventory being carried at
$99,000. The difference between the insurance proceeds and the carrying
value of the inventory, has been recorded as other income.
F-8
<PAGE> 39
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CHANGE IN ACCOUNTING ESTIMATE:
Effective September 1, 1995, the Company reduced the estimated useful
lives used in calculating depreciation and amortization of certain
intangible assets and equipment. Estimated useful lives of certain
molds used in the production of the Company's principal product lines
have been reduced in anticipation of discontinuance of specific product
designs prior to the date originally anticipated. The estimated useful
life of the excess of cost over the fair value of assets acquired from
the Company's acquisition of Mehl International Corporation in 1985
have been reduced based on expectations that the use of certain
trademarks and trade names will be discontinued at an earlier date than
originally foreseen. The effected assets will continue to be
depreciated using the straight line method over the estimated remaining
useful lives, as adjusted.
Depreciation and amortization expense included in selling, general and
administrative expenses was approximately $103,000 higher for the year
ended May 31, 1996 than that which would have been calculated prior to
the change in accounting estimate. As a result, loss before income
taxes was increased by $103,000 and net loss per common share increased
by $.01.
The following reflects those assets effected by the change in
accounting estimate:
<TABLE>
<CAPTION>
Original Adjusted
Estimated Estimated
Useful Useful
Cost Life Life
---- ---- ----
<S> <C> <C> <C>
Production molds, included in
machinery and equipment:
Finally Free $146,000 5 years 3 years
Finally Firm 63,000 5 years 2.25 years
Excess of cost over fair value
of assets acquired $ 73,000 40 years 11 years
</TABLE>
4. SUBSEQUENT ACQUISITIONS:
On June 4, 1996, the Registrant completed the purchase of capital stock
representing in the aggregate of 81% interest in SLS ( Wales) Limited,
a privately held Welsh company ("SLS") engaged in developing,
manufacturing and selling lasers primarily in the field of hair
removal. The consideration for the acquisition of the SLS shares
consisted of a cash payment of 1,255,000 pounds sterling (approximately
$1.9 million) and the issuance of 25,044 shares of the Company's Common
Stock. SLS holds patents pending in the field of laser depilation.
Additionally, on June 4, 1996, Classy Lady by Mehl of Puerto Rico, Inc.
a privately-held Puerto Rico company ("Classy Lady"), merged with and
into a wholly-owned subsidiary of the Company (the "Merger"). In
consideration for the Merger, the Company issued an aggregate of
25,000,000 shares of Common Stock, $.01 par value per share, to the
shareholders of Classy Lady.
In exchange for the issuance of the shares of the Company issued
pursuant to the Merger, the Company obtained all of the stock of Classy
Lady, which owns the exclusive licensing rights granted to Classy Lady
by Thomas L. Mehl, Sr. for a multiple hair removal technology and by
Dr. Nardo Zaias for a laser hair removal technology.
F-9
<PAGE> 40
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Merger was completed in accordance with the terms of the Second
Amended and Restated Agreement and Plan of Merger dated as of June 4,
1996 ( the "Merger Agreement"). Pursuant to the Merger Agreement, the
name of the Company was changed to MEHL/Biophile International
Corporation.
The following unaudited proforma information shows the results of the
Company's operations as if the SLS acquisition, accounted for as a
purchase, and the Classy Lady merger, accounted for as a non-monetary
exchange, had occurred at the beginning of each year:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
---- ----
<S> <C> <C>
Operating revenues $4,809,000 $5,040,000
========== ==========
Net loss $(2,464,000) $(770,000)
============ ==========
Loss per common share $(.06) $(.02)
====== ======
</TABLE>
The proforma results of operations are not necessarily indicative of
the actual results of operations that would have occurred had the
transactions actually occurred at the beginning of the respective
periods, or of results which may occur in the future.
5. INVENTORIES:
At May 31, 1996, inventories consist entirely of personal care
appliance finished goods.
6. PROPERTY AND EQUIPMENT:
Property and equipment is comprised as follows:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIFE IN YEARS
----------------
<S> <C> <C>
Machinery and equipment $ 677,836 2 - 7
Furniture and fixtures 69,562 7
---------
747,398
Less: Accumulated depreciation and
amortization (741,470)
$ 5,928
=========
</TABLE>
Depreciation and amortization of property and equipment was $108,229 in
1996 (see Note 3) and $93,534 in 1995.
7. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<S> <C>
Professional fees $ 70,513
Interest 8,384
Royalties 20,099
State franchise taxes 9,120
Other 4,280
--------
$112,396
========
</TABLE>
F-10
<PAGE> 41
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCKHOLDERS' EQUITY:
PREFERRED STOCK:
$1,000 Stated Value Series C
5% Cumulative Convertible Preferred Stock
Each share of Series C stock is convertible into common stock of the
Company at the lessor of 80% of the average market price of the common
stock, for the five trading days prior to conversion, with a minimum
and maximum conversion price of $3.00, and $7.50 respectively. The
shares of common stock to be issued upon conversion is determined by
dividing the stated value of the preferred shares by the conversion
price. Dividends are payable quarterly commencing August 31, 1996. At
May 31, 1996, undeclared and unpaid dividends were $20,800.
$10 Par Value Series A and 1985 Series
12% Cumulative Convertible Preferred Stock
During the year ended May 31, 1996, all outstanding shares of the
Series A and the 1985 Series preferred stock were converted into
776,000 shares of common stock, in aggregate.
COMMON STOCK:
In conjunction with the Classy Lady merger on June 4, 1996, the number
of $.01 par value common shares which the Company is authorized to
issue was increased from 20,000,000 to 60,000,000.
As of May 31, 1996, warrants to purchase 371,646 common shares at $1.25
per share were outstanding. The expiration date of these common stock
warrants, as extended, is December 7, 1996.
The Company has reserved 371,646 shares of common stock for conversion
of warrants, a maximum of 3,333,333 shares for conversion of Series C
preferred stock and 261,503 for conversion of debentures (see note 15).
STOCK OPTIONS:
Under the terms of the Company's stock option plan, incentive options
to purchase common shares may be granted to employees at a price to be
fixed by the Board of Directors or Stock Option Committee, but not less
than the fair value on the date of grant (110% of fair value if the
optionee owns or would own 10% of the outstanding shares if the options
were exercised). Nonqualified options may be granted at prices less
than fair value. Incentive options have a duration of seven years from
the date granted.
<TABLE>
<CAPTION>
NONQUALIFIED
------------
<S> <C>
Year granted 1983-1989
------------
Option price per share $.41 - $1.44
------------
Year Ended May 31, 1995:
Balance outstanding, beginning of year 75,000
Year Ended May 31, 1996:
Options exercised (75,000)
---------
Balance outstanding end of year 0
=========
</TABLE>
F-11
<PAGE> 42
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. NOTES AND LOANS RECEIVABLE:
Notes and loans receivable are comprised as follows:
<TABLE>
<S> <C>
Note receivable, CDF Acquisition Corp. (CDF), principal
balance of $150,000 plus accrued interest of $103,573 (1) $ 253,573
Notes receivable, Classy Lady by Mehl of Puerto Rico, Inc.
(Classy Lady), principal balance of $850,000 plus
accrued interest of $10,491 (2) 860,491
Loans and advances, SLS (Wales) Limited (3) 3,200,000
----------
4,314,064
Less current portion 105,625
----------
$4,208,439
==========
</TABLE>
(1) A current director of the Company and a former officer and
director are stockholders in CDF. The note receivable from CDF
was obtained as consideration when the Company sold the stock of
its former wholly owned subsidiary Beauty Resources, Inc. (BRI)
to CDF in May 1991. In June 1995, the note was renegotiated.
Under the new agreement, the remaining outstanding principal
balance is payable in three installments of $50,000 in December
1996, 1997 and June 1998. Interest on the unamortized principal
balance, at 9% through June 1996 and 7% thereafter, is payable
with each principal installment. Interest accrued prior to the
refinancing, is payable at $50,000 in December 1996 and $47,948
in December 1997.
(2) During the year ended May 31,1996, in contemplation of the
merger discussed in Note 4, the Company made advances of
$850,000, in aggregate, evidenced by a promissory note, to Classy
Lady. The entire principal balance plus accrued interest, at 6%,
is payable on August 20, 1996.
(3) In contemplation of the acquisition of SLS (Wales) Limited
discussed in Note 4, the Company advanced $3,200,000 to SLS
(Wales) Limited. Upon closing the acquisition of June 4, 1996, a
portion of this advance equivalent to 1,255,000 pounds sterling
was applied to the purchase price.
10. COMMITMENTS:
ROYALTIES:
The Company has entered into agreements which provide for royalty
payments based on a percentage of net sales or units sold of its
principal products. Royalty expense under the agreements for fiscal
years ended May 31, 1996 and 1995 was $64,000 and $101,000,
respectively.
OPERATING LEASES:
The Company leases office facilities under a non-cancelable operating
lease, which requires future minimum lease payments of $6,000 in
aggregate for the year ending May 31, 1997.
Additionally, the Company's subsidiary is contingently liable under
several lease agreements assigned to other parties during fiscal 1996
and 1995. The Company is a guarantor to one of these agreements. No
amounts have been provided for potential loss for future rents due
under these leases.
F-12
<PAGE> 43
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At May 31, 1996, future annual minimum lease payments under these
agreements are:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31,
-------------------
<S> <C>
1997 $ 357,833
1998 248,541
1999 251,079
2000 258,060
2001 140,412
Thereafter 222,268
----------
$1,478,193
==========
</TABLE>
Facilities rent expense for the years ended May 31, 1996 and 1995, was
$55,922 and $76,947 respectively, including rent to Optivest (Note 14).
11. NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share is computed based on net income
(loss) for the period after providing for preferred stock dividend
requirements. The number of shares used in the computation is the
weighted average number of common shares and, when their effect would
be dilutive, common equivalent shares outstanding during the period.
Weighted average number of shares during the periods are 14,075,207 in
1996 and 14,345,234 in 1995.
12. INCOME TAXES:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
---- ----
<S> <C> <C>
Current:
Federal $ 0 $ 0
State 0 0
----------- -----------
$ 0 $ 0
=========== ===========
Deferred:
Federal $ 0 $ 34,000
State 0 14,386
----------- -----------
$ 0 $ 48,386
=========== ===========
</TABLE>
The following is a summary of the tax effects of the significant
temporary differences which comprise the Company's deferred tax asset
at May 31, 1996:
F-13
<PAGE> 44
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Bad debt reserve $ 147,700
Depreciation 35,600
Amortization of intangibles (26,500)
Tax credit carryforwards 66,000
Loss carryforwards 1,640,000
Other 3,800
Valuation allowance (1,866,600)
-----------
Total Asset $ 0
===========
</TABLE>
As of May 31, 1996, the Company had federal net operating losses (NOL)
and tax credit carryforwards, for income tax purposes, available as
follows:
<TABLE>
<CAPTION>
INVESTMENT RESEARCH AND
FISCAL YEAR OF FEDERAL TAX DEVELOPMENT
EXPIRATION NOL CREDITS TAX CREDITS
---------- --- ------- -----------
<S> <C> <C> <C>
1997-2001 $ 0 $81,000 $21,000
2006 2,153,000 0 0
2007 238,000 0 0
2008 105,000 0 0
2009 1,286,000 0 0
2011 400,000 0 0
---------- ------- -------
$4,182,000 $81,000 $21,000
========== ======= =======
</TABLE>
Tax credits are subject to a statutory reduction of up to 35% in
accordance with Tax Reform Act of 1986. Application of net operating
loss carryforwards in future periods are subject to limitations as a
result of the Classy Lady merger. Management does not feel these
limitations will have an adverse effect on the Company's financial
condition.
Net operating losses may generate tax benefits of $1,640,000 which has
been offset by a valuation allowance because of the uncertainty of
ultimate realization. The Company's total valuation allowance increased
by $222,400 during the year ended May 31, 1996 principally due to
additional net operating losses. The valuation allowance decreased by
$97,800 during the year ended May 31, 1995 principally due to the
current year use of net operating losses.
A reconciliation of the statutory U.S. Federal income tax rate and the
effective income tax rate for the years ended May 31, 1996 and 1995 is
as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Statutory Federal income tax rate (34.0%) 34.0%
Increases (decreases) resulting from:
State income taxes, net of Federal tax benefit 4.9
Amortization of intangible assets 8.3 12.5
Non-deductible life insurance expense 3.0
Increase (decrease) in federal deferred
tax valuation allowance 25.7 (32.0)
Other 2.7
----- -----
Effective tax rate 0.0% 25.1%
===== =====
</TABLE>
F-14
<PAGE> 45
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SALES TO SIGNIFICANT CUSTOMERS AND EXPORT SALES:
For the year ended May 31, 1996 and 1995, the Company had sales to two
major international customers accounting for 95% and 86% of
consolidated net sales from continuing operations, respectively. One of
these customers accounted for 89% and 76% of net sales in 1996 and
1995, respectively.
Approximately 99% of consolidated sales from continuing operations in
1996 and 1995 were to foreign customers, located principally in Asia
and Europe. Sales which are denominated in currencies other than U.S.
dollars were not significant for either period.
14. RELATED PARTY TRANSACTIONS
At May 31, 1996, 850,000 shares (5.4% of the Company's outstanding
common stock) were owned by Optivest Technologies Corp. Additionally,
several officers and directors of the Company are also officers and
directors of Optivest. During the year ended May 31, 1995, the Company
repaid $140,000 borrowed from Optivest in fiscal 1994 under a
promissory note agreement.
Additionally, the Company leases an administrative facility from
Optivest, on a month-to-month basis. Rent to Optivest for use of
administrative facilities was $30,000 for 1996 and 1995.
Interest income on the CDF note receivable (Note 9) was $16,700 in 1996
and $25,000 in 1995.
15. CONVERTIBLE DEBENTURES:
During the year ended May 31, 1996, the Company issued, in aggregate
$3,000,000 in convertible debentures which bear interest at 8%, are due
March 31, 1997 and are convertible into common stock of the Company at
a conversion price equal to the lessor of 80% of the average market
price of the common stock, on the five trading days prior to conversion
or $10.00. The debt agreement also provides conversion privileges to
the debt holder for any unpaid interest amounts. As of May 31, 1996,
$2,250,000 of these debentures and unpaid interest of $24,160 were
converted into an aggregate of 353,459 shares of common stock. On July
19, 1996, the remaining $750,000 of debt and unpaid interest were
converted into 261,583 shares of the Company's common stock.
Costs associated with the issuance of each debenture are being
amortized using the straight line method over the life of the debt.
Upon conversion of the debenture any remaining unamortized costs are
charged to additional paid in capital (APIC). Amortization expense of
these costs was $26,350 and amounts charged to APIC were $122,200 for
the year ended May 31, 1996.
16. INVESTMENT IN MARKETABLE AND NON-MARKETABLE SECURITIES:
In July 1995, the Company received 75,000 shares of $10 par value, 12%
cumulative preferred stock of Roadrunner Video Group, Inc.
(Roadrunner), in satisfaction of a $750,000 note payable by Roadrunner
to the Company. The Roadrunner preferred stock is a restricted security
(not registered for public sale), each preferred share is convertible
into 10 shares of Roadrunner common stock.
In December 1995, the Company accepted 24,368 shares of Roadrunner
restricted common stock valued at $41,425 as payment of Roadrunner
preferred stock dividend. The securities are classified as "available
for sale securities" and reported at fair value. The terms of
contractual agreements between Roadrunner and the Company, require that
Roadrunner register, for public sale, the aforementioned 24,368
restricted
F-15
<PAGE> 46
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
common shares and a sufficient number of common shares to satisfy the
Company's preferred stock conversion rights. The closing bid quotation
for Roadrunner common stock on May 31, 1996 was $1.56.
At May 31, 1996, amortized cost, market or estimated fair value and the
cumulative unrealized holding loss on the Company's investment in
marketable securities is summarized as follows:
<TABLE>
<CAPTION>
Market or Cumulative
Amortized Estimated Unrealized
Cost Fair Value Holding Loss
---- ---------- ------------
<S> <C> <C> <C>
Available for Sale
Equity Securities $ 42,127 $ 38,975 $(3,152)
========= ======== =======
Held-to-Maturity
U.S. Treasury obligations, maturing July 5, 1996 $477,690 $477,682 $ (8)
======== ======== =======
</TABLE>
F-16
<PAGE> 47
Exhibit
Index
Exhibit 3.1 Articles of Incorporation, as amended.
Exhibit 3.2 By-laws, as amended.
Exhibit 4 Common Stock Purchase Warrants (incorporated by Reference to
Registration Statement on Form S-1 dated August 26, 1983).
Exhibit 10.1 Second Amended and Restated Agreement and Plan of Merger
with Classy Lady by Mehl of Puerto Rico, Inc. dated June 4,
1996 (incorporated by reference to Current Report on Form 8-K
dated June 4, 1996).
Exhibit 10.2 Sale and Purchase Agreement dated June 4, 1996 by and
among B. Mair and others, and Selvac Corporation (incorporated
by reference to Current Report on Form 8-K dated June 4,
1996).
Exhibit 10.3 Sale and Purchase Agreement dated June 4, 1996 by and
among Robert Marc Clement and Selvac Corporation (incorporated
by reference to Current Report on Form 8-K dated June 4,
1996).
Exhibit 10.4 Amended Exclusive License Agreement for Patented Laser
Hair Removal dated December 5, 1995 by and between Classy Lady
by Mehl of Puerto Rico, Inc. and Nardo Zaias, M.D.
Exhibit 10.5 Exclusive License Agreement for Patented Consumer Hair Removal
Products dated December 5, 1995 by and between Classy Lady by
Mehl of Puerto Rico, Inc. and Thomas L. Mehl, Sr.
Exhibit 10.6 Joint Venture Formation Agreement between Laser Industries
Limited and Classy Lady by Mehl of Puerto Rico, Inc. dated as
of December 19, 1995.
Exhibit 10.7 Securities Purchase Agreement with GFL Performance Fund
Ltd. dated May 15, 1996 (incorporated by reference to
Registration Statement on Form S-3 dated July 1, 1996).
Exhibit 10.8 Registration Rights Agreement with GFL Performance Fund
Ltd. dated May 15, 1996 (incorporated by reference to
Registration Statement on Form S-3 dated July 1, 1996.
Exhibit 11 Computation of Net Income (Loss) Per Share.
Exhibit 21 Subsidiaries of the Registrant.
Exhibit 27 Financial Data Schedule.
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
SELVAC CORPORATION
* * * * *
1. The name of the corporation is
SELVAC CORPORATION
2. The address of its registered office in the State of Delaware is No. 100
West Tenth Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is one thousand (1,000) and the par value of each of such
shares is One Dollar ($1.00), amounting in the aggregate to One Thousand Dollars
($1,000.00).
5. The name and address of each incorporator is as follows:
<PAGE> 2
NAME MAILING ADDRESS
---- ----------------
K. L. Husfelt 100 West Tenth Street
Wilmington, Delaware 19801
B. A. Schuman 100 West Tenth Street
Wilmington, Delaware 19801
E. L. Kinsler 100 West Tenth Street
Wilmington, Delaware 19801
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. The by-laws may provide that in the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or
<PAGE> 3
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, or in the by-laws of the corporation,
shall have and may exercise all of the powers and authority of the board of
directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the by-laws of the corporation; and, unless the
resolution or by-laws, expressly so provide, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with statute, to
sell, lease or exchange all or substantially all of the property and assets of
the corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole or
in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its board of directors
shall deem expedient and for the best interests of the corporation.
8. Elections of directors need not be by written ballot unless the by-laws
of the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of
<PAGE> 4
the corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the board of directors or in the by-laws of the
corporation.
9. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this certificate of incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that this is our act and deed and the facts herein stated are true,
and accordingly have hereunto set our hands this 28th day of June, 1982.
/s/ K. L. Husfelt
---------------------------
K. L. Husfelt
/s/ B. A. Schuman
---------------------------
B. A. Schuman
/s/ E. L. Kinsler
---------------------------
E. L. Kinsler
<PAGE> 5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SELVAC CORPORATION
------------------
* * * * * *
The undersigned, ALLAN S. BORKOWSKI, President, and JAMES W. DEER,
Secretary, of SELVAC CORPORATION, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DO HEREBY
CERTIFY as follows:
FIRST: At a meeting of the Board of Directors of said Corporation, the
directors adopted the following resolution:
"RESOLVED, that it is advisable and best in the interest of the
Corporation to amend Article FOURTH of the Certificate of
Incorporation to read as follows:
"FOURTH: The total number of shares of capital
stock which the Corporation shall have authority to issue is
10,000,000, all of which shall be shares of Common Stock,
par value $.01 per share."
SECOND: That the unanimous consent of the holders of all the
outstanding Common Stock entitled to vote on the proposed amendment was obtained
and this Certificate is
<PAGE> 6
being filed in accordance with Section 242 of the General Corporation Law.
IN WITNESS WHEREOF, SELVAC CORPORATION has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by Allan S. Borkowski, its
President, and James W. Deer, its Secretary, this 9th day of November, 1982.
SELVAC CORPORATION
By: /s/ Allan S. Borkowski
------------------------------
Allan S. Borkowski
President
[SEAL]
Attest:
/s/ James W. Deer
- ---------------------
James W. Deer
Secretary
-2-
<PAGE> 7
8304.28
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SELVAC CORPORATION
* * * * *
The undersigned, MICHAEL B. FREEDMAN, President and Secretary of SELVAC
CORPORATION, a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, DO HEREBY CERTIFY as follows:
FIRST: At a meeting of the Board of Directors of said corporation, the
directors adopted the following resolution:
"RESOLVED, that it is advisable and best in the interest of the
Corporation to amend Article FOURTH of the Certificate of
Incorporation to read as follows:
FOURTH: (a) The total number of shares of capital stock
which the Corporation shall have authority to issue is
20,200,000, of which 20,000,000 shares shall be shares of Common
Stock, par value $.01 per share, and 200,000 shares shall be
shares of Serial Preferred Stock, par value $10.00 per share.
(b) All outstanding shares of Common Stock are hereby
reclassified so that each three (3) shares of Common Stock, $.01
par value, shall represent two (2) shares of Common Stock, $.01
par.
<PAGE> 8
A statement of the designations, relative rights, preferences, powers,
qualifications, limitations and restrictions granted to or imposed on the
respective classes of the shares of the Corporation's stock or the holders
thereof is as follows:
A. COMMON STOCK
Section 1. Voting Rights. Each share of Common Stock shall be equal to
every other share of Common Stock in every respect. Each share of Common Stock
shall entitle the holder thereof to one vote per share upon all matters upon
which stockholders have the right to vote, except for matters, if any, upon
which holders of Serial Preferred Stock or any series thereof may have the
exclusive right to vote. Except as otherwise provided by law or herein, holders
of Common Stock and holders of Serial Preferred Stock shall vote as a single
class.
Section 2. Dividend Rights. No dividends or other distributions shall be
made in respect to Common Stock so long as there are dividends arrearages on any
of the shares of Serial Preferred Stock are outstanding.
Section 3. Right Upon Liquidation. In the event of any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation the
holders of Common Stock shall be entitled to share pro rata in all assets
remaining after the payment of, or
-2-
<PAGE> 9
provision for the payment of, all indebtedness of the Corporation and all
amounts payable in liquidation to any class or classes of stock having
preferential rights over the Common Stock.
B. SERIAL PREFERRED STOCK
Section 1. Issuance in Series. The 200,000 shares of Serial Preferred Stock
may, except as otherwise provided in this Certificate, be issued in one or more
series with such designations, relative rights, voting powers, cumulative or
non-cumulative dividends, redemption provisions, liquidation preferences and
other qualifications, limitations and restrictions as the Board of Directors may
fix by resolution adopted prior to the issuance of any shares of any such
series.
Section 2. All Series to Rank Pari Passu. Except as otherwise provided in
the resolutions creating any series of the Serial Preferred Stock all shares of
Serial Preferred Stock of all series shall be entitled to participate pari passu
in the amounts provided for dividends and liquidating preferences for shares of
Serial Preferred Stock in proportion to the amounts so provided for the shares
of each series.
Section 3. Dividends. Each series shall be entitled to such dividends as
may be determined by the Board of Directors at
-3-
<PAGE> 10
the time of issuance with specification of dates of cumulation if dividends
in any such series are cumulative.
Section 4. Liquidation. In the event of a liquidation, dissolution or
winding up of the Corporation, the holders of shares of Serial Preferred Stock
shall be entitled to receive out of the assets of the Corporation an amount
equal to Ten Dollars ($10) per share, plus any accrued and unpaid dividends
thereon to the date fixed for distribution, in preference to and in priority
over any such distribution upon the Common Stock of the Corporation and all
other shares of stock of the Corporation which are by their terms expressly made
junior as to liquidation preferences to Serial Preferred Stock but subject to
the prior rights of the holders of shares of other stock of the Corporation
which are by their terms expressly made senior as to liquidation preferences to
Serial Preferred Stock. If the assets of the Corporation are not sufficient to
pay such amounts in full to the holders of Serial Preferred Stock and of any
other stock of the Corporation ranking equally with respect to each other, then
the holders of Serial Preferred Stock and all such other stock shall share
ratably in any such distribution of assets in accordance with the amounts which
would be payable on such distribution if the amounts to which the holders of
Serial Preferred Stock and all such other stock are entitled were paid in full.
-4-
<PAGE> 11
Section 5(a). Voluntary Redemption. Serial Preferred Stock (or any series)
may be redeemed, in whole or in part, at the option of the Corporation by
resolution of its Board of Directors at the price of $10 per share plus accrued
and unpaid dividends to the date fixed for redemption at any time and from time
to time.
In the event that less than the entire number of the shares of any series
of Serial Preferred Stock outstanding is at any one time redeemed by the
Corporation, the shares to be redeemed shall be redeemed pro rata from all
holders of said series.
Not less than thirty (30) nor more than sixty (60) days prior to the date
fixed for any redemption of Serial Preferred Stock or any part thereof, a notice
specifying the time and place of such redemption shall be given by first class
mail, postage prepaid, to the holders of record of the shares of Serial
Preferred Stock selected for redemption at their respective addresses as the
same shall appear on the books of the Corporation, but no failure to mail such
notice or any defect therein or in the mailing thereof shall affect the validity
of the proceedings for redemption. Any notice which was mailed in the manner
herein provided shall be conclusively presumed to have been duly given whether
or not the holder receives the notice.
-5-
<PAGE> 12
After the date fixed for the redemption of shares of Serial Preferred Stock
by the Corporation, the holders of shares selected for redemption shall cease to
be stockholders with respect to such shares and shall have no interest in or
claims against the Corporation by virtue thereof and shall have no voting or
other rights with respect to such shares, except the right to receive the moneys
payable upon such redemption from the Corporation, without interest thereon,
upon surrender (and endorsement, if required by the Corporation) of their
certificates, and the shares represented thereby shall no longer be deemed to be
outstanding.
The Corporation will not, at any time while it has failed to pay a dividend
on shares of Serial Preferred Stock, which is required to be paid, purchase any
shares of Serial Preferred Stock or redeem fewer that all of the shares of
Serial Preferred Stock, or permit any corporation of which it is the direct or
indirect owner of shares entitled at the time to elect a majority of the
directors of such corporation to purchase any shares of Serial Preferred Stock.
Section 6. Voting Rights: Changes in Serial Preferred Stock Terms. The
Corporation may, in the manner provided by law, from time to time alter or
change the preferences, rights or powers of Serial Preferred Stock; provided
further, that no alteration or change shall be made which adversely affects the
preferences,
-6-
<PAGE> 13
rights or powers of Serial Preferred Stock, without the affirmative vote or
written consent as provided by law of the holders of at least two-thirds
(2/3rds) of the outstanding shares of Serial Preferred Stock, voting as a single
class. The holders of Serial Preferred Stock shall not be entitled to
participate in any such class vote if provision is made pursuant to Section 3
for the redemption, at or prior to the time when any such alteration or change
is to take effect, of all shares of Serial Preferred Stock at the time
outstanding.
Section 7. Definition of Common Stock. The term "Common Stock" shall not
include any stock of any class of the Corporation which has a preference in
respect of dividends or a preference in any liquidation, dissolution or winding
up of the Corporation, or which is subject to redemption by the Corporation.
Section 8. No Other Rights. The shares of the Serial Preferred Stock shall
not have any relative, participating, optional or other special rights or powers
other than as set forth above and in the Certificate of Incorporation of the
Corporation, as amended.
SECOND: That the unanimous consent of the holders of all the outstanding
capital stock entitled to vote on the proposed Amend-
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<PAGE> 14
ment was obtained and this Certificate is being filed in accordance with
Section 242 of the General Corporation Law.
IN WITNESS WHEREOF, SELVAC CORPORATION has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by Michael B. Freedman, its
President and James W. Deer, its Secretary, this 28th day of April 1983.
SELVAC CORPORATION
By: /s/ Michael B. Freedman
------------------------------
Michael B. Freedman
President
Attest:
/s/ James W. Deer
- ----------------------------
James W. Deer
Secretary
5116A/048A
-8-
<PAGE> 15
CERTIFICATE OF DESIGNATION
of the
BOARD OF DIRECTORS
of
SELVAC CORPORATION
Creating 50,000 shares of
12% CUMULATIVE CONVERTIBLE PREFERRED STOCK,
SERIES A
SELVAC CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
That at a meeting of the Board of Directors of Selvac Corporation (the
"Company") held on April 28, 1983, a resolution was duly adopted creating an
initial series of the Serial Preferred Stock as described in said resolution,
which is as follows:
RESOLVED, that there is hereby created an initial series of the Company's
Serial Preferred Stock with the following designation, terms, provisions and
characteristics:
1. (A) Designation: 12% Cumulative Convertible Preferred Stock, Series
A ("Series A Preferred Stock").
(B) Number of Shares: Fifty-thousand (50,000).
(C) Par Value: $10 per share.
<PAGE> 16
(D) Rate of Dividends: The shares of Series A Preferred Stock shall be
entitled to receive an annual dividend of 12% of
the par value thereof, and no more, payable
semi-annually on the last day of November and May
in each year, except that if any shares are
issued on or as of a date other than a dividend
payment date the amount of the first dividend
shall be prorated from the date of issuance to the
next dividend payment date.
(E) Cumulation of
Dividends: The dividends payable on the Series A Preferred
Stock shall be cumulative from the date, or as of
the date, issued.
(F) Prohibitions on
Company while
Dividends are in
Arrears: So long as there are any accrued and unpaid
dividends on the Serial Preferred Stock, the
Company shall not make any Stock Payments in
respect of any class of Serial Preferred Stock.
Stock Payments shall mean (a) all dividends in
respect of Common Stock or any class of stock
junior to the Serial Preferred Stock and (b) all
amounts expended to buy or redeem any shares of
any class of capital stock (except that the
Company may redeem all shares of all series of
Serial Preferred Stock on which there are accrued
and unpaid dividends).
(G) Conversion
Privilege: The holder of any shares of Series A Preferred
Stock may at his election exercised at any time
prior to the date fixed for redemption of his
shares convert them into shares of Common Stock of
the Company. The number of shares of Common Stock
issuable
-2-
<PAGE> 17
upon the conversion of Series A Preferred Stock
shall be the quotient obtained by dividing the par
value of the Series A Preferred Stock ($10 per
share) by the Conversion Price (initially $.625
per share). The original number of Common Stock
shares issuable will be 16 shares of Common Stock
for each share of Series A Preferred Stock
converted (the "Conversion Rate").
2. (A) Conversion of
Series A
Preferred Stock: The following terms and provisions relate to
conversion of Series A Preferred Stock into Common
Stock of the Company.
A. As used herein the following terms unless the context otherwise
requires, have the following respective meanings:
(i) The term "Company" shall mean Selvac Corporation or any corporation
which shall succeed to or assume the obligations of Selvac Corporation
hereunder.
(ii) The term "Common Stock" means the Company's common stock, par value
$.01 per share.
(iii) The "Original Issue Date" is May 31, 1983.
(iv) The term "Other Securities" refers to any stock (other than the Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of shares of Series A Preferred Stock at any time
shall be entitled to receive, or shall receive, or shall have received, upon the
conversion hereof, in lieu of or in addition to Common Stock, or which at any
time shall be issuable or
-3-
<PAGE> 18
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant hereto.
(v) The term "Securities Act" means the Securities Act of 1933, as the same
shall be in effect at the time.
(vi) The term "Conversion Price" initially means the Conversion Price,
shall be subject to adjustment as provided in Subparagraphs E and F hereof.
B. Sale or Conversion Without Registration. If, at the time of any
conversion, transfer or surrender for exchange only of a certificate for Series
A Preferred Stock or of Common Stock (or Other Securities) previously issued
upon the conversion of this stock certificate, the shares of Series A Preferred
Stock or Common Stock (or Other Securities) shall not be registered under the
Securities Act, the Company may require, as a condition of allowing such
conversion transfer or exchange, that the holder or transferee of such Series A
Preferred Stock or Common Stock (or Other Securities), as the case may be,
furnish to the Company a satisfactory opinion of counsel acceptable to the
Company to the effect that such conversion, transfer or exchange may be made
without registration under the Securities Act.
C. Conversion of Series A Preferred Stock.
(i) Conversion in Full. Subject to the provisions hereof, the conversion
privilege appertaining to shares of Series A Preferred Stock may be exercised in
full by the holder
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<PAGE> 19
hereof by surrender of the stock certificate representing said shares, with the
form of subscription at the end thereof duly executed by such holder, to the
Company at its principal office.
(ii) Partial Conversion. Subject to the provisions hereof, the conversion
privilege appertaining to a certificate for shares of Series A Preferred Stock
may be exercised in part by surrender of the stock certificate in the manner
provided in Subparagraph C hereof, except that the conversion shall be effective
only as to the number of shares designated the holder in the conversion form at
the end thereof. Upon any such partial conversion, the Company at its expense
will forthwith issue and deliver to or upon the order of the holder hereof a new
certificate or certificates of like tenor, in the name of the holder hereof or
as such holder (upon payment by such holder of any applicable transfer taxes)
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Series A Preferred Stock equal (without giving effect to any
adjustment therein) to the number of such shares called for on the face of the
Series A Preferred Stock Certificate minus the number of such shares designated
by the holder in the conversion form appearing on the Series A Preferred Stock
Certificate.
D. Delivery of Stock Certificates, etc., upon Conversion. As soon as
practicable after the conversion of any Series A Preferred Stock Certificate in
full or in part, and in
-5-
<PAGE> 20
any event within 10 days thereafter, the Company at its expense (including
the payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder thereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and non-assessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value, or, if no such market value is available, by the value
determined in good faith by the Board of Directors of the Company of one full
share, together with any other stock or other securities to which such holder
shall be entitled upon such conversion.
E. Adjustment for Certain Dividends, Reclassification, etc.
In case at any time or from time to time after the Original Issue Date the
holders of Common Stock (or Other Securities) shall have received, or shall have
become entitled to receive, without payment therefor, other or additional stock
or securities of the Company by way of dividend, stock split or reverse split,
reclassification, recapitalization or similar corporate rearrangement, then the
holder of Series A Preferred Stock, upon the conversion thereof, shall be
entitled to
-6-
<PAGE> 21
receive the amount of stock and other securities which such holder would
have held on the date of such conversion if on the Original Issue Date he had
been the holder of record of the number of shares of Common Stock into which
said Series A Preferred Stock was convertible and had thereafter, during the
period from the Original Issue Date to and including the date of such exercise,
retained such shares and all such other or additional (or less) stock and other
securities receivable by him as aforesaid during such period, giving effect to
all adjustments called for during such period by the provisions hereof.
F. Adjustment for Reorganization, Consolidation, Merger, etc.
In case the Company after the Original Issue Date shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (C)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, the holder of a Series A Preferred Stock
Certificate, upon the conversion thereof at any time after the consolidation of
such reorganization, consolidation or merger or _______ effective date of such
dissolution, shall be entitled to receive (and the Company shall be entitled to
deliver), in lieu of the Common Stock (or Other Securities) issuable upon such
conversion prior to such consummation or such effective date, the stock or other
securities and property
-7-
<PAGE> 22
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so converted his Series A Preferred Stock certificate immediately
prior thereto, all subject to further adjustment thereafter as provided herein.
G. Further Assurances. The Company will take such action as may be
necessary in order that the Company may validly issue fully paid and
non-assessable shares of Common Stock or Other Securities upon the exercise of
all Warrants from time to time outstanding.
H. Notice of Record Date, etc. In the event of
(i) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend payable out of earned
surplus of the Company) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(ii) any proposed capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
-8-
<PAGE> 23
(iii) any proposed voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(iv) any proposed issue or grant by the Company of any shares of stock of
any class or any other securities, or any right or option to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities (other than the issue of Common Stock on the exercise of the
Warrants),
the Company will cause to be mailed to the holder hereof a notice specifying (i)
the date on which such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which any such capital reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any,
as of which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice
-9-
<PAGE> 24
shall be mailed at least 20 days prior to the date therein specified.
I. Reservation of Stock, etc., Issuable on Conversion of Series A
Preferred Stock.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the conversion of Series A Preferred Stock, all
shares of Common Stock (or Other Securities) from time to time issuable upon the
exercise of this Warrant.
J. Notices, etc. All notices and other communications from the Company to
the holder of a certificate for Series A Preferred Stock shall be mailed by
first class registered or certified mail, postages prepaid, to such address as
may have been furnished to the Company in writing by such holder, or, until an
address is so furnished, to the address of the last holder thereof who has so
furnished an address to the Company.
IN WITNESS WHEREOF, Selvac Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by Michael B. Freedman, its
President, and James W. Deer, its Secretary, on this 14th day of June, 1983.
SELVAC CORPORATION
By /s/ Michael B. Freedman
-----------------------------------
President
Attest:
/s/ James W. Deer
- -------------------------
Secretary
-10-
<PAGE> 25
CERTIFICATE OF DESIGNATION
of the
BOARD OF DIRECTORS
of
SELVAC CORPORATION
Creating 50,000 shares of
12% CUMULATIVE CONVERTIBLE PREFERRED STOCK,
SERIES B
SELVAC CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
That at a meeting of the Board of Directors of Selvac Corporation (the
"Company") held on April 28, 1983, a resolution was duly adopted creating a
second series of the Serial Preferred Stock as described in said resolution,
which is as follows:
RESOLVED, that there is hereby created a second series of the Company's
Serial Preferred Stock with the following designation, terms, provisions and
characteristics:
1. (A) Designation: 10% Cumulative Convertible
Preferred Stock, Series B ("Series
B Preferred Stock").
(B) Number of Shares: Fifty-thousand (50,000).
(C) Par Value: $10 per share.
<PAGE> 26
(D) Rate of Dividends: The shares of Series B Preferred Stock
shall be entitled to receive an annual
dividend of 10% of the par value thereof,
and no more, payable semi-annually on the
last day of June and December in each
year, except that the dividends payable
in respect of all periods through June
30, 1984 shall be payable in equal
installments on December 31, 1984, June
30, 1985, December 31, 1985 and June 30,
1986, together with interest at 10% per
annum on the deferred dividends.
(E) Cumulation of Dividends: The dividends payable on the Series B
Preferred Stock shall be cumulative from
the date, or as of the date, issued.
(F) Prohibitions on
Company while
Dividends are in
Arrears: So long as there are any accrued and
unpaid dividends on the Serial Preferred
Stock, the Company shall not make and
Stock Payments in respect of any class of
Serial Preferred Stock. Stock Payments
shall mean (a) all dividends in respect
of Common Stock or any class of stock
junior to the Serial Preferred Stock and
(b) all amounts expended to buy or redeem
any shares of any class of capital stock
(except that the Company may redeem all
shares of all series of Serial Preferred
Stock on which there are accrued and
unpaid dividends).
(G) Conversion Privilege: The holder of the Series B Preferred
Stock may, at any time on or before the
date fixed for redemption, convert all or
part of his shares of Preferred Stock
into shares of Common Stock of the
- 2 -
<PAGE> 27
Company at such a ratio that if all
50,000 shares of Preferred Stock are
converted at one time the number of
shares of Common Stock issuable to the
holder of Series B Preferred Stock would
equal 12% of the then outstanding shares.
If less than 50,000 shares of Series B
Preferred Stock are converted at any one
time, the number of shares of Common
Stock issuable shall be that number which
bears the same ratio to 12% of the total
number of outstanding shares as the
number of shares of Series B Preferred
Stock converted bears to 50,000 shares.
If at any time the holder of Series B
Preferred Shares elects to convert them
into shares of Common Stock there have
been previous conversions of shares of
Series B Preferred Stock the shares so
issued on previous conversions shall not
be included in the outstanding shares for
this purpose.
2. (A) Conversion of
Series B
Preferred Stock: The following terms and provisions relate
to conversion of Series B Preferred Stock
into Common Stock of the Company.
A. As used herein the following terms unless the context otherwise
requires, have the following respective meanings:
(i) The term "Company" shall mean Selvac Corporation or any
corporation which shall succeed to or assume the obligations of Selvac
Corporation thereunder.
(ii) The term "Common Stock" means the Company's common stock, par
value $.01 per share.
(iii) The "Original Issue Date" is April 30, 1983.
- 3 -
<PAGE> 28
(iv) The term "Other Securities" refers to any stock (other than the
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holder of shares of Series B Preferred Stock at any time
shall be entitled to receive, or shall receive, or shall have received, upon the
conversion hereof, in lieu of or in addition to Common Stock, or which at any
time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant hereto.
(v) The term "Securities Act means the Securities Act of 1933, as the
same shall be in effect at the time.
B. Sale of Conversion Without Registration. If, at the time of any
conversion, transfer or surrender for exchange only of a certificate for Series
B Preferred Stock or of Common Stock (or Other Securities) previously issued
upon the conversion of this stock certificate, the shares of Series B Preferred
Stock or Common Stock (or Other Securities), shall not be registered under the
Securities Act, the Company may require, as a condition of allowing such
conversion transfer or exchange, that the holder or transferee of such Series B
Preferred Stock of Common Stock (or Other Securities), as the case may be,
furnish to the Company a satisfactory opinion of counsel acceptable to the
Company to the effect that such conversion, transfer or exchange may be made
without registration under the Securities Act.
- 4 -
<PAGE> 29
C. Conversion of Series B Preferred Stock.
(i) Conversion in Full. Subject to the provisions hereof, shares of
Series B Preferred Stock may be exercised in full by the holder hereof by
surrender of the stock certificate representing said shares, with the form of
subscription at the end thereof duly executed by such holder, to the Company at
its principal office.
(ii) Partial Conversion. Subject to the provisions hereof, a
certificate for shares of Series B Preferred Stock may be exercised in part by
surrender of this Warrant in the manner provided in Subparagraph C hereof,
except that the conversion shall be effective only as to the number of shares
designated by the holder in the conversion form at the end thereof. Upon any
such partial exercise, the Company at its expense will forthwith issue and
deliver to or upon the order of the holder hereof a new certificate or
certificates of like tenor, in the name of the holder hereof or as such holder
(upon payment by such holder of any applicable transfer taxes) may request,
calling in the aggregate on the face or faces thereof for the number of shares
of the Series B Stock Certificate equal (without giving effect to any adjustment
therein) to the number of such shares called for on the face of the Series B
Stock Certificate minus the number of such shares designated by the holder in
the conversion form appearing on the Series B Preferred Stock Certificate.
- 5 -
<PAGE> 30
D. Delivery of Stock Certificates, etc., upon Conversion.
As soon as practicable after the conversion of a Series B Preferred Stock
Certificate in full or in part, and in any event within 10 days thereafter, the
Company at its expense (including the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the holder
thereof, or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash equal to
such fraction multiplied by the then current market value, or, if no such market
value is available, by the value determined in good faith by the Board of
Directors of the Company of one full share, together with any other stock or
other securities to which such holder shall be entitled upon such conversion.
E. Adjustment for Reorganization, Consolidation, Merger, etc.
In case the Company after the Original Issue Date shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the holder of a Series B
- 6 -
<PAGE> 31
Preferred Stock Certificate, upon the conversion thereof at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, shall be entitled to receive (and the Company shall be
entitled to deliver), in lieu of the Common Stock (or Other Securities) issuable
upon such conversion prior to such consummation or such effective date, the
stock or other securities and property (including cash) to which such holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such holder had so converted his Series B
Preferred Stock certificate immediately prior thereto, all subject to further
adjustment thereafter as provided herein.
G. Further Assurances. The Company will take such action as may be
necessary in order that the Company may validly issue fully paid and
non-assessable shares of Common Stock or Other Securities upon exercise of all
Warrants from time to time outstanding.
H. Notice of Record Date, etc. In the event of
(i) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend payable out of
earned surplus of the Company) or other distribution, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
- 7 -
<PAGE> 32
(ii) any proposed capital reorganization of the Company, and
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company with or into any
other person, or
(iii) any proposed voluntary on involuntary dissolution, liquidation
or winding-up of the Company, or
(iv) any proposed issue or grant by the Company of any shares of stock
of any class or any other securities, or any right or option to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities (other than the issue of Common Stock on the exercise of the
Warrants), the Company will cause to be mailed to the holder hereof a notice
specifying (i) the date on which such record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, (ii) the date on which any such capital
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take place, and the time,
if any, as of which the holders of record of Common Stock (or Other Securities)
shall be entitled to exchange their shares of Common stock (or Other Securities)
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or
- 8 -
<PAGE> 33
other securities, or rights or options with respect thereto, proposed to be
issued or granted, the date of such proposed issue or grant and the persons or
class of persons to whom such proposed issued or grant is to be offered or made.
Such notice shall be mailed at least 20 days prior to the date therein
specified.
I. Reservation of Stock, etc., Issuable on Conversion of Series B Preferred
Stock.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the conversion of Series B Preferred Stock, all
shares of Common stock (or Other Securities) from time to time issuable upon the
exercise of this Warrant.
J. Notices, etc. All notices and other communications from the Company to
the holder of a certificate for Series B Preferred Stock shall be mailed by
first class registered or certified mail, postage prepaid, to such address as
may have been furnished to the Company in writing by such holder, or, until an
address is so furnished, to the address of the last holder thereof who has so
furnished an address to the Company.
3. Redemption Fund.
The Company shall set aside as a fund to be applied immediately to the
redemption of the Series B Preferred Stock in the manner set forth under
Voluntary Redemption the following amounts received by the Company
- 9 -
<PAGE> 34
(i) 15% of the net income in any fiscal year in excess of $100,000;
(ii) 10% of the net proceeds of any public financing; and
(iii) 50% of the net proceeds derived from the sale of any equipment
purchased from SVC Liquidating Corporation on or about June 30, 1982.
4. Registration of Shares Under the Securities Act of 1933.
(a) Piggy Back. In the event the Company registers any of its securities
for sale under the Securities Act of 1933 after the first public offering on
behalf of the Company, the Holder(s) of shares of Series B Preferred or Common
Stock issued or to be issued upon conversion of Series B may elect to have his
shares included in the Registration Statement without expense to him. At the
time of the first offering of shares issued upon conversion, if the Company's
underwriters advise that the offering on behalf of the Company cannot proceed
unless the offering of the conversion shares on behalf of stockholders is
deferred, the shares received upon conversion will not be offered until
forty-five days after completion of the Company's offering.
(b) Demand Registration. On and after January 1, 1984 the holder of a
majority of shares of Series Preferred Stock issued or to be issued upon the
conversion thereof may
- 10 -
<PAGE> 35
demand that the Company register its shares pursuant to the Securities Act of
1933 at the expense of the shareholder. In the event of such demand, the Company
will use its best efforts to complete such registration.
5. Representatives on the Board of Directors of the Company.
So long as any shares Series B Preferred Stock is outstanding, the Holder
or Holders of a majority portion thereof, shall have the right to nominate a
member of the Board of Directors of good character and repute and the Company
will use its best efforts to secure the election of such nominee to the Board of
Directors of the Company. Annual audited and quarterly unaudited financial
statements of the company shall be furnished promptly to the Holder.
- 11 -
<PAGE> 36
IN WITNESS WHEREOF, Selvac Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by Michael B. Freedman, its
President, and James W. Deer, its Secretary, on this 14th day of June, 1983.
SELVAC CORPORATION
by /s/ Michael B. Freedman
------------------------
President
Attest: /s/ James W. Deer
-----------------------
Secretary
- 12 -
<PAGE> 37
CERTIFICATE OF DESIGNATION
of the
BOARD OF DIRECTORS
of
SELVAC CORPORATION
Creating 75,000 shares of
12% CUMULATIVE CONVERTIBLE PREFERRED STOCK,
1985 SERIES
SELVAC CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
That at a meeting of the Board of Directors of Selvac Corporation (the
"Company") held on April 9, 1986, a resolution was duly adopted creating an
additional series of the Serial Preferred Stock as described in said resolution,
which is as follows:
RESOLVED, that there is hereby created an additional series of the
Company's Serial Preferred Stock with the following designation, terms,
provisions and characteristics:
1. (A) Designation: 12% Cumulative Convertible Preferred
Stock, 1985 Series ("1985 Series
Preferred Stock").
(B) Number of Shares: Seventy-Five thousand (75,000).
(C) Par Value: $10 per share.
<PAGE> 38
(D) Rate of
Dividends: The shares of 1985 Series Preferred Stock
shall be entitled to receive an annual
dividend of 12% of the par value thereof,
and no more, payable semi-annually on the
last day of November and May in each
year, except that if any shares are
issued on or as of a date other than a
dividend payment date the amount of the
first dividend shall be prorated from the
date of issuance to the next dividend
payment date.
(E) Cumulation of
Dividends: The dividends payable on the 1985 Series
Preferred Stock shall be cumulative from
the date, or as of the date, issued.
(F) Prohibitions on
Company while
Dividends are in
Arrears: So long as there are any accrued and
unpaid dividends on the Serial Preferred
Stock, the Company shall not make any
Stock Payments in respect of any class of
Serial Preferred Stock. Stock Payments
shall mean (a) all dividends in respect
of Common Stock or any class of stock
junior to the Serial Preferred Stock and
(b) all amounts expended to buy or redeem
any shares of any class of capital stock
(except that the Company may redeem all
shares of all series of Serial Preferred
Stock on which there are accrued and
unpaid dividends).
(G) Conversion
Privilege: The holder of the 1985 Series Preferred
Stock may, at his election exercised at
any time prior to the date fixed for
redemption of his shares convert them
into shares of Common Stock of the
Company. the number of shares of Common
Stock issuable
- 2 -
<PAGE> 39
upon the conversion of 1985 Series
Preferred Stock shall be the quotient
obtained by dividing the par value of the
1985 Series Preferred Stock ($10 per
share) by the Conversion Price (initially
$.625 per share). The original number of
Common Stock shares issuable will be 16
shares of Common Stock for each share of
1985 Series) Preferred Stock converted
(the "Conversion Rate").
2. (A) Conversion of
1985 Series
Preferred Stock: The following terms and provisions relate
to conversion of 1985 Series Preferred
Stock into Common Stock of the Company.
A. As used herein the following terms unless the context otherwise
requires, have the following respective meanings:
(i) The term "Company" shall mean Selvac Corporation or any
corporation which shall succeed to or assume the obligations of Selvac
Corporation thereunder.
(ii) The term "Common Stock" means the Company's common stock, par
value $.01 per share.
(iii) The "Original Issue Date" is May 31, 1986.
(iv) The term "Other Securities" refers to any stock (other than the
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holder of shares of 1985 Series Preferred Stock at any
time shall be entitled to receive, or shall receive, or shall have received,
upon the conversion hereof, in lieu of or in addition to Common Stock, or which
at any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant hereto.
- 3 -
<PAGE> 40
(v) The term "Securities Act means the Securities Act of 1933, as the
same shall be in effect at the time.
(vi) The term "Conversion Price" initially means the Conversion Price,
shall be subject to adjustment as provided in Subparagraphs E and F hereof.
B. Sale of Conversion Without Registration. If, at the time of any
conversion, transfer or surrender for exchange only of a certificate for 1985
Series Preferred Stock or of Common Stock (or Other Securities) previously
issued upon the conversion of this stock certificate, the shares of 1985 Series
Preferred Stock or Common Stock (or Other Securities), shall not be registered
under the Securities Act, the Company may require, as a condition of allowing
such conversion transfer or exchange, that the holder or transferee of such 1985
Series Preferred Stock of Common Stock (or Other Securities), as the case may
be, furnish to the Company a satisfactory opinion of counsel acceptable to the
Company to the effect that such conversion, transfer or exchange may be made
without registration under the Securities Act.
C. Conversion of 1985 Series Preferred Stock.
(i) Conversion in Full. Subject to the provisions hereof, the conversion
privilege appertaining to shares of 1985 Series Preferred Stock may be exercised
in full by the holder hereof by surrender of the stock certificate representing
said shares, with the form of subscription at the end thereof duly executed by
such holder, to the Company at its principal office.
- 4 -
<PAGE> 41
(ii) Partial Conversion. Subject to the provisions hereof, a
certificate for shares of 1985 Series Preferred Stock may be exercised in part
by surrender of the stock certificate in the manner provided in Subparagraph C
hereof, except that the conversion shall be effective only as to the number of
shares designated by the holder in the conversion form at the end thereof. Upon
any such partial conversion, the Company at its expense will forthwith issue and
deliver to or upon the order of the holder hereof a new certificate or
certificates of like tenor, in the name of the holder hereof or as such holder
(upon payment by such holder of any applicable transfer taxes) may request,
calling in the aggregate on the face or faces thereof for the number of shares
of the 1985 Series Stock Certificate equal (without giving effect to any
adjustment therein) to the number of such shares called for on the face of the
1985 Series Stock Certificate minus the number of such shares designated by the
holder in the conversion form appearing on the 1985 Series Preferred Stock
Certificate.
D. Delivery of Stock Certificates, etc., upon Conversion.
As soon as practicable after the conversion of any 1985 Series Preferred
Stock Certificate in full or in part, and in any event within 10 days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the holder thereof, or as such holder (upon payment by such
- 5 -
<PAGE> 42
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and non-assessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value, or, if no such market value is available, by the value
determined in good faith by the Board of Directors of the Company of one full
share, together with any other stock or other securities to which such holder
shall be entitled upon such conversion.
E. Adjustment for Certain Dividends, Reclassification, etc.
In case at any time or from time to time after the Original Issue Date the
holders of Common Stock (or Other Securities) shall have received, or shall have
become entitled to receive, without payment therefor, other or additional stock
or securities of the Company by way of dividend, stock split or reverse split,
reclassification, recapitalization or similar corporate rearrangement, then the
holder of 1985 Series Preferred Stock, upon the conversion thereof, shall be
entitled to receive the amount of stock and other securities which such holder
would have held on the date of such conversion if on the Original Issue Date he
had been the holder of record of the number of shares of Common Stock into which
said 1985 Series Preferred Stock was convertible and had thereafter, during the
- 6 -
<PAGE> 43
period from the Original Issue Date to and including the date of such exercise,
retained such shares and all such other or additional (or less) stock and other
securities receivable by him as aforesaid during such period, giving effect to
all adjustments called for during such period by the provisions hereof.
F. Adjustment for Reorganization, Consolidation, Merger, etc.
In case the Company after the Original Issue Date shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the holder of a 1985 Series Preferred Stock
Certificate, upon the conversion thereof at any time after the consummation of
such reorganization, consolidation or merger or the effective date of such
dissolution, shall be entitled to receive (and the Company shall be entitled to
deliver), in lieu of the Common Stock (or Other Securities) issuable upon such
conversion prior to such consummation or such effective date, the stock or other
securities and property (including cash) to which such holder would have been
entitled upon consummation or in connection with such dissolution, as the case
may be, if such holder had so converted his 1985 Series Preferred Stock
certificate immediately prior thereto, all subject to further adjustment
thereafter as provided herein.
- 7 -
<PAGE> 44
G. Further Assurances. The Company will take such action as may be
necessary in order that the Company may validly issue fully paid and
non-assessable shares of Common Stock or Other Securities upon exercise of all
Warrants from time to time outstanding.
H. Notice of Record Date, etc. In the event of
(i) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend payable out of
earned surplus of the Company) or other distribution, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(ii) any proposed capital reorganization of the Company, and
reclassification or recapitalizaton of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company with or into any
other person, or
(iii) any proposed voluntary on involuntary dissolution, liquidation
or winding-up of the Company, or
(iv) any proposed issue or grant by the Company of any shares of stock
of any class or any other securities, or any right or option to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities (other than the issue of Common Stock on the exercise of the
- 8 -
<PAGE> 45
Warrants), the Company will cause to be mailed to the holder of 1985 Series
Preferred Stock a notice specifying (i) the date on which such record is to be
taken for the purpose of such dividend, distribution or right, (ii) the date on
which any such capital reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
stock (or Other Securities) for securities or other property deliverable upon
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up, and (iii) the
amount and character of any stock or other securities, or rights or options with
respect thereto, proposed to be issued or granted, the date of such proposed
issue or grant and the persons or class of persons to whom such proposed issued
or grant is to be offered or made. Such notice shall be mailed at least 20 days
prior to the date therein specified.
I. Reservation of Stock, etc., Issuable on Conversion of Series B
Preferred Stock.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the conversion of Series B Preferred Stock, all
shares of Common stock (or Other Securities) from time to time issuable upon the
exercise of this Warrant.
- 9 -
<PAGE> 46
J. Notices, etc. All notices and other communications from the Company to
the holder of a certificate for 1985 Series Preferred Stock shall be mailed by
first class registered or certified mail, postage prepaid, to such address as
may have been furnished to the Company in writing by such holder, or, until an
address is so furnished, to the address of the last holder thereof who has so
furnished an address to the Company.
IN WITNESS WHEREOF, Selvac Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by Michael B. Freedman, its
President, and James W. Deer, its Secretary, on this 30th day of June, 1983.
SELVAC CORPORATION
By /s/ Michael B. Freedman
------------------------
President
Attest: /s/ James W. Deer
-----------------------
Secretary
- 10 -
<PAGE> 47
CERTIFICATE OF AMENDMENT
of the
CERTIFICATE OF INCORPORATION
of
SELVAC CORPORATION
* * * * * *
The undersigned, MICHAEL B. FREEDMAN, President, and JAMES W. DEER,
Secretary, of SELVAC CORPORATION, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: At a meeting of the Board of Directors of said Corporation, the
directors adopted the following resolution:
RESOLVED, that it is advisable and best in the interest of the
Corporation to amend the Certificate of Incorporation by adding a new
Paragraph 10, which will read as follows:
10. No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability (i) for any breach
of the Director's duty of loyalty to the Corporation or its
Stockholders; (ii) for acts or omissions not in good faith or which
involve intention misconduct or a knowing violation of law; (iii) for
the payment of unlawful dividends or unlawful stock repurchases or
redemptions under Section 174 of the
<PAGE> 48
Delaware General Corporation Law: or (iv) for any transactions
from which the Director derived an improper personal benefit.
SECOND: The above amendment was submitted to a meeting of the holders of
Common Stock and A Serial Preferred Stock, constitution all classes of stock
entitled to vote thereon, and was approved by the requisite majority of each
class. This Certificate is being filed in accordance with Section 242 of the
General Corporation Law.
IN WITNESS WHEREOF, SELVAC CORPORATION has caused this certificate to be
signed and its corporate seal to be affixed and this Certificate to be signed by
Michael B. Freedman, its President, and James W. Deer, its Secretary, on this
9th day of March, 1988.
SELVAC CORPORATION
by /s/ Michael B. Freedman
------------------------
President
Attest: /s/ James W. Deer
-----------------------
Secretary
- 2 -
<PAGE> 49
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF 5% CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES C
OF SELVAC CORPORATION
Selvac Corporation (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Company at a meeting duly held on May 13, 1996, adopted
resolutions providing for the designations, preferences and relative,
participating optional or other rights, and the qualification, limitations or
restriction thereof, of ten thousand (10,000) shares of 5% Cumulative
Convertible Preferred Stock, Series C, of the Company, as follows:
RESOLVED, that the Company is authorized to issue 10,000 shares
of 5% Cumulative Convertible Preferred Stock, Series C, $10 par
value (the "Preferred Shares"), which shall have the following
powers, designations, preferences and other special rights:
(1) Dividends. The holders of the Preferred Shares shall be
entitled to a cash dividend of five percent (5%) per annum of the
Stated Value (as defined below), on a cumulative basis with
quarterly compounding (prorated for any portion of the applicable
period during which the Preferred Shares are outstanding).
Dividends shall accrue from the date of issuance of the Preferred
Shares and shall be payable quarterly commencing August 31, 1996,
though and including the date on which the Preferred Shares are
no longer outstanding.
(2) Conversion of Preferred Shares. The holders of the
Preferred Shares shall have the right, at their option, to
convert the
<PAGE> 50
Preferred Shares into shares of Common Stock on the following
terms and conditions:
(a) Conversion Right. Each Preferred Share shall be
convertible, at any time after the earlier of (i) the ninetieth
(90th) day following the date of issuance or (ii) the date the
Registration Statement (the "Registration Statement"), which the
Company is required to file pursuant to Section 2(a) of the
Registration Rights Agreement of even day herewith by and among
the Company and the investor named therein (the "Registration
Rights Agreement"), is declared effective (the "Effective Date")
by the U.S. Securities and Exchange Commission (the "SEC"), into
fully paid and nonassessable shares (calculated to the nearest
whole share) of Common Stock, at the conversion price (the
"Conversion Price") in effect at the time of conversion
determined as hereinafter provided; provided, however, that in no
event shall any holder be entitled to convert Preferred Shares
if, after giving effect to such conversion, the number of shares
of Common Stock beneficially owned by such holder for purposes of
calculating beneficial ownership in accordance with Sections 13
(d) and 16 of the Securities Exchange Act of 1934, as amended,
and the regulations thereunder ("Sections 13(d) and 16"),
including, without limitation, any person serving as an adviser
to any holder (collectively, the "Related Persons"), would exceed
four and nine-tenths percent (4.9%) of the outstanding shares of
Common Stock (calculated in accordance with Sections 13(d) and
16). Each Preferred Share shall have a value of One Thousand
Dollars ($1,000) (the "Stated Value") for the purpose of such
conversion and the number of shares of Common Stock issuable upon
conversion of each of the Preferred Shares shall be determined by
dividing the Stated Value thereof by the Conversion Price then if
effect. Every reference herein to the Common Stock of the Company
(unless a different intention is expressed) shall be to the
shares of the Common Stock of the Company, $.01 par value, as
such stock exists immediately after the issuance of the Preferred
Shares provided for hereunder, or to stock into which such common
Stock may be changed from time to time thereafter.
(b) Conversion Price. The Conversion Price shall be the
lesser of (i) eighty percent (80%) (the "Conversion Percentage")
of the average Market Price (as defined below) for the Common
Stock for the five (5) consecutive trading days ending one
trading day prior to the date of the Conversion Notice) (as
defined below), subject to adjustment as provided herein, or (ii)
$7.50 (the "fixed Conversion Price"); provided however, that in
no event shall the Conversion Price be less than $3.00 (the
"Floor Price").
2
<PAGE> 51
(c) Adjustment to Conversion Percentage. If the Effective
Date has not occurred within ninety (90) days after the date of
issuance of the Preferred Shares, or if, after the Registration
Statement has been declared effective by the SEC, sales cannot be
made pursuant to the Registration Statement by reason of stop
order, the Company's failure to update the Registration Statement
in accordance with the rules and regulations of the SEC or
otherwise, or if the Common Stock is not listed or included for
quotation on the National Market of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ-NM"), the
New York Stock Exchange (the "NYSE"), the American Stock Exchange
(the "AMEX"), or the NASDAQ SmallCap Market ("NASDAQ SmallCap")
then, as partial relief for the damages to the holder by reason
of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be
exclusive of any other remedies available in law or in equity),
the Conversion Percentage shall be reduced by a number of
percentage points equal to the Discount Amount (as hereinafter
defined) multiplied by the sum of: (i) the number of months
(prorated for partial months) after the end of such 90 day period
and prior to the date the Registration Statement is declared
effective by the SEC; (ii) the number of months (prorated for
partial months) that sales cannot be made pursuant to the
Registration Statement (by reason of stop order, the Company's
failure to update the Registration or otherwise) after the
Registration Statement has been declared effective; and (iii) the
number of months (prorated for partial months) that the Common
Stock is not listed or included for quotation on the NASDAQ-NM,
NYSE, AMEX, or the NASDAQ SmallCap after the Registration
Statement has been declared effective. The "Discount Amount" for
the first month during which adjustment is required pursuant to
this Section shall be one and one-half (1 1/2); for the second
month, two (2); and for the third month and each month
thereafter, three (3). (For example, if the Registration
Statement becomes effective one and one-half (1 1/2) months after
the end of such 90 day period, the Conversion Percentage would be
77.5% until any subsequent adjustment; if thereafter sales could
not be made pursuant to the Registration Statement for a period
of two (2) additional months, the Conversion Percentage would
then be 72%.) If the Holder converts Preferred Shares into Common
Stock and an adjustment to the Conversion Percentage is required
subsequent to such conversion, but prior to the sale of such
Common Stock by such holder, an amount equal to the Average
Market Price of the Common Stock obtained upon conversion of such
Preferred Shares for the five (5) trading days ending one (1)
trading day prior to the date of such conversion multiplied by a
fraction, the numerator of which shall be the applicable Discount
Amount and the
3
<PAGE> 52
denominator of which shall be one hundred (100), multiplied by
the number of months (prorated for partial months) for which an
adjustment was required. Such amount may be paid at the Company's
option in cash or in Common Stock ("Damage Shares") whose value
is based on the Average Market Price of the Common Stock for the
period of five (5) consecutive trading days ending on the date of
the sale of such Common Stock; provided, however, that any
amounts due as to that period during which the shares are not
traded or included for quotation on the NASDAQ-NM, NYSE, AMEX, or
the NASDAQ SmallCap shall be paid in cash only; provided,
further, however, that in no event shall shares be issued
hereunder if, after giving effect to such issuance, the number of
shares of Common Stock beneficially owned by such holder and all
Related Persons would exceed four and nine tenths percent (4.9%)
of the outstanding shares of Common Stock (calculated in
accordance with Sections 13(d) and 16); cash shall be paid in
lieu of any shares which cannot be issued pursuant to this second
proviso. (For example, if the Conversion Percentage was 77.5% at
the time of conversion of $1,000,000 in Stated Value of Preferred
Shares (such that the Preferred Shares were converted into Common
Stock having an Average Market Price for the applicable period in
aggregate of $1,290,322.50) and subsequent to conversion there
was a further two (2) month delay in the Registration Statement's
being declared effective, and such Common Stock was sold at the
end of such two (2) month period, the Company would pay to the
holder $70,967.74 in cash or Damage Shares.)
"Average Market Price" of any security for any period shall
be computed as the arithmetic average of the closing bid prices
for such security for each trading day in such period on the
NASDAQ SmallCap, or, if the NASDAQ SmallCap is not the principal
trading market for such security, or, if the market value cannot
be calculated for such period on any of the foregoing bases, the
average fair market value during such period as reasonable
determined in good faith by the Board of Directors of the Company
(all as appropriately adjusted for any stock dividend, stock
split, or other similar transaction during such period or between
the end of such period and the date of conversion or dividend
payment, as applicable).
(d) Conversion Notice. On presentation and surrender to the
Company (or at any office or agency maintained for the transfer
of the Preferred Shares) of the certificates of Preferred Shares
so to be converted, duly endorsed in blank for transfer or
accompanied by proper instruments of assignment or transfer in
blank ( a "Conversion Notice"), the holder of such Preferred
Shares shall be entitled, subject to the limitations herein
contained, to receive in exchange therefor a certificate or
certificates for fully paid and nonassessable shares, which
certificates shall be delivered
4
<PAGE> 53
by the second trading day after the date of delivery of the
Conversion Notice, and cash for fractional shares, of Common
Stock on the foregoing basis. The Preferred Shares shall be
deemed to have been converted, and the person converting the same
to have become the holder of record of Common Stock, for all
purposes as of the date of delivery of the Conversion Notice.
(e) Major Transactions. If the Company shall consolidate
with or merge into any corporation or reclassify its outstanding
shares of Common Stock (other than by way of subdivision or
reduction of such shares) (each a "Major Transaction"), then each
Preferred Share shall thereafter shall be convertible into the
number of shares of stock or securities (the "Resulting
Securities") or property of the Company, or of the entity
resulting from such consolidation or merger, to which a holder of
the number of shares of Common Stock delivered upon conversion of
such Preferred Share would have been entitled upon such Major
Transaction had the holder of such Preferred Share exercised its
right of conversion and had such Common Stock been issued and
outstanding and had such holder been the holder of record of such
Common Stock at the time of such Major Transaction, and the
Company shall make lawful provision therefor as a part of such
consolidation, merger or reclassification; provided, however,
that the Company shall give the holders of the Preferred Shares
written notice of any Major Transaction promptly upon the
execution of any agreement whether or not binding in connection
therewith (including without limitation a letter of intent or
agreement in principle) and in no event shall a Major Transaction
be consummated prior to forty-five (45) days after such notice.
(f) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion, but
shall pay in cash therefor at the Conversion Price then in effect
multiplied by such fraction.
(g) Reservation of Shares. The Company shall, so long as any
of the Preferred Shares are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of Preferred Shares,
such number of shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all of the Preferred
Shares then outstanding.
(h) Taxes. The Company shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of
Common Stock upon the conversion of the Preferred Shares as
herein provided. The Company shall not be required in any event
to pay any
5
<PAGE> 54
transfer or other taxes by reason of the issuance of such Common
Stock in names other than those in which the Preferred Shares
surrendered for conversion are registered on the Company's
records, and no such conversion or issuance of Common Stock shall
be made unless and until the person requesting such issuance has
paid to the Company the amount of any such tax, or established to
the satisfaction of the Company and its transfer agent, if any,
that such tax has been paid.
(3) Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law and by Section 6 hereof.
(4) Redemption. The Company waives all redemption rights
with respect to the Preferred Shares.
(5) Preferred Rank. All shares of Common Stock shall be of
junior rank to all Preferred Shares in respect to the preferences
as to distributions and payments upon liquidation, dissolution or
winding up of the Company. The rights of the shares of Common
Stock shall be subject to the preferences and relative rights of
the Preferred Shares.
(6) Vote to Change the Terms of Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares shall
be required to amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Preferred Shares.
6
<PAGE> 55
IN WITNESS WHEREOF, the Company has caused this certificate to be signed by
James Leonard, its President, this 15th day of May 1996.
SELVAC CORPORATION
By: /s/ James Leonard
------------------------
President
7
<PAGE> 56
Certificate of Amendment
of
Certificate of Incorporation
of
SELVAC CORPORATION
SELVAC CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY as follows:
FIRST: By unanimous written consent, dated May 29, 1996, the directors of
said Corporation adopted the following resolutions:
RESOLVED, that it is advisable and in the best interests of the
Company to amend Article FIRST of the Certificate of Incorporation to read
in its entirety as follows:
"FIRST: The name of the corporation is MEHL/BIOPHILE INTERNATIONAL
CORPORATION.";
RESOLVED, that it is advisable and in the best interests of the Company
to amend Article FOURTH of the Certificate of Incorporation by replacing
paragraphs (a) and (b) with the following:
"The total number of shares of capital stock which the Corporation
shall have the authority to issue is 60,200,000 of which 60,000,000
shares shall be shares of Common Stock, with a par value of $.01 per
share, and 200,000 shares shall be shares of Serial Preferred Stock,
with a par value of $10.00 per share.";
SECOND: That the approval of the holders of a majority of all the
outstanding capital stock entitled to vote on the proposed amendments was
obtained at a meeting of stockholders held on June 4, 1996 and this Certificate
is being filed in accordance with Section 242 of the General Corporation Law of
the State of Delaware.
<PAGE> 57
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by James J. Leonard, its President, this 4th day of June, 1996.
Selvac Corporation
By: /s/ James Leonard
------------------------
President
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<PAGE> 1
SELVAC CORPORATION
A Delaware Corporation
BY-LAWS
As Amended to April 30, 1987
ARTICLE I
OFFICES
Section 1.1. Registered Office. The Corporation's registered office shall
be in the City of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at such
other places within or without the State of Delaware as the Board of Directors
shall determine
ARTICLE II
STOCKHOLDERS
Section 2.1. Place of Meeting. Meetings of stockholders may be held at such
places within or without the State of Delaware as the Board of Directors shall
determine.
Section 2.2. Annual and Special Meetings. Annual meetings of stockholders
shall be held (at dates, times, and places fixed by the Board of Directors and
stated in the notice of meeting) to elect Directors and to transact such other
business as may properly come before the meeting; provided, however, that the
date of each such annual meeting shall be
<PAGE> 2
within thirteen months subsequent to the later of the date of the Corporation's
incorporation or the date of the last annual meeting of stockholders. Special
meetings of stockholders may be called by the President for any purpose. If
directed by the Board of Directors or requested in writing by the holders of not
less than 25% of the aggregate of the Corporation's then outstanding capital
stock, special meetings of stockholders shall be called by the President or the
Secretary. Each such stockholder request shall state the purpose of the proposed
meeting.
Section 2.3. List of Stockholders. The officer who has charge of the
Corporation's stock ledger shall prepare, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting. Such list shall be arranged in alphabetical order and shall show each
stockholder's address and the number of shares registered in such stockholder's
name. Such list shall be open to examination by any stockholder for any purpose
germane to the meeting during ordinary business hours, for a period of at least
ten days prior to the meeting. Such list shall be made available for such
examination at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting (or, if not so specified,
at the place where the meeting is to be held). The list shall be produced and
kept at the time and place of the meeting during the whole time thereof, and may
be inspected by any stockholder who is present.
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<PAGE> 3
Section 2.4. Organization. The person designated by the Board of Directors
(or, in the absence of such designation, the highest ranking officer of the
Corporation who is present at the meeting) shall call to order meetings of
stockholders and shall act as chairman of such meetings. The Secretary of the
Corporation shall act as secretary of meetings of stockholders. If the Secretary
of the Corporation is absent from the meeting, the secretary of the meeting
shall be such person as the chairman of the meeting shall appoint.
Section 2.5. Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedures to be
followed at the meeting, including regulation of the manner of voting and of the
conduct of discussion.
Section 2.6. Notice. Except as otherwise provided by law, written notice of
the time, date, and place of meeting (and, in the case of a special meeting, the
purpose thereof) shall be given to each stockholder not less than 10 days and
not more than 60 days before the date on which the meeting is to be held.
Section 2.7. Quorum. At any meeting of stockholders, the holders of record
(present in person or by proxy) of a majority of the shares of capital stock
entitled to vote at the meeting shall constitute a quorum for the transaction of
business, except as otherwise required by law. In the absence of a quorum, the
chairman or secretary of the meeting may
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<PAGE> 4
adjourn the meeting in the manner provided in Section 2.8 hereof until a quorum
if present.
Section 2.8. Adjournment. Any meeting of stockholders, annual or special,
may be adjourned from time to time to reconvene at the same place or at another
place. A determination in accordance with Article V hereof of stockholders of
record with respect to a meeting of stockholders shall apply to any adjournment
of such meeting; provided, however, that the Board of Directors shall have
authority to fix a new record date for the adjourned meeting. Notice need not be
given of any such adjourned meeting if the date, time, and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the adjournment is for more than thirty days or if a new record date is
fixed for the adjourned meeting, written notice of the date, time, and place of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting. At the adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
Section 2.9. Proxies and Voting. At any meeting of stockholders, each
stockholder entitled to vote may vote in person or by proxy. Each stockholder
shall have one vote for each share of capital stock entitled to vote which is
registered in his name on the record date for the meeting, except as otherwise
provided in these By-Laws or as otherwise required by law. All voting by
stockholders, except on the election of
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<PAGE> 5
directors and except as otherwise required by law, may be by voice vote;
provided, however, that upon demand therefor by a stockholder (or by his proxy)
entitled to vote, a stock vote shall be taken. Each stock vote shall be taken by
written ballots, each of which shall state the name of the stockholder (or
proxy) voting. Each vote taken by ballots shall be counted by an inspector or
inspectors appointed by the chairman of the meeting. Elections of Directors
shall be determined by a plurality of the votes cast; except as otherwise
required by law, all other matters shall be determined by a majority of votes
cast.
ARTICLE III
DIRECTORS
Section 3.1. Number, Election, and Term of Directors. Each Director shall
be elected for a term of one year and until his successor is elected and
qualified, except as otherwise provided in these By-Laws or as otherwise
required by law. The first Board of Directors shall consist of three Directors.
Thereafter, the number of Directors shall be determined by the Board of
Directors or by the stockholders. The Directors shall all be elected by the
stockholders in accordance with Section 2.9 hereof at the annual meeting of
stockholders. Vacancies and newly created directorships resulting from an
increase in the number of Directors may be filled (for the unexpired term and
until a successor Director is elected) by a majority of the
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<PAGE> 6
Directors then in office (although less than a quorum), by the sole remaining
Director, or by the stockholders.
Section 3.2. Removal of Directors. Any director may be removed without
cause by the Stockholders.
Section 3.3. Meetings. Regular meetings of the Board of Directors shall be
held at such dates, times, and places as may from time to time be fixed by the
Board of Directors, or as may be specified in a notice of meeting. Notice need
not be given of regular meetings of the Board of Directors. Special meetings of
the Board of Directors may be held at any date, time, and place upon the call of
the President, and shall be called by the President or Secretary if and as
directed by one-third of the Directors then in office. Telegraphic or other
written notice of the place, date, and time of each special meeting of the Board
of Directors shall be given not less than two days before such meeting to each
Director who shall not waive such notice. Meetings of the Board of Directors may
be held without notice immediately after annual meetings of stockholders.
Section 3.4. Action Without Meeting. Nothing contained in these By-Laws
shall be deemed to restrict the power of the Board of Directors or of any
committee of the Board of Directors to take any action without a meeting.
Section 3.5. Telephonic Meeting. Notching contained in these By-Laws shall
be deemed to restrict the power of members of the Board of Directors, or of any
committee of the Board of
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<PAGE> 7
Directors, to participate in meetings of the Board of Directors (or of such
committees) by means of conference telephone or similar communications equipment
by means of which all persons participating in such meeting can hear one
another.
Section 3.6. Quorums; Act of the Board of Directors. One-half of the
total number of Directors shall constitute a quorum for the transaction of
business. If a quorum is not present at any meeting of the Board of Directors, a
majority of the Directors present may adjourn the meeting to another place,
date, and time without further notice or waiver. Except as otherwise provided by
law, by the Certificate of Incorporation, by these By-Laws, or by any binding
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 3.7. Committees of the Board of Directors. The Board of Directors,
by resolution adopted by a majority of the whole Board of Directors, may
designate one or more committees (including, without limitation, an Executive
Committee) to have and to exercise such power and authority as the Board of
Directors shall specify and as shall be permitted by law. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting may (whether or not he
or they constitute a quorum) unanimously appoint another Director to act at the
meeting in place of the absent or disqualified committee
- 7 -
<PAGE> 8
member. Each committee may fix procedural rules for meeting and for conducting
its business and shall act in accordance therewith, except as otherwise provided
in these By-Laws or as otherwise required by law. Adequate provision shall be
made for notice to committee members of all committee meetings. One-half of the
members of each committee shall constitute a quorum (unless the committee shall
consist of one member, in which event one member shall constitute a quorum). All
matters shall be determined by a majority vote of the committee members present
at the committee meeting.
Section 3.8. Minutes of Meetings of Committees. Each committee of the Board
of Directors shall keep minutes of its meetings and shall report the same when
and as required by the Board of Directors.
Section 3.9. Compensation of Directors. Pursuant to resolution of the Board
of Directors, Directors may be paid their expenses of attendance at meetings of
the Board of Directors and may also be paid either a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary for service as a
Director. Pursuant to resolution of the Board of Directors, members of
committees of the Board of Directors may be allowed like compensation for
attending meetings of committees of the Board of Directors. No payment referred
to in this Section 3.9 shall preclude any Director from serving the Corporation
in any other capacity or from receiving compensation therefor.
- 8 -
<PAGE> 9
ARTICLE IV
OFFICERS
Section 4.1. General. The Corporation's officers shall consist of a
Chairman of the Board, President, one or more Vice Presidents, a Secretary, a
Treasurer, and such other officers (which may include one or more Assistant
Secretaries and Assistant Treasurers) with such titles and duties as the Board
of Directors shall determine. Any number of offices may be held by the same
person. Each officer shall be elected by the Board of Directors, shall be
subject to supervision and direction by the Board of Directors, shall serve at
the pleasure of the Board of Directors, and shall hold office for the term
prescribed by the Board of Directors. The salaries of all officers shall be
fixed by the Board of Directors. The authority, duties, or responsibilities of
any officer may be suspended by the Board of Directors with or without cause.
Any officer may be removed at any time by the Board of Directors with or without
cause.
Section 4.2. The Chairman of the Board. The Chairman of the Board of
Directors shall be the Corporation's Chief Executive Officer, shall preside at
meetings of the Board of Directors and of the Stockholders, and shall perform
such other duties as the Board may determine.
Section 4.3. The President. The President shall be the Corporation's chief
operating officer. Subject to the provisions of these By-Laws and to the
direction of the Board of
- 9 -
<PAGE> 10
Directors and of the Chairman of the Board, the President shall have
responsibility for the operation of the Corporation's affairs and business and
shall perform all duties and have all powers which are commonly incident to the
office of chief operating officer or which are delegated to him by the Board of
Directors or the Chairman of the Board. The President shall have power to sign
all stock certificates, contracts, and other authorized instruments of the
Corporation. The President shall have general supervision and direction of the
Corporation's other officers and agents.
Section 4.4. The Vice Presidents. In the President's absence (or in the
event of his inability or refusal to act), the Vice President (or if there be
more than one Vice President, the Vice Presidents in the order designated by the
Board of Directors, or in the absence of such designation, then in the order of
their election, starting with the first to be elected) shall perform all duties
of the President. When so acting, such Vice President shall have all powers of,
and be subject to all restrictions upon, the President. The Vice President(s)
shall perform such other duties, and shall have such other powers, as the Board
of Directors shall prescribe.
Section 4.5. The Secretary; Assistant Secretaries. The Secretary shall
attend all meetings of the Board of Directors and all meetings of stockholders,
and shall record the proceedings of such meetings in a book or books to be kept
for that purpose. If so directed by the Board of Directors, the
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<PAGE> 11
Secretary shall perform similar duties with respect to meetings of committees of
the Board of Directors. The Secretary shall give (or cause to be given) notice
of all meetings of stockholders and of all special meetings of the Board of
Directors. The Secretary shall have custody of the Corporation's seal and he (or
any Assistant Secretary) shall have authority to affix such seal to any
appropriate instrument. When so affixed, such seal may be attested by the
Secretary's (or such Assistant Secretary's) signature. The Board of Directors
may give general authority to any other officer to affix the Corporation's seal
and to attest such affixation by such other officer's signature. In the
Secretary's absence (or in the event of his inability or refusal to act), the
Assistant Secretary (or if there shall be more than one Assistant Secretary, the
Assistant Secretaries in the order designated by the Board of Directors, or in
the absence of such designation, then in the order of their election, starting
with the first to be elected) shall have all powers of, and be subject to all
restrictions upon, the Secretary. The Secretary and the Assistant Secretary (or
Assistant Secretaries) shall perform such other duties, and shall have such
other powers, as the Board of Directors shall prescribe with respect to each
such office.
Section 4.6. The Treasurer; Assistant Treasurers. The Treasurer shall have
custody of the Corporation's monies and securities, shall keep regular books of
account, and shall
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<PAGE> 12
deposit all of the Corporation's monies and other valuable effects in the name
of (and to the credit of) the Corporation in one or more depositories designated
by the Board of Directors. The Treasurer shall disburse the Corporation's funds
as directed by the Board of Directors and shall take vouchers for such
disbursements. The Treasurer shall render to the Board of Directors at its
regular meetings (or when otherwise directed by the Board of Directors) an
account of his transactions as Treasurer and of the Corporation's financial
condition. In the absence of the Treasurer (or in the event of his inability or
refusal to act), the Assistant Treasurer (or if there shall be more than one
Assistant Treasurer, the Assistant Treasurers in the order designated by the
Board of Directors, or in the absence of such designation, then in the order of
their elections starting with the first to be elected) shall have all powers of,
and be subject to all restrictions upon, the Treasurer. The Treasurer and the
Assistant Treasurer (or Assistant Treasurers) shall perform such other duties,
and shall have such other powers, as the Board of Directors shall prescribe with
respect to each such office.
Section 4.7. Delegation of Authority. The Board of Directors may from time
deco time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any other provision of these By-Laws.
Section 4.8. Facsimile Signatures of Officers. Facsimile signatures of any
officer may be used whenever authorized by these By-Laws or by the Board of
Directors.
- 12 -
<PAGE> 13
Section 4.9. Action with Respect to Securities of Other Entities. Unless
otherwise prescribed by the Board of Directors, the President (or any other
officer designated by the President to act in his stead) shall have power and
authority on the Corporation's behalf to attend (and to act and vote at)
meetings of holders of securities of any entity in which the Corporation shall
own or hold securities. At such meetings, the President or his designee, as the
case may be, shall possess (and may exercise) all rights and powers incident to
the ownership or holding of such securities which the Corporation might have
possessed and exercised. The President or his designee may execute and deliver
on the Corporation's behalf powers of attorney, proxies, consents, waivers, and
other instruments relating to the securities owned or held by the Corporation.
ARTICLE V
CAPITAL STOCK
Section 5.1. Stock Certificates. Certificates for shares of the
Corporation's capital stock shall be in such form as shall be permitted by law
and approved by the Board of Directors.
Section 5.2. Transfer of Shares. Shares of the Corporation's capital stock
may be transferred on the Corporation's books only by the holder of such shares
(or by such holder's authorized attorney) upon surrender to the Corporation
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<PAGE> 14
or to the Corporation's transfer agent of the properly endorsed certificate(s)
representing such shares.
Section 5.3. Lost, Stolen or Destroyed Certificates. The Board of Directors
(or the Corporation's transfer agent) may authorize the issuance of a new share
certificate to replace any certificate theretofore issued by the Corporation
which is alleged to have been lost, stolen, or destroyed. The Board of
Directors, as a condition to such issuance, may require that the owner of such
lost, stolen, or destroyed certificate, or his legal representative, (i) submit
to the Corporation an affidavit stating that such certificate has been lost,
stolen, or destroyed, (ii) advertise the same in such manner as the Board of
Directors shall require, and/or (iii) give the Corporation a bond in such sum as
the Board of Directors shall require to indemnify the Corporation against any
claim that may be made against the Corporation in respect of the certificate
alleged to have been lost, stolen, destroyed or the certificate to be issued.
Section 5.4. Record Date. The Board of Directors may fix a record date,
which shall be not more than sixty days and not less than ten days before the
date of any meeting of stockholders, and which shall be not more than sixty days
prior to the time for any other action described in this Section 5.4, as of
which there shall be determined the stockholders who are entitled: to notice of
or to vote at any meeting of stockholders or any adjournment thereof; to consent
to corporate action in
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<PAGE> 15
writing without a meeting; to receive payment of any dividend or other
distribution or allotment of any rights; or to exercise any rights with respect
to any change, conversion, or exchange of capital stock, or with respect to any
other lawful action.
Section 5.5. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on the Corporation's books
as the owner of shares of capital stock to receive dividends on such shares and
to vote as owner of such shares. The Corporation need not recognize any claim to
(or interest in) such shares by any other person, whether or not the Corporation
shall have notice thereof, except as otherwise required by law.
Section 5.6. Regulations. The Board of Directors shall have power and
authority to make all rules and regulations which it deems expedient concerning
the issuance, transfer, registration, cancellation, and replacement of
certificates representing the Corporation's capital stock.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6.1. General. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a Director, officer,
employee or agent of the Corporation, or is or was
- 15 -
<PAGE> 16
serving at the request of the Corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including reasonable attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, to the extent, and subject to
the conditions prescribed by statute and by such rules and regulations, not
inconsistent with statute, as the Board of Directors may in its discretion
impose in general or particular cases or classes of cases.
Section 6.2. Rights Not Exclusive. The indemnification provided by this
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 6.3. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other
- 16 -
<PAGE> 17
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1. Notices. Whenever any law, the Certificate of
Incorporation, or these By-Laws requires that notice be given to any Director,
officer, or stockholder, such notice may be given personally or in writing by
mail, addressed to such Director, officer, or stockholder at his address which
appears on the Corporation's records. Any notice given by mail
shall be deemed to have been given when deposited in the United States mail,
with postage thereon prepaid. Notice to Directors or officers may be given by
telegram, cable, or radiogram, addressed to such Director or officer at his
address which appears on the Corporation's records, in which case notice shall
be deemed to have been given when delivered for transmission.
Section 7.2. Checks, etc. All checks, other drafts, and notes of the
Corporation shall be signed by such person or persons as the Board of Directors
shall designate.
Section 7.3. Fiscal Year. The Corporation's fiscal year shall be fixed by
the Board of Directors.
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<PAGE> 18
Section 7.4. Corporate Seal. The Corporation's corporate seal shall have
inscribed thereon the Corporation's name, the year of its incorporation, and
the words "Corporate Seal" and "Delaware".
Section 7.5. Time Periods. Whenever these By-Laws require that an act be
done or not be done a specified number of days prior to or after the occurrence
of an event (or require that an act be done or not be done within a period of
days prior to or after the occurrence of an event), calendar days shall be used,
with the day of the doing of such act excluded and the day of the occurrence of
such event included.
ARTICLE VIII
AMENDMENTS
The holders of shares of capital stock entitled at the time to vote for the
election of Directors shall have power to amend or repeal these By-Laws by vote
of not less than a majority of such shares. Except as otherwise provided by law,
the Board of Directors shall have power to amend or repeal these By-Laws by vote
of not less than a majority of the entire Board of Directors. Any by-law
adopted by the Board of Directors, however, may be amended or repealed by vote
of the holders of a majority of the shares of capital stock entitled at the
time to vote for the election of Directors.
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<PAGE> 1
AMENDED EXCLUSIVE LICENSE AGREEMENT FOR PATENTED
LASER HAIR REMOVAL INVENTION
This Agreement effective December 5, 1995, by and between CLASSY LADY BY
MEHL OF PUERTO RICO, INC. (hereinafter "CLASSY LADY"), a corporation of the
Commonwealth of Puerto Rico, having its principal place of business located at
Miramar Street, Suite 8A, San Juan, Puerto Rico 00907-3224, and NARDO ZAIAS,
M.D. (hereinafter "ZAIAS"), having his principal residence located at 1015 W.
47th Court, Miami Beach, Florida 33140, is as follows:
RECITALS
WHEREAS, CLASSY LADY is interested in obtaining an exclusive license to
manage, develop, manufacture, market, use, sublicense and/or sell the laser
method of hair removal invention (hereinafter the "Patented Laser") invented by
ZAIAS and for which ZAIAS has received letter of United States Patent Number
5,059,192 on October 22, 1991; and
WHEREAS, ZAIAS is interested in granting CLASSY LADY an exclusive license
to manage, develop, manufacture, market, use, sublicense and/or sell ZAIAS's
laser method of hair removal invention ("Patented Laser") for which ZAIAS has
received letter of United States Patent Number 5,059,192 on October 22, 1991;
and
WHEREAS, on May 10, 1995, CLASSY LADY and ZAIAS executed a Letter of Intent
memorializing their intention to enter into a valid and binding exclusive
license agreement for the Patented Laser.
1
<PAGE> 2
WHEREAS, on August 15, 1995, ZAIAS signed an Exclusive License Agreement
For Patented Laser Hair Removal Patent with CLASSY LADY. However, prior to
signing the aforementioned exclusive license with CLASSY LADY, ZAIAS
inadvertently failed to obtain a satisfaction of judgment and full release from
GeoTricum Ltd., Case No.:533573, in the Superior Court of the State of
California in and for the County of Sacramento. On December 4, 1995, ZAIAS
obtained a Satisfaction Of Judgment And Full Release, attached hereto as Exhibit
"A", from GeoTricum Ltd. waiving any and all claims which Geotricum Ltd. may
have had to United States Patent No.:5,059,192. Therefore, ZAIAS warrants and
represents to CLASSY LADY that he has the right to exclusively license United
States Patent No.:5,059,192 to CLASSY LADY.
MOW THEREFORE, with respect to the foregoing and for the mutual promises
hereinafter set forth, the parties to this Agreement, CLASSY LADY and ZAIAS,
acknowledge that they have entered into a binding and valid contract for which
their mutual promises provide full and adequate consideration, wherein they
agree as follows:
ARTICLE I
GRANT OF EXCLUSIVE PATENT LICENSE
1. ZAIAS's PATENTED LASER HAIR REMOVAL INVENTION: ZAIAS has developed a
Patented Laser as shown and described in the United States Patent received
letter of United States Patent Number 5,059,192 on October 22, 1991, and which
ZAIAS believes will provide for a substantially better method for the removal of
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unwanted hair, and for which ZAIAS is willing to grant, and does hereby grant to
CLASSY LADY the exclusive right to manage, develop, manufacture, market, use,
sublicense and/or sell, this invention both in the United States, and in all
foreign countries worldwide, and in return CLASSY LADY agrees to pay ZAIAS for
such license a royalty for each laser method of hair removal invention
manufactured, sublicensed and/or sold by CLASSY LADY in the United States and
worldwide in accordance with the provisions contained herein.
2. In consideration of receiving the exclusive worldwide rights to manage,
develop, manufacture, market, use, sublicense and/or sell ZAIAS's laser method
of hair removal invention, CLASSY LADY agrees to (1) issue ZAIAS 5,000 shares of
no par value common stock of CLASSY LADY and (2) pay ZAIAS the sum of One
Hundred Thousand U.S. Dollars ($100,000.00), payable within one-hundred eighty
(180) days of the execution of this agreement, and a royalty as defined below in
Article II. In the event that CLASSY LADY hereafter receives any monies from any
sublicense or joint venture agreement, CLASSY LADY agrees that ZAIAS shall
directly receive any such monies received from any sublicense or joint venture
agreement until said $100,000.00 is paid.
ARTICLE II
ROYALTY CALCULATION
1. ROYALTY PAYMENTS: CLASSY LADY will pay ZAIAS for such exclusive license
a royalty of:
a. five percent (5%) of the net sales on each Patented
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Laser manufactured, marketed, and/or sold by CLASSY LADY worldwide, which uses
any of ZAIAS's inventive laser method of hair removal for which he has received
patent protection under the letters of United States Patent Number 5,059,192
issued on October 22, 1991.
b. five percent (5%) of the net sales on each hair removal treatment
performed by CLASSY LADY worldwide in any hair removal treatment centers
hereafter opened by CLASSY LADY, which uses any of ZAIAS's inventive laser
method of hair removal for which he has received patent protection under the
letters of United States Patent Number 5,059,192 issued on October 22, 1991.
c. five percent (5%) of the net sales on each Patented Laser manufactured,
marketed, and/or sold by any third party sublicensee or franchisee of CLASSY
LADY worldwide, which uses any of ZAIAS's inventive laser method of hair removal
for which he has received patent protection under the letters of United States
Patent Number 5,059,192 issued on October 22, 1991.
d. five percent (5%) of the net sales on each hair removal treatment
performed by any third party sublicensee or franchisee of CLASS LADY worldwide
in any hair removal treatment centers hereafter opened by such third party
sublicensee or franchisee, which uses any of ZAIAS's inventive laser method of
hair removal for which he has received patent protection under the letters of
United States Patent Number 5,059,192 issued on October 22, 1991.
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e. The term "net sales" shall mean the gross amount charged, billed or
invoiced on account of retail sales of the Patented Laser and/or charged, billed
or invoiced on account of professional treatments utilizing the Patented Laser,
less the following deductions: (i) trade and/or quantity discounts actually
allowed and taken, which shall be no more than are customary in the trade; (ii)
any direct sales taxes on the sales made, to the extent actually payable to
governmental entities; (iii) amount repaid or credited by reason of rejections
or returns; (iv) the cost of conversion of funds to U.S. Dollars; and (v)
royalties to others to use their registered trademarks or service marks; if any.
f. ZAIAS may consent in writing to a reduction in any royalty payments due
ZAIAS under Article II 1 (a-e).
2. RETURNS: For the purpose of computing the royalties due ZAIAS, Patented
Lasers manufactured, marketed, and/or sold will not include those which are
replaced free of charge by CLASSY LADY or its authorized sublicensees or
franchisees. Similarly, any Patented Lasers which shall be returned to CLASSY
LADY by the sublicensee, franchisee and/or purchaser for a refund will not be
considered as a sold item for royalty computation purposes. However, CLASSY LADY
shall pay ZAIAS a royalty on each Patented Laser which is not replaced free of
charge or refunded to the hair removal sublicensee, franchisee and/or purchaser,
and on each sublicensed or franchised user of ZAIAS' laser professional method
of hair removal.
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3. MINIMUM ANNUAL ROYALTY: CLASSY LADY agrees to pay ZAIAS a guaranteed
minimum annual royalty of Fifty Thousand Dollars ($50,000.00). In the event that
ZAIAS' royalties received from the net sales, including any sublicense, in any
annual period are less than $50,000.00, CLASSY LADY shall have the right to
advance to ZAIAS such amount necessary to meet said annual minimum royalty.
ARTICLE III
ROYALTY PAYMENTS
1. RECORDS: CLASSY LADY shall keep a separate set of books provided for the
purpose of illustrating the basis upon which the payments set forth above are to
be determined, such books to be examined by an auditor or an accountant,
authorized and paid for by ZAIAS, and no more than two (2) times during the
course of a given year at any reasonable time during normal business hours, such
examination to be made only after ten (10) days notice, and to the extent
necessary to verify the statements and payments due under this Agreement.
2. REPORTS AND PAYMENTS: CLASSY LADY will furnish ZAIAS with a written
statement setting forth the total number of Patented Lasers sublicensed and/or
sold, for each calendar month, and the total dollar amount of royalty payable
with respect thereto, accompanied by a check for such amount, which shall be due
on the fifteenth (15th) day of the following month at the address of ZAIAS set
forth above or any other such address as ZAIAS may request in writing. The
statement shall set forth the total
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number of Patented Laser sales and/or sublicenses received by CLASSY LADY, the
respective royalties due on each and a total royalty figure payable less any
deductions provided for by this Agreement.
3. PERCENTAGE PAYMENTS: With respect to payment of royalties to ZAIAS under
this Agreement, Thomas L. Mehl, Sr., Individually, is to directly receive a copy
of the monthly royalty statements, such statements to correspond to the
statements given to ZAIAS, together with their percentage payments which are to
be deducted from the royalty payments due ZAIAS under this Agreement . As to
these percentage payments, Thomas L. Mehl, Sr., Individually, per his agreement
with ZAIAS, is to be directly paid fifty percent (50%) of all such royalty
payments due ZAIAS, and such amount to be deducted from the royalty made to
ZAIAS by CLASSY LADY.
ARTICLE IV
SUBLICENSE AGREEMENTS
1. CLASSY LADY shall have the right to sublicense its rights to a third
party sublicensee upon thirty (30) days written notification to ZAIAS according
to the terms of this Agreement and with the approval of the Board of Directors
of CLASSY LADY.
2. In the event that CLASSY LADY sublicenses its exclusive right on any of
the United States or worldwide patents under this Agreement, ZAIAS shall be
compensated by CLASSY LADY in the manner as provided in Article II of this
Agreement unless ZAIAS otherwise consents to a reduction according to Article II
1 (f).
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ARTICLE IV
BEST EFFORTS
1. CLASSY LADY shall use its best efforts to manage, manufacture, market,
use, sublicense and/or sell ZAIAS's Patented Lasers method of hair removal in
the United States and worldwide.
2. CLASSY LADY shall be solely responsible for quality control but agrees
to use its best efforts to minimize the number of Patented Lasers returned for
defects or poor quality.
3. CLASSY LADY shall commit to use its best efforts to:
(a) have the Patented Laser method of hair removal into
commercialization in the United States hair removal market within
twenty-four (24) months from the date of this Agreement.
(b) retain a qualified expert to file for approval with the Food and
Drug Administration ("FDA") for permission to market the Patented Laser
method of hair removal in the United States within nine (9) months from the
date of execution of this Agreement.
4. In the event that CLASSY LADY fails to use its best efforts to bring
ZAIAS's Patented Laser method of hair removal to market in the United States, or
file for FDA approval in the United States, within the above referenced time
period, ZAIAS retains the right to terminate the exclusive license upon sixty
(60) days written notice to CLASSY LADY; provided however, CLASSY LADY shall
have the right to cure such failure during said sixty (60) day period from the
date of CLASSY LADY's receipt of said notice.
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5. CLASSY LADY shall use its best efforts to protect ZAIAS's Patented Laser
from infringement in the United States.
ARTICLE VI
PATENT INFRINGEMENT
1. COSTS: CLASSY LADY shall be solely responsible for the payment of all
costs and legal expenses in pursuing any demand, action, lawsuit or other
necessary proceeding to recover damages for infringement of ZAIAS' Patented
Laser in the United States.
2. INFRINGEMENT RECOVERY: CLASS LADY shall, to the extent that it is
successful in recovering damages for infringement, pay ZAIAS a royalty from such
recovery, on a per unit basis as provided in this Agreement, from the net
proceeds after deducting all costs and legal expenses incurred in pursuing such
infringement.
ARTICLE VII
PATENT FILING FEES, RELATED EXPENSES AND NEW INVENTIONS
1. PATENT FILING FEES: CLASSY LADY shall hereafter be solely responsible
for paying all patent renewal fees and related expenses for securing patent
protection on ZAIAS' Patented Laser and any new patent applications in the field
of laser hair removal filed by ZAIAS. Such payment of filing fees and related
expenses shall not be construed to grant CLASSY LADY any other ownership rights
than the exclusive license granted to CLASSY LADY by ZAIAS under the terms of
this Agreement.
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2. GRANT OF LICENSE TO ADDITIONAL INVENTIONS: ZAIAS grants CLASS LADY the
exclusive worldwide patent license rights to any new patented invention in the
field of laser hair removal. In the event that CLASSY LADY hereafter employs any
person (other than ZAIAS or Thomas L. Mehl, Sr. individually), corporation,
partnership, agency or other legal entity as a consultant to CLASSY LADY in the
field of laser hair removal field, CLASSY LADY agrees to:
a. Have such person, corporation, partnership, agency or other legal
entity first sign a nondisclosure and noncircumvention agreement prior to being
employed by CLASSY LADY; and
b. Have such person (other than Thomas L. Mehl Sr., individually),
corporation, partnership, agency or other legal entity execute any and all
necessary assignment documents in favor of ZAIAS pertaining to his ownership of
any new inventions, improvements, processes, or other methods in the
professional laser hair removal field of use for which ZAIAS may hereafter apply
for United States or foreign patents; and
c. Compensate ZAIAS with a royalty for any such new patented laser hair
removal inventions on terms no less favorable than contained in this Agreement.
d. In the event that ZAIAS and Thomas L. Mehl, Sr., individually, file any
patent pending or receive issued letters of patents, as co-inventors, ZAIAS and
Thomas L. Mehl, Sr. (individually) shall receive their royalties in accordance
with
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Article V of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
1. TERM: Unless sooner terminated in accordance with any other provisions
hereof, this Agreement shall continue in force and effect until the latter of
the expiration date of ZAIAS' Patented Laser or any subsequent patented laser
hair removal invention. Where royalties are payable under a particular patent
right which expires prior to such date, these royalties will end at the
expiration date of such patent right.
2. MARKING: Products marketed under an applicable patent shall bear the
proper legal notice with respect to the patent under which the same is made and
licensed.
3. BANKRUPTCY: In the event of any adjudication of bankruptcy, appointment
of receiver by a court of competent jurisdiction, the voluntary dissolution of
CLASSY LADY, or any assignment for the benefit of creditors, this Agreement
shall thereupon forthwith terminate and no longer be of any further force and
effect, and all intellectual property pertaining to ZAIAS' Patented Laser,
including but not limited to any documents, drawings, photographs, computer
information, specifications, technical know-how, tangible matter, or other
physical embodiments thereof, shall belong to and returned to ZAIAS.
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4. APPLICABLE LAW: This Agreement shall be governed by, construed under
and enforced in accordance with the substantive laws of the Commonwealth of
Puerto Rico.
5. HEADINGS: The heading of the Articles, sections and paragraphs herein
are intended merely to facilitate reference and shall have no bearing upon the
interpretation of any of the provisions of this Agreement.
6. ARBITRATION: The parties hereto agree to submit all disputes arising out
of the interpretation of this Agreement to binding arbitration. Such arbitration
will be in San Juan, Puerto Rico, before a panel of three (3) Arbitrators
certified by the American Arbitration Association and conducted under its rules,
with any decision thereunder to be final and nonappealable.
7. PREVAILING PARTY: The prevailing party in any arbitration or litigation
arising with respect to interpretation, performance, or enforcement of this
Agreement, shall recover all costs and a reasonable attorney fee, including
attorneys' fees for services rendered on appeal.
B. ASSIGNMENT:
(a) This Agreement and the licenses granted on any patents with respect
thereto shall inure to the benefit of each of the parties hereto and binding on
their successors, heirs or assigns.
(b) This Agreement may be assigned and licensed by CLASSY LADY to a
controlled or controlling affiliate or subsidiary with the approval of its Board
of Directors, but is
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not assignable without mutual consent of ZAIAS, or of his heirs or assigns, but
such consent cannot be unreasonably withheld.
(c) ZAIAS may assign his interest in any monies and/or royalties granted
under this Agreement.
9. NOTICES: All notices, requests, demands or other communications to or
from the respective parties required or permitted to be given hereunder shall be
in writing and shall be deemed to have been when delivered in person or sent by
first class, registered or certified mail, return receipt requested, postage and
registration or certification fees prepaid, or sent by a reliable overnight
delivery service providing a receipt evidencing such delivery, to the recipient
at its address given above or at such other address as hereafter shall be
furnished by a notice sent in like manner by such addressee to the other.
10. SEVERABILITY: Every provision of this Agreement is intended to be
severable, and, if any term or provision hereof is determined to be illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the legality or validity of the remainder of this Agreement.
11. NO WAIVER: No modification, limitation, waiver, termination,
rescission, discharge or cancellation of this Agreement or any provision thereof
shall be binding on the party unless in writing and signed by all parties.
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12. FORCE MAJEURE:
(a) The parties to this Agreement shall not be considered to be in default
of any obligation of a party to make payment of amounts due to the other party,
if the failure of performance shall be due to a Force Majeure, including but not
limited to drought, flood, earthquake, storm, fire, lightning, epidemic, war,
riot, civil disturbance, sabotage, strike or labor difficulty, accident or
curtailment of supply or equipment or replacement equipment, inability to obtain
and maintain right-of-way, permits, licenses, and other required authorizations
from any local, state or federal agency or person for any of the facilities or
equipment necessary to provide or receive service hereunder, and restraint by
court or public authority.
(b) If any party is affected by a Force Majeure event, such party shall
give fifteen (15) days notice to the other party stating the nature of the
event, its anticipated duration and any action being taken to avoid or minimize
its effect. The suspension of performance shall be of no greater scope and no
longer duration than is required and the nonperforming party shall use its best
efforts to remedy its inability to perform. The obligation to pay money in a
timely manner is absolute and shall not be subject to the Force Majeure
provisions, except to the extent prohibited by governmental rule or regulation.
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13. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings, oral and written, of
the parties concerning the subject matter hereof; and,
14. EXECUTION IN COUNTERPARTS: The Agreement may be executed by facsimile
in any number of counterparts, each of which when so executed shall be deemed to
be the original, but all such counterparts shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals:
/S/ Thomas L. Mehl, Sr. DATE: 12/5/95
- -------------------------------------- -------------
THOMAS L. MEHL, SR., as President of
CLASSY LADY BY MEHL OF PUERTO RICO, INC.
/s/ Nardo Zaias, Inventor DATE: 12/5/95
- -------------------------------------- -------------
NARDO ZAIAS, M.D., as INVENTOR
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EXCLUSIVE LICENSE AGREEMENT FOR PATENTED
CONSUMER HAIR REMOVAL PRODUCTS
This Agreement effective Dec 5, 1995 by and between CLASSY LADY BY MEHL OF
PUERTO RICO, INC. (hereinafter "CLASSY LADY"), a corporation of the Commonwealth
of Puerto Rico, having its principal place of business located at Miramar
Street, Suite 8A, San Juan, Puerto Rico 00907-3224, and THOMAS L. MEHL, SR.
(hereinafter "MEHL") of 1015 Route 1, Highway 337, Newberry Florida 32669, is as
follows:
RECITALS
WHEREAS, CLASSY LADY is interested in obtaining an exclusive license to
manage, develop, manufacture, market, use, and sell the new consumer radio
frequency hair removal tweezers device (hereinafter the "Patented RF Patented
Tweezers") invented by MEHL and for which MEHL has received letter of United
States Patent Number 5,049,149 on September 17, 1991, and for which MEHL filed
for worldwide foreign license under 35 U.S.C. ss.184; and
WHEREAS, CLASSY LADY is also interested in obtaining an exclusive license
to manage, develop, manufacture, market, use, and sell a new consumer hair
removal conductive solution (hereinafter the "Patented Conductive Solution")
which MEHL received letters of United States Patent No.: 5,364,394 on November
15, 1994; and
WHEREAS, CLASSY LADY is interested in obtaining an exclusive license to
manage, develop, manufacture, market, use and sell a new method and system for
permanent removal of multiple hairs
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(hereinafter the "Multiple Hair Removal System Products") invented by THOMAS L.
MEHL, SR. (hereinafter "MEHL"), and for which MEHL has received letters of
United States Patent No.: 5,470,332 on November 28, 1995, and for which MEHL has
also filed for worldwide foreign license under 35 U.S.C. ss.184; and
WHEREAS, MEHL is interested in granting CLASSY LADY an exclusive license to
manage, develop, manufacture, market, use, and sell MEHL's new consumer radio
frequency hair removal device ("Patented RF Tweezers") for which MEHL has
received letter of United States Patent Number 5,049,149 on September 17, 1991,
and applied for which MEHL filed for worldwide foreign license under 35 U.S.C.
ss. 184; and any renewals or amendments thereto; and
WHEREAS, MEHL is also interested in granting CLASSY LADY an exclusive
license to manage, develop, manufacture, market, use, and sell MEHL's new
consumer hair removal conductive solution ("Patented Conductive Solution") for
which MEHL received letters of United States Patent No.: 5,364,394 on November
15, 1994; and
WHEREAS, MEHL is interested in granting CLASSY LADY an exclusive license to
manage, develop, manufacture, market, use, and sell MEHL's new method and system
for permanent removal of multiple hairs (hereinafter the "Multiple Hair Removal
System Products") invented by THOMAS L. MEHL, SR. (hereinafter "MEHL"), and for
which MEHL has received letters of United States Patent No.: 5,470,332 on
November 28, 1995, and for which MEHL has also filed for worldwide foreign
license under 35 U.S.C. ss.184; and
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NOW THEREFORE, with respect the foregoing and for the mutual promises
hereinafter set forth, the parties to this Agreement, CLASSY LADY and MEHL,
acknowledge that they have entered into a binding and valid contract for which
their mutual promises provide full and adequate consideration, wherein they
agree as follows:
ARTICLE I
GRANT OF EXCLUSIVE PATENT LICENSE FOR THREE PATENTED PRODUCTS
1. MEHL'S NEW CONSUMER RADIO FREQUENCY HAIR REMOVAL DEVICE:
MEHL has developed a new consumer radio frequency hair removal device
("Patented RF Tweezers") as shown and described in the United States Patent
received letter of United States Patent Number 5,049,149 on September 17, 1991,
and which MEHL believes will provide for a substantially better consumer device
for the removal of unwanted hair, and for which MEHL is willing to grant, and
does hereby grant to CLASSY LADY the exclusive right to manage, develop, make,
market, use, and sell, this invention both in the United States, and in all
foreign countries worldwide, and in return CLASSY LADY agrees to pay MEHL for
such license a royalty for each Patented RF Tweezers sold by CLASSY LADY in the
United States and worldwide in accordance with the provisions contained herein.
2. MEHL'S NEW CONSUMER HAIR REMOVAL CONDUCTIVE SOLUTION: MEHL has developed
a new consumer hair removal conductive solution ("Patented Conductive Solution")
for which MEHL received letters of United States Patent No.: 5,364,394 on
November 15,
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1994, and which MEHL believes will provide for a substantially better
conductivity when used in conjunction with the Patented RF Tweezers for the
removal of unwanted hair, and for which MEHL is willing to grant, and does
hereby grant to CLASSY LADY the exclusive right to manage, develop, make,
market, use, and sell, this invention both in the United States, and in all
foreign countries worldwide, and in return CLASSY LADY agrees to pay MEHL for
such license a royalty for each Patented Conductive Solution sold by CLASSY LADY
in the United States and worldwide in accordance with the provisions contained
herein.
3. MEHL's NEW MULTIPLE HAIR REMOVAL SYSTEM PRODUCTS: MEHL has developed a
new method and system for permanent removal of multiple hairs ("Multiple Hair
Removal System products") and for which MEHL has received letters of United
States Patent No.: 5,470,332 on November 28, 1995, and for which MEHL has also
filed for worldwide foreign license under 35 U.S.C. ss.184, and which MEHL
believes will provide for substantially better consumer devices for the removal
of unwanted multiple hairs, and for which MEHL is willing to grant, and does
hereby grant to CLASSY LADY the exclusive right to manage, develop, make,
market, use, and sell, this invention both in the United States, and in all
foreign countries worldwide, and in return CLASSY LADY agrees to pay MEHL for
such license a royalty for each Multiple Hair Removal System Product sold by
CLASSY LADY in the United States and worldwide in accordance with the provisions
contained herein.
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4. In consideration of receiving the exclusive worldwide rights to manage,
develop, make, market, use, and sell MEHL's Patented RF Tweezers, Patented
Conductive Solution and Multiple Hair Removal System Products, CLASSY LADY
agrees to: (1) issue MEHL 4,275 shares of no par value common stock in CLASSY
LADY and (2) pay MEHL a royalty as defined below in Article II.
ARTICLE II
ROYALTY CALCULATION
1. ROYALTY PAYMENTS: CLASSY LADY will pay MEHL for such exclusive license a
royalty of five percent (5%) of the wholesale price on each Patented RF
Tweezers, Patented Conductive Solution, and Multiple Hair Removal System
Products sold directly by CLASSY LADY or by its marketer or distributor
worldwide, which uses any of MEHL's inventions for which he has received or
filed for patent protection in the United States, and under any worldwide
foreign license under 35 U.S.C. ss.184.
2. RETURNS: For the purpose of computing the royalties due MEHL, Patented
RF Tweezers, Patented Conductive Solution, and Multiple Hair Removal System
Products sold will not include those which are not sold by CLASSY LADY, but
replaced free of charge to the consumer . Similarly, any Patented RF Tweezers,
Patented Conductive Solution, and Multiple Hair Removal System Products which
shal1 be returned to CLASSY LADY by the consumer for a refund will not be
considered as a sold item for royalty computation purposes. However, CLASSY
LADY shall pay MEHL a royalty on each Patented RF Tweezers, Patented Conductive
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Solution, and Multiple Hair Removal System Products which is not replaced free
of charge or refunded to the consumer.
4. MINIMUM ANNUAL ROYALTY: CLASSY LADY agrees to pay MEHL a guaranteed
minimum annual royalty of Fifty Thousand Dollars ($50,000.00). In the event that
MEHL' royalties received from the net sales, including any sublicense, in any
annual period are less than $50,000.00, CLASSY LADY shall have the right to
advance to MEHL such amount necessary to meet said annual minimum royalty.
ARTICLE III
ROYALTY PAYMENTS
1. RECORDS: CLASSY LADY shall keep a separate and a set of books provided
for the purpose of illustrating the basis upon which the payments set forth
above are to be determined, such books to be examined by an auditor or an
accountant, authorized and paid by MEHL, and no more than two (2) times during
the course of a given year at any reasonable time during normal business hours,
such examination to be made only after three days notice, and to the extent
necessary to verify the statements and payments due under this Agreement.
2. REPORTS AND PAYMENTS: CLASSY LADY will furnish MEHL with a written
statement setting forth the total number of Patented RF Tweezers, Patented
Conductive Solution, and Multiple Hair Removal System Products sold, for each
calendar month, and the total dollar amount of royalty payable with respect
thereto, accompanied by a check for such amount, which shall be due on the
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fifteenth (15th) day of the following month at the address of MEHL set forth
above or any other such address as MEHL may request in writing. The statement
shall set forth the total number of Patented RF Tweezers, Patented Conductive
Solution, and Multiple Hair Removal System Products, the respective royalties
due on each and a total royalty figure payable less any deductions provided for
by this Agreement.
3. PERCENTAGE PAYMENTS: With respect to payment of royalties to MEHL under
this Agreement, Dr. Nardo Zaias, M.D., 1015 W. 47th Ct., Miami Beach, Florida
33140 and the firm of Shlesinger, Arkwright & Garvey, 3000 South Eads Street,
Arlington, Virginia 22202 are also each to directly receive a copy of the
monthly royalty statements, such statements to correspond to the statements
given to MEHL, together with their percentage payments which are to be deducted
from the royalty payments due MEHL under this Agreement.
As to these percentage payments, Dr. Nardo Zaias is to be paid directly 25%
of all such royalty payments due MEHL, and Shlesinger, Arkwright & Garvey are to
be paid 10% of all royalty payments due MEHL, such amount to be deducted from
the royalty made to MEHL by CLASSY LADY. Percentage payments shall continue to
be made to Dr. Nardo Zaias until such time as CLASSY LADY receives written
notification from Dr. Nardo Zaias that MEHL is no longer obligated to pay him
the respective percentage of royalties due MEHL under this Agreement. Percentage
payments shall continue to be made by CLASSY LADY to Shlesinger, Arkwright
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& Garvey only until such time their aforementioned 10% payments reaches the sum
of ONE MILLION DOLLARS ($1,000,000.00) after which MEHL shall receive this
percentage.
ARTICLE IV
BEST EFFORTS
1. CLASSY LADY shall use its best efforts to manage, develop, make,
manufacture, market, use, and sell MEHL's Patented RF Tweezers, Patented
Conductive Solution and Multiple Hair Removal System products in the United
States and worldwide wherever MEHL has received or applied for patent
protection.
2. CLASSY LADY shall be solely responsible for quality control but agrees
to use its best efforts to minimize the number of products or units returned for
defects or poor quality.
3. CLASSY LADY shall commit to use its best efforts to:
(a) have the Patented RF Tweezers, Patented Conductive Solution, and
Multiple Hair Removal System Products into commercialization outside the
United States within twelve (12) months from the date of this Agreement.
(b) file for approval with the Food and Drug Administration ("FDA")
for permission to market the Patented RF Tweezers, Patented Conductive
Solution, and Multiple Hair Removal System Products in the United States.
4. In the event that CLASSY LADY fails to use its best efforts to bring
MEHL's Patented RF Tweezers, Patented Conductive Solution, and Multiple Hair
Removal System Products to market outside the United States, or file for FDA
approval in the United
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States, within twelve (12) months from the date of this Agreement, MEHL retains
the right to terminate the exclusive license upon thirty (30) days written
notice to CLASSY LADY.
5. CLASSY LADY shall use its best efforts to protect MEHL's Patented RF
Tweezers, Patented Conductive Solution, and Multiple Hair Removal System
Products from infringements both in the United States and in all foreign
countries worldwide wherever MEHL has received or applied for patent protection.
ARTICLE V
SUBLICENSE AGREEMENTS
l. CLASSY LADY shall have the right to sublicense its rights under this
Agreement to a sublicensee upon thirty (30) days written notification to MEHL.
2. In the event that CLASSY LADY sublicenses its exclusive right on any of
the United States or worldwide patents under this Agreement, MEHL shall be
compensated by CLASSY LADY in the same manner as provided in this Agreement.
ARTICLE VI
PATENT INFRINGEMENT
1. COSTS: CLASSY LADY shall be solely responsible for the payment of all
costs and legal expenses in pursuing any action to recover damages for
infringement of MEHL's Patented RF Tweezers, Patented Conductive Solution, and
Multiple Hair Removal System Products in the United States and in those foreign
countries worldwide wherever MEHL has received or applied for patent protection.
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<PAGE> 10
2. INFRINGEMENT RECOVERY: CLASSY LADY shall, to the extent that it is
successful in recovering damages for infringement, pay MEHL a royalty from the
net proceeds for such recovery, on a per unit basis as provided in this
Agreement.
ARTICLE VII
PATENT FILING FEES AND RELATED EXPENSES
1. CLASSY LADY shall hereafter be solely responsible for paying all patent
filing fees and related expenses for securing patent protection on MEHL's
Patented RF Tweezers, Patented Conductive Solution, and Multiple Hair Removal
System Products in the United States and in all foreign countries worldwide in
which MEHL has received or applied for patent protection. Such payment of filing
fees and related expenses shall not be construed to grant CLASSY LADY any other
rights than granted herein under the terms of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
1. TERM: Unless sooner terminated in accordance with any other provisions
hereof, this Agreement shall continue in force and effect until the expiration
of the Patented RF Tweezers, Patented Conductive Solution, and Multiple Hair
Removal System Products. Where royalties are payable under a particular patent
right which expires prior to such date, these royalties will end at the
expiration date of such patent right.
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2. MARKING: Products marketed under an applicable patent shall bear the
proper legal notice with respect to the patent under which the same is made and
licensed.
3. BANKRUPTCY: In the event of any adjudication of bankruptcy, appointment
of receiver by a court of competent jurisdiction, the voluntary dissolution of
CLASSY LADY, or any assignment for the benefit of creditors, this Agreement
shall thereupon forthwith terminate and no longer be of any further force and
effect, and all intellectual property pertaining to the Patented RF Tweezers,
Patented Conductive Solution, and Multiple Hair Removal System Products,
including but not limited to any documents, drawings, photographs, computer
information, specifications, technical know-how, tangible matter, or other
physical embodiments thereof, shall belong to MEHL.
4. APPLICABLE LAW: This Agreement shall be governed by, construed under and
enforced in accordance with the substantive laws of the Commonwealth of Puerto
Rico.
5. HEADINGS: The heading of the Articles, sections and paragraphs herein
are intended merely to facilitate reference and shall have no bearing upon the
interpretation of any of the provisions of this Agreement.
6. ARBITRATION: The parties hereto agree to submit all disputes arising out
of the interpretation of this Agreement to binding arbitration. Such arbitration
will be in San Juan, Puerto Rico, before a panel of three (3) Arbitrators
certified by the American Arbitration Association and conducted under its rules,
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with any decision thereunder to be final and nonappealable.
7. PREVAILING PARTY: The prevailing party in any arbitration or litigation
arising with respect to interpretation, performance, or enforcement of this
Agreement, shall recover all costs and a reasonable attorney fee, including
attorney's fees for services rendered on appeal.
8. ASSIGNMENT:
(a) This Agreement and the licenses granted on any patents with
respect thereto shall inure to the benefit of each of the parties hereto
and binding on their successors or assigns.
(b) This Agreement may be assigned and licensed to a controlled or
controlling affiliate or subsidiary, but is not assignable without mutual
consent between the parties, or of their heirs or assigns, but such consent
cannot be unreasonably withheld.
(c) MEHL may assign his interest in any royalties granted under this
Agreement.
9. NOTICES: All notices, requests, demands or other communications to or
from the respective parties required or permitted to be given hereunder shall be
in writing and shall be deemed to have been when delivered in person or sent by
first class, registered or certified mail, return receipt requested, postage and
registration or certification fees prepaid, or sent by a reliable overnight
delivery service providing a receipt evidencing such delivery, to the recipient
at its address given above or at such other address as hereafter shall be
furnished by
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<PAGE> 13
a notice sent in like manner by such addressee to the other.
10. SEVERABILITY: Every provision of this Agreement is intended to be
severable, and, if any term or provision hereof is determined to be illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the legality or validity of the remainder of this Agreement.
11. NO WAIVER: No modification, limitation, waiver, termination,
rescission, discharge or cancellation of this Agreement or any provision thereof
shall be binding on the party unless in writing and signed by all parties.
12 . FORCE MAJEURE:
(a) The parties to this Agreement shall not be considered to be in
default of any obligation of a party to make payment of amounts due to the
other party, if the failure of performance shall be due to a Force Majeure,
including but not limited to drought, flood, earthquake, storm, fire,
lightning, epidemic, war, riot, civil disturbance, sabotage, strike or
labor difficulty, accident or curtailment of supply or equipment or
replacement equipment, inability to obtain and maintain right-of-way,
permits, licenses, and other required authorizations from any local, state
or federal agency or person for any of the facilities or equipment
necessary to provide or receive service hereunder, and restraint by court
or public authority.
(b) If any party is affected by a Force Majeure event, such party
shall give fifteen (15) days notice to the other party stating the nature
of the event, its anticipated duration and any
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<PAGE> 14
action being taken to avoid or minimize its effect. The suspension of
performance shall be of no greater scope and no longer duration than is required
and the nonperforming party shall use its best efforts to remedy its inability
to perform. The obligation to pay money in a timely manner is absolute and shall
not be subject to the Force Majeure provisions, except to the extent prohibited
by governmental rule or regulation.
13. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings, oral and written, of
the parties concerning the subject matter hereof; and,
14. EXECUTION IN COUNTERPARTS: The Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be the
original, but all such counterparts shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals:
/S/ Thomas L. Mehl, President
- ----------------------------------------
CLASSY LADY BY MEHL OF PUERTO RICO, INC.
/s/ Thomas L. Mehl, Inventor
- ----------------------------------------
THOMAS L. MEHL, SR., INVENTOR
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<PAGE> 15
On behalf of CLASSY LADY BY MEHL OF PUERTO RICO, INC., THOMAS L. MEHL SR.,
as President, does hereby accept the foregoing Agreement on behalf of CLASSY
LADY BY MEHL OF PUERTO RICO, INC .
/s/ Thomas L. Mehl, Sr.
- ----------------------------------------
THOMAS L. MEHL, SR., as President
CLASSY LADY BY MEHL OF PUERTO RICO, INC.
<PAGE> 1
================================================================================
JOINT VENTURE FORMATION AGREEMENT
between
LASER INDUSTRIES, LIMITED
(an Israeli corporation)
and
CLASSY LADY BY MEHL OF PUERTO RICO, INC.
(a Puerto Rico corporation)
Dated as of December 19, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms ....................................... 1
Section 1.2 References and Titles ............................... 3
Section 1.3 Exhibits and Schedules .............................. 4
ARTICLE II
FORMATION, GOVERNANCE AND
OPERATION OF THE JOINT VENTURE
Section 2.1 Formation and Governance ............................ 4
Section 2.2 Board of Directors .................................. 4
(a) Size and Membership ........................ 4
(b) Authority .................................. 5
Section 2.3 Officers of the Venture ............................. 5
Section 2.4 Management and Control .............................. 5
Section 2.5 Vote of Shareholders ................................ 5
Section 2.6 Restriction on Transfer ............................. 5
Section 2.7 Right of First Refusal .............................. 6
Section 2.8 Right to Purchase ................................... 6
Section 2.9 Capitalization; Registration
Rights ........................................ 6
Section 2.10 Dividend Policy .................................... 7
Section 2.11 Books and Records; Reporting ....................... 7
Section 2.12 Audits .............................................. 7
Section 2.13 Operating Principles ................................ 8
Section 2.14 Copyrights and Trademarks ........................... 8
ARTICLE III
CONTRIBUTION
AND
ISSUANCE OF STOCK
Section 3.1 Grant of License; Issuance of
Stock to CLASSY LADY ........................... 9
Section 3.2 Commitment to Develop and Market;
Issuance of Stock to LASER ..................... 10
Section 3.3 Closing ............................................. 11
Section 3.4 Manufacturing and Distribution
Arrangements .......................................... 11
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<PAGE> 3
ARTICLE IV
REPRESENTATIONS AND WARRANTS
Section 4.1 Representations and Warranties
of CLASSY LADY ................................... 12
Section 4.2 Representations and Warranties
of LASER ......................................... 14
Section 4.3 Survival of Representations
and Warranties ................................... 15
ARTICLE V
CONFIDENTIALITY
Section 5.1 Confidential Information .............................. 15
Section 5.2 Confidential Treatment ................................ 16
ARTICLE VI
TERM AND TERMINATION
Section 6.1 Termination ........................................... 16
Section 6.2 Dissolution ........................................... 16
Section 6.3 Survival .............................................. 17
ARTICLE VII
MISCELLANEOUS
Section 7.1 Non-Agency ............................................ 17
Section 7.2 No Assignment; Successors and
Assigns .......................................... 17
Section 7.3 Communications ........................................ 17
Section 7.4 Publicity ............................................. 18
Section 7.5 Entire Agreement ...................................... 19
Section 7.6 Remedies .............................................. 19
Section 7.7 Further Assurances .................................... 19
Section 7.8 Severability .......................................... 20
Section 7.9 Governing Law ......................................... 20
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<PAGE> 4
Section 7.10 Arbitration......................................... 20
Section 7.11 Prevailing Party.................................... 21
Section 7.12 Name Change......................................... 21
Section 7.13 Counterparts ....................................... 21
EXHIBITS
Exhibit
A Certificate of Incorporation
B By-laws
C Licensing Agreement
D Consent of Inventor
E Promissory Note
F Manufacturing Terms
iii
<PAGE> 5
JOINT VENTURE FORMATION AGREEMENT
This JOINT VENTURE AGREEMENT (hereinafter the "Agreement") made this 19th day
of December, 1995, between CLASSY LADY BY MEHL OF PUERTO RICO, INC.
(hereinafter "CLASSY LADY"), a corporation organized under the laws of the
Commonwealth of Puerto Rico, having its principal address located at Miramar
Street, Number 610, Suite 8A, San Juan, Puerto Rico 00907-3224 and LASER
INDUSTRIES, LIMITED (hereinafter "LASER"), a corporation organized under the
laws of Israel, having its principal place of business located at Atidim
Science Based Industrial Park, Neve Sharett, Post Office Box 13135, Tel Aviv,
Israel 61131.
W I T N E S S E T H:
WHEREAS, CLASSY LADY and LASER entered into that certain Letter of Intent
(the "Letter of Intent") on December 11, 1995, which memorialized their
intentions to enter into a joint venture for the research, development,
manufacturing, marketing, distribution, purchase and sale of laser hair removal
products and services; and
WHEREAS, LASER and CLASSY LADY desire to form the Venture (as hereinafter
defined) and to enter into this Agreement to implement the intentions of the
parties as set forth in the Letter of Intent.
NOW, THEREFORE, LASER and CLASSY LADY in consideration of the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, covenant and agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. As used in this Agreement, the following terms
shall have the meanings ascribed thereto:
An "Affiliate" of any entity or person shall mean any other entity or
person controlling, controlled by, or under common control with, such entity or
person. For purposes of this definition, "control" shall mean the
<PAGE> 6
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether by ownership of
voting securities, by contract or otherwise.
"Application" shall mean the laser hair removal products and services to be
developed, manufactured, marketed, distributed, purchased and/or sold by the
Joint Venture
"By-laws" shall mean the By-laws of the Venture in the form attached as
Exhibit B hereto.
"Certificate" shall mean the Certificate of Incorporation of the Venture in
the form attached as Exhibit A hereto
"Common Stock" shall mean the Common Stock, par value $.01 per share, of
the Venture.
"Closing Date" shall mean the date of the formation of the Venture.
"FDA" shall mean the United States Food and Drug Administration.
"GAAP" shall mean generally accepted accounting principles consistently
applied, as in effect from time to time in the United States.
"Intellectual Property Rights" shall mean the Patent and any additional
patents in the laser hair removal field or other laser hair removal inventions
granted or licensed exclusively to CLASSY LADY and know-how related thereto.
"Patent" shall mean U.S. Patent No.:5,095,192.
"Person" shall mean any individual, firm, corporation, partnership or other
entity.
"Licensing Agreement" shall mean the Licensing Agreement, dated as of the
Closing Date, between CLASSY LADY and the Venture, in the form attached hereto
as Exhibit C.
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<PAGE> 7
"Shareholders" shall mean CLASSY LADY and LASER, as shareholders of the
Venture.
"Subsidiary" of any person shall mean a corporation or other entity a
majority of whose capital stock with voting power or the majority ownership
interest of which is at the time owned or controlled, directly or indirectly, by
such person.
"Territories" shall mean the United States of America or, with respect to
Improvement Patents (as defined in the Licensing Agreement), the territories in
which patents have been granted or applications are pending therefor.
"Transaction Agreements" shall mean this Agreement and the Licensing
Agreement.
"Transfer" shall mean any attempt to directly or indirectly offer, sell,
assign, transfer, grant a participation in, pledge or otherwise dispose of any
shares of Common Stock, or the consummation of any such transactions, or the
soliciting of any offers to purchase or otherwise acquire, or take a pledge of
any shares of Common Stock.
"Quality Assurance Standards" shall mean:
(a) Such test, opinions, standards, specifications, or other assurances
which the company may require for the manufacture of the Applications; and
(b) The Venture's in-house medical, safety and efficacy standards for the
Application; and
(c) Such test, opinions, standards, specifications, or other assurances
which FDA, or similar foreign authority, may require for the manufacture, sale
and/or use of the Applications.
"Zaias" shall mean Dr. Nardo Zaias, the inventor and owner of the Patent.
Section 1.2 References and Titles. All references in this Agreement to
sections, subsections, paragraphs and other subdivisions shall refer to
corresponding sections, subsections, paragraphs or other subdivi-
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<PAGE> 8
sions of this Agreement, unless expressly provided otherwise. Titles appearing
in the table of contents or in the captions of any section, subsection,
paragraph or subdivision are for convenience only and shall not constitute part
of such section, subsection, paragraph or subdivision.
Section 1.3 Exhibits and Schedules. All Exhibits attached hereto are a part
of this Agreement for all purposes.
ARTICLE II
FORMATION, GOVERNANCE AND
OPERATION OF THE JOINT VENTURE
Section 2.1 Formation and Governance. (a) Promptly following the execution
of this Agreement and the receipt of any required regulatory approvals, CLASSY
LADY and LASER shall incorporate a new corporation (the "Venture") in the State
of Delaware for the express purpose of engaging in the research, development,
manufacture, marketing, distribution and sale of the Application and for such
other purposes as may be lawfully permitted in accordance with the laws of the
State of Delaware. The principal business place of the Venture shall be c/o
Sharplan Lasers, Inc., One Pearl Court, Allendale, New Jersey 07401, or such
other place as the Board of Directors of the Venture shall determine from time
to time.
(b) The Joint Venture shall be governed by and in accordance with this
Agreement, the Certificate and the By-laws.
(c) On or prior to the Closing Date, the Joint Venture shall authorize the
issuance of fifty (50) shares of Common Stock to each of the Shareholders.
Section 2.2 Board of Directors.
(a) Size and Membership. As of the Closing Date, and thereafter, the Board
shall consist of such number of directors and such persons as shall be selected
from time to time by LASER. Any directors so elected shall serve on the Board
until their respective successors are duly elected and qualified in accordance
with the provisions of the By-laws and this Agreement.
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<PAGE> 9
(b) Authority. The Board shall have and exercise all of the powers
belonging or pertaining to the Venture except with respect to such matters as by
law, or the Certificate or the By-laws require the action of the stockholders of
the Venture.
Section 2.3 Officers of the Venture. The executive officers of the Venture
shall be such persons as shall be designated from time to time by the Board. The
authority, powers and duties of the executive officers of the Venture shall be
as set forth in the By-laws.
Section 2.4 Management and Control. LASER and CLASSY LADY agree that (i)
LASER shall be primarily responsible for the day to day operations of the
Venture and for the manufacturing of the lasers which will be developed by the
Venture; and (ii) CLASSY LADY and Zaias shall participate with and assist LASER
(as and when reasonably requested by the Venture) in setting standards and
specifications for any Application which the Venture shall manufacture, market
or sell and in public and investor relations decisions for the Venture.
Section 2.5 Vote of Shareholders. In furtherance of the foregoing, each of
the Shareholders agrees to vote, in person or by proxy, all of its shares of
Common Stock beneficially owned by such Shareholder, at any annual or special
meeting of stockholders of the Venture called for the purpose of voting on the
election or removal of directors in favor of the election or removal of the
directors and/or elected officer as designated by LASER, from time to time in
accordance with Sections 2.2 and 2.3.
Section 2.6 Restriction on Transfer. A Shareholder may not Transfer, at any
time, all or any portion of its shares of Common Stock except as set forth
below:
(a) a Shareholder may Transfer, at any time, all or any portion of its
interest in shares of Common Stock to an Affiliate of the Shareholder; provided,
that, prior to or simultaneously with any such Transfer, such Affiliate shall
agree in writing to take such shares of Common Stock subject to, and comply
with, all of the provisions of this Agreement, or
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<PAGE> 10
(b) in accordance with the provisions of Section 2.7 set forth below, or
(c) in accordance with the provisions of Section 2.8 set forth below.
Section 2.7 Right of First Refusal. In the event that either Shareholder
shall receive a bona fide offer (an "Offer") from a third party, other than an
Affiliate of such Shareholder (an "Offeror"), to purchase all or a portion of
its Common Stock and such Shareholder (the "Selling Shareholder") desires to
sell its Common Stock in response to such Offer, the Selling Shareholder shall
cause such Offer to be reduced to writing and shall give written notice of such
Offer to the other Shareholder (the "Remaining Shareholder"), specifying the
number of shares of Common Stock proposed to be sold in response to such Offer,
the total price proposed to be paid by the Offeror, the identity of the Offeror
and the other terms and conditions of the proposed sale. The Remaining
Shareholder shall within thirty (30) days of receipt of notice of the Offer to
elect, by so notifying the Selling Shareholder, to purchase the Selling
Shareholder's Common Stock for the same price and under the same terms and
conditions as being proposed by the Offeror. If the Remaining Shareholder so
elects within such 30-day period, the Selling Shareholder shall sell such shares
of Common Stock to the Remaining Shareholder upon the terms of the Offer at a
date and place specified by the Remaining Shareholder (which date shall be
within 30 days of the date of the notice delivered by the Remaining Shareholder
(or such later date as all of the required regulatory approvals, if any, shall
have been obtained)). If the Selling Shareholder shall fail to so elect within
such 30-day period, the Selling Shareholder may sell, during the next ninety
(90) days, such shares to the Offeror upon term no less favorable than the
Offer.
Section 2.8 Right to Purchase. Upon such time as CLASSY LADY or LASER shall
request, CLASSY LADY and LASER will negotiate in good faith the purchase by
LASER of a portion of the Common Stock held by CLASSY LADY such that LASER will
become the owner of a majority of the outstanding Common Stock.
Section 2.9 Capitalization; Registration Rights. LASER and CLASSY LADY
hereby declare their
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<PAGE> 11
intention to raise additional capital for the Venture by way of private
placement or public offering of shares of the Venture, at such time and under
such terms as the Venture and the Shareholders may deem appropriate. Prior to
any such offering or placement, the parties shall discuss in good faith
appropriate modifications to the terms of this Agreement to reflect the addition
of a new investor(s) and will cause the Venture to enter into a customary
registration rights agreement with each of CLASSY LADY and LASER.
Section 2.10 Dividend Policy. The dividend policy of the Venture shall be
determined by the Board from time to time. The amount of any dividends to be
distributed in any given year shall never exceed 50% of the previous year's net
operating profits (after taxes) unless otherwise agreed upon by the parties.
Section 2.11 Books and Records; Reporting. The books and records of the
Venture shall be kept at the principal place of business of the Venture. The
financial statements shall be maintained in accordance with GAAP and shall
reflect all the Venture transactions, be appropriate and adequate for conducting
the Venture's business, and contain sufficient information to permit the
Shareholders to satisfy their respective financial reporting obligations. There
shall also be forwarded to both Shareholders (i) within forty-five (45) days
after the end of each quarter unaudited financial statements for such period and
(ii) within ninety (90) days after the end of each fiscal year audited financial
statements for such period prepared in accordance with GAAP. In addition, the
Venture shall prepare and deliver to each of CLASSY LADY and LASER such other
reports and at such other times as shall be reasonably requested by either
party.
Section 2.12 Audits. The Venture shall engage independent auditors, as
approved from time to time by the Board (the "Auditors"). The Auditors at the
end of each fiscal year will (i) audit the records and accounts of the Venture,
and (ii) on or before ninety (90) days after the end of such year render their
opinion on the statement of financial condition of the Venture as of the end of
each fiscal year and of the results of its operations, cash flows and its income
for each fiscal year.
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<PAGE> 12
Section 2.13 Operating Principles. CLASSY LADY and LASER agree that:
(i) The Venture shall commit to use its commercially reasonable
best efforts to file for approval of the Application with
the FDA within 8 months from the date of this Agreement;
(ii) CLASSY LADY and LASER shall use their respective
commercially reasonable best efforts to assure that the
Venture's quality control standards are being met by any
manufacturer of the Applications sold in the Territory or
behalf of the Venture; and
(iii) The Venture shall cause all units of Applications marketed
under this Agreement and covered by applicable letters of
patent received by ZAIAS or patent applications hereafter
filed by ZAIAS shall bear the proper legal notice with
respect to the patent/patent pending under which the same
is made, exclusively licensed to CLASSY LADY and
semi-exclusively licensed to the Venture.
Section 2.14 Copyrights and Trademarks. CLASSY LADY and LASER acknowledge
as follows:
(i) The Venture shall be the owner of all copyrights and the
copyrights in any subsequent work of authorship created
relating to the Applications under this Agreement. The
Venture shall promptly take whatever steps are reasonably
necessary to ensure that the copyright(s) are available for
use in the Territory, and to obtain, and maintain during the
Term of this Agreement, federal registrations for the
copyrights) used in the Territory the Venture shall, when
reproducing any copyrightable materials pursuant to this
Agreement comply with
8
<PAGE> 13
all laws pertaining to copyrights and shall cause to be
irrevocably and legibly imprinted on all marketing and
promotional materials for the products the appropriate
copyright notice.
(ii) The Venture shall be the owner of all trademarks and any
subsequent trademarks relating to the Applications under
this Agreement. The Venture shall promptly take whatever
steps are reasonable necessary to ensure that the
trademark(s) are available for use in the Territory, and to
obtain, and maintain during the Term of this Agreement,
federal and/or foreign registrations for the mark(s) used in
the Territory. The Venture shall, when using any Trademarks
under this Agreement, comply with all laws pertaining to the
mark(s) and shall cause to be irrevocably and legibly
imprinted on all marketing and promotional materials for the
products the appropriate trademark notice (i.e. for marks
that are federally registered and for marks which are not
yet registered).
ARTICLE III
CONTRIBUTION
AND ISSUANCE OF STOCK
Section 3.1 Grant of License; Issuance of Stock to CLASSY LADY. On the
Closing Date, CLASSY LADY will (1) execute the Licensing Agreement, attached
hereto as Exhibit C, between the Venture, as licensee, and CLASSY LADY, as
licensor; (2) furnish LASER and the Venture with a letter of consent executed by
Zaias, attached hereto as Exhibit D, whereby Zaias as the owner of the
Intellectual Property consents to this Agreement; (3) contribute its knowledge
and technical expertise in the field of laser depilation which the parties agree
is rea-
9
<PAGE> 14
sonably necessary to develop, market and sell the Application in the
Territories; and (4) accept to fulfill the following responsibilities:
(1) Cooperate with LASER in establishing the Quality Control Standards
necessary for the Venture's manufacture of the Applications;
(2) provide the Venture with such technical assistance necessary for
implementing the aforesaid Quality Control Standards; and
(3) assisting the Venture in all regulatory activities related to obtaining
the necessary marketing approval for the Application.
In consideration for the foregoing, on the Closing Date, the Venture will
issue to CLASSY LADY fifty (50) fully paid and non-assessable shares of Common
Stock.
Section 3.2 Commitment to Develop and Market; Issuance of Stock to LASER.
(a) On the Closing Date, LASER will execute a promissory note, in the form
of Exhibit E, in the principal amount of $3,500,000. In consideration for the
foregoing, on the Closing Date, the Venture will issue to LASER fifty (50) fully
paid and non-assessable shares of Common Stock.
(b) Following the Closing, LASER shall carry out on behalf of the Venture
the following activities: (i) research, development and engineering activities
aimed at developing, manufacturing, marketing and selling FDA approved laser
hair removal products and services (the "Application"); (ii) the preparation of
a market study aimed at developing a marketing and sales strategy for the
Application; and (iii) assisting the Joint Venture in all regulatory activities
including the application to the FDA, within eight (8) months of the Closing
Date, for clearance of the Application. In consideration for performing such
activities, LASER shall be entitled to reimbursement of out-of-pocket expenses,
as well as internal costs determined on a basis consistent with the cost
allocation principles used by LASER for internal budgeting purposes.
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<PAGE> 15
(c) In addition, for a period of 36 months (or such shorter period as LASER
shall determine), LASER shall perform certain managerial, consulting and
administrative functions and activities on behalf of the Venture for which it
shall be paid a monthly fee of $100,000, plus reimbursement of out-of-pocket
expenses. LASER shall be entitled to offset the amounts due to LASER from the
Venture pursuant to this subsection and the preceding subsection (b) against any
amounts owing to the Venture by LASER under the promissory note referred to in
subsection (a).
(d) To the extent that LASER advances funds on behalf of the Venture
(including the $100,000 advanced to Zaias), such amounts shall be treated as a
shareholder advance, which shall bear interest at the rate set forth in the
promissory note referred to in subsection (a) and shall be repaid upon
consummation of a private placement or public offering or such earlier time as
the Venture shall have sufficient capital to repay such advance or advances.
(e) The Venture shall indemnify LASER and CLASSY LADY for any liabilities
or expenses which arise as a result of LASER's and CLASSY LADY's performing
services on behalf of the Venture.
(f) CLASSY LADY and LASER acknowledge that nothing contained in this
Agreement shall limit LASER's ability to manufacture, use, market or sell
lasers, irrespective of the intended Application, which do not infringe upon the
Patent.
Section 3.3 Closing.
(a) The closing of the transactions contemplated in this Agreement (the
"Closing") shall take place upon the formation of the Venture (the "Closing
Date").
Section 3.4 Manufacturing and Distribution Arrangements.
(a) LASER and the Venture shall enter into a Manufacturing Agreement (the
"Manufacturing Agreement") whereby LASER (or such other party as the Board shall
determine) shall be responsible for the manufactur-
11
<PAGE> 16
ing of the Application. The Manufacturing Agreement shall be on terms consistent
with Exhibit F hereto.
(b) During the period when the Application is being reviewed by the FDA,
LASER will review and render its good faith recommendations as to the
appropriate means for distributing the Application, taking into account cost,
quality, service, reliability and such other factors as LASER shall deem
appropriate. Following the review of such matters by the Board, the Venture will
enter into agreements, in customary form, to provide for the distribution of the
Application.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of CLASSY LADY. CLASSY LADY does
hereby warrant and represent to LASER as follows:
(a) CLASSY LADY is a corporation duly organized, validly existing and in
good standing under the laws of Puerto Rico, qualified to do business in each of
the jurisdictions in which it transacts business and has the power and authority
to own its own properties and to carry on its business as it is now being
conducted. Copies of the certificate of incorporation, by-laws or other
documents of organization of CLASSY LADY previously furnished to LASER reflect
all amendments made thereto, if any, and are true, complete and correct.
(b) The execution and delivery of this Agreement and the Licensing
Agreement, and the performance of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate and
other action on the part of CLASSY LADY, and this Agreement and any other
Transaction Agreement to which CLASSY LADY is (or will be) a party, when
executed, will constitute a valid and legally binding obligation of CLASSY LADY
enforceable in accordance with their terms.
(c) There is no litigation pending or, to the best knowledge of CLASSY
LADY, threatened against CLASSY LADY which could reasonably be expected to
materially adversely affect CLASSY LADY'S obligations under this Agreement.
12
<PAGE> 17
(d) The execution, delivery and performance by CLASSY LADY of this
Agreement and the other Transaction Agreements to which it is a party will not
result in a breach of any of the terms, provisions or conditions of any
agreement to which CLASSY LADY is a party, which breach could reasonably be
expected to materially and adversely affect the operations, properties or
business of the Venture or any of such CLASSY LADY's obligations under this
Agreement or the other Transaction Agreements to which it is a party.
(e) The execution and delivery by CLASSY LADY of this Agreement and the
other Transaction Agreements to which it is a party and the formation of the
Venture as a corporation under the General Corporate Law of the State of
Delaware as set forth to Title 8 of the Delaware Code, do not require any filing
by it with, or approval or consent of, any governmental authority or third party
which has not already been made or obtained, except the filing of the
Certificate of Incorporation in the office of the Secretary of State of the
State of Delaware.
(f) CLASSY LADY is the exclusive licensee of the Intellectual Property free
and clear of any lien, charge, security interest or other encumbrance. CLASSY
LADY has all the rights necessary to enter into this Agreement and all rights in
and to the Intellectual Property being granted. The license agreement between
Zaias and CLASSY LADY (as amended and restated as of December 5, 1995), a copy
of which has been provided to LASER, is in full force and effect and has not
been amended and restated since the date of such amendment and restatement.
CLASSY LADY hereby agrees to take all such actions as may be required to ensure
that such agreement remains in full force and effect throughout the term of this
Agreement and to not amend such license agreement without the prior approval of
LASER, except as may be permitted by the License Agreement.
(g) CLASSY LADY has not entered into any license agreement or other
arrangement pursuant to which it has granted to any third party any rights with
respect to the Intellectual Property, other than this Agreement and,
prospectively, the License Agreement contemplated herein.
13
<PAGE> 18
(h) The use of the Intellectual Property pursuant to the License Agreement
does not and shall not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with any intellectual property rights of third
parties, and CLASSY LADY has not received any charge, complaint, claim, demand,
or notice alleging any such interference, infringement, misappropriation, or
violation.
(i) The Intellectual Property is not subject to any outstanding injunction,
judgment, order, decree or ruling and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending, or, to the
knowledge of CLASSY LADY, is threatened which challenges the legality, validity
or ownership of the Intellectual Property.
(j) To the best knowledge of CLASSY LADY, CLASSY LADY knows of no reason
why the Intellectual Property cannot be effectively used to accomplish the
business purposes of Venture set forth in the Preamble hereof.
Section 4.2 Representations and Warranties of LASER. LASER does hereby
warrant, represent and covenant to CLASSY LADY as follows:
(a) LASER is a corporation duly organized, validly existing and in good
standing under the laws of Israel, qualified to do business in each of the
jurisdictions in which it transacts business and has the power and authority to
own its own properties and to carry on its business as it is now being
conducted. Copies of the Articles and Memorandum of Association of LASER which
have been furnished or are to be furnished to LASER reflect all amendments made
thereto, if any, and are true, complete and correct.
(b) The execution and delivery of this Agreement and the performance of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate and other action on the part of LASER, and this Agreement
and any other Transaction Agreement to which LASER is (or will be) a party, when
executed, will constitute a valid and legally binding obligation of LASER
enforceable in accordance with their terms.
14
<PAGE> 19
(c) There is no litigation pending or, to the best knowledge of LASER,
threatened against LASER which could reasonably be expected to materially
adversely affect LASER'S obligations under this Agreement.
(d) The execution, delivery and performance by LASER of this Agreement and
the other Transaction Agreements to which it is a party will not result in a
breach of any of the terms, provisions or conditions of any agreement to which
LASER is a party, which breach could reasonably be expected to materially and
adversely affect the operations, properties or business of the Venture or any of
such LASER's obligations under this Agreement or the other Transaction
Agreements to which it is a party.
(e) The execution and delivery by LASER of this Agreement and the other
Transaction Agreements to which it is a party and the formation of the Venture
as a corporation under the General Corporate Law of the State of Delaware as set
forth to Title 8 of the Delaware Code, do not require any filing by it with, or
approval or consent of, any governmental authority or third party which has not
already been made or obtained, except the filing of the Certificate of
Incorporation in the office of the Secretary of State of the State of Delaware
and the approval of the Bank of Israel.
Section 4.3 Survival of Representations and Warranties. The representations
and warranties set forth in Section 4.1 and 4.2 of this Agreement are made only
as the date hereof and shall survive indefinitely.
ARTICLE V
CONFIDENTIALITY
Section 5.1 Confidential Information. In the course of the performance of
this Agreement, the parties each hereby recognize that each may obtain access to
confidential technical, business, and operational information owned by and/or
controlled by the other parties (the "Confidential Information"), and that such
Confidential Information has been acquired and maintained at great effort and
expense and is not generally known, and that each party considers its own
Confidential Infor-
15
<PAGE> 20
mation to constitute valuable assets thereof. Subject to the following
paragraph, all information transmitted pursuant to this Agreement shall be
considered as being designated as Confidential Information. Confidential
Information will not include information which: (i) is at the time of disclosure
or later becomes generally available to the public through no fault of the
receiving or disclosing party or any employee, independent contractor,
consultant or agent thereof; (ii) was already known both to CLASSY LADY and
LASER; or (iii) is lawfully and in good faith made available or known to the
receiving party by a third party, not connected with the disclosing party and
without an obligation of confidence to the disclosing party, directly or
indirectly.
Section 5.2 Confidential Treatment. Each party hereby agrees that it will
maintain the confidential nature of the disclosed or received Confidential
Information. In furtherance of such obligation, each party hereby agrees to
instruct its employees, independent contractors, consultants and agents
receiving or holding any Confidential Information regarding these
confidentiality obligations, and ensure that the foregoing adhere to the same.
Each party hereby covenants that it shall not disclose any Confidential
Information to any third party; provided, however, that disclosure may be made
to a third party pursuant to a non-disclosure agreement with such third party
adequate to protect the confidential nature of such Confidential Information in
a manner at least consistent with the provisions of this Article V, but only if
such disclosure to said third party is necessary for the parties to conduct
their respective businesses.
ARTICLE VI
TERM AND TERMINATION
Section 6.1 Termination. This Agreement may be terminated only by mutual
agreement of the parties.
Section 6.2 Dissolution. Upon termination of the Venture, CLASSY LADY and
LASER shall take all steps as may be reasonably necessary to dissolve the
Venture and otherwise unwind its affairs. In addition, notwithstanding the
termination of Venture's rights in the Patent pursuant to the Licensing
Agreement, CLASSY LADY
16
<PAGE> 21
agrees that the Venture may continue to use and distribute any products
developed pursuant to the Licensing Agreement that are already in commerce and
CLASSY LADY will not deem infringing any products manufactured pursuant to the
Licensing Agreement prior to termination nor abridge the rights of users of such
products.
Section 6.3 Survival. The provisions of Section 3.3 (f), Article 4, Article
5 and Article 6 shall survive any termination of this Agreement.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Non-Agency. For all purposes of this Agreement, each party
shall be an independent contractor, and not an agent of the other.
Section 7.2 No Assignment; Successors and Assigns. Neither party shall
assign, subcontract or otherwise transfer this Agreement or any right or
interest in or to this Agreement without the prior written consent of the other,
except that LASER or CLASSY LADY may assign this Agreement to any wholly-owned
subsidiary or to any successor (including by way of merger with Selvac Corp.) to
all or substantially all of its business (it being understood that any such
assignment shall not relieve the assigning party of any of its obligations
hereunder). This Agreement shall be binding on, enforceable against and inure to
the benefit of, the parties and their permitted successors and assigns, and
nothing herein is intended to confer any right, remedy or benefit upon any other
person. Nothing contained herein shall limit Zaias' ability to assign any
interest in any monies and/or royalties granted under the Licensing Agreement.
Section 7.3 Communications. All notices, consents and other communications
given under this Agreement shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand or by Federal Express or a similar
overnight courier to, (b) five days after being deposited in any United States
post office enclosed in an airmail postage prepaid registered or certified
envelope addressed to, or (c) when successfully transmitted by facsimile (with a
confirming copy of such communications to be sent as provided in (a) or (b)
17
<PAGE> 22
above) to, the party for whom intended, at the address or facsimile number for
such party set forth below, or to such other address or facsimile number as may
be furnished by such party by notice in the manner provided herein; provided,
however, that any notice of change of address or facsimile number shall be
effective only upon receipt.
If to LASER:
Laser Industries Limited
Atidim Science Based Industrial Park
Neve Sharett P.O. Box 13135
Tel Aviv, Israel 61131
Attention President
Facsimile No.: 011 972-3-645-45-64
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: David J. Friedman, Esq.
Facsimile No.: (212) 735-2000
If to CLASSY LADY:
Classy Lady by Mehl of Puerto Rico, Inc.
c/o Juan Saavedra Castro, Esq.
252 Ponce de Leon Avenue
Citibank Tower - 8th Floor
Hato Rey, Puerto Rico 00917
Facsimile No.: (809) 758-9097
With a copy to:
Kevin E. Leary, Esq.
4020 Newberry Road
Suite 40OA
Gainesville, Florida 32607
Facsimile No.: (904) 373-2481
Section 7.4 Publicity. No public release, announcement or statement to any
third party concerning the transactions contemplated by this Agreement shall be
issued or made by any party hereto without the prior
18
<PAGE> 23
consent of the other party hereto, except as may be required by law (or the
rules or regulations of any securities exchange).
Section 7.5 Entire Agreement. This Agreement, together with the other
Transaction Agreements sets forth the entire understanding of the parties with
respect to its subject matter, merges and supersedes all prior and
contemporaneous understandings with respect to its subject matter and may not be
waived or modified, in whole or in part, except by a writing signed by each of
the parties. No waiver of any provision of the Agreements in any instance
shallot be deemed to be a waiver of the same or any other provision in any other
instance. Failure of any party to enforce any provision of the Agreements or to
require at any time performance of any of the obligations hereof or thereof
shall not be construed as a waiver of its rights under such or any other
provision, nor to in any way affect the validity of the Agreements of such
party's rights thereafter to enforce such or any other provision of any of the
Agreements nor to preclude such party from taking any other action at any time
which it would legally be entitled to take.
Section 7.6 Remedies. Because none of the parties would have an adequate
remedy at law to protect its business from the unfair competition of the other
or otherwise to protect its interests in its confidential information, patent
rights and similar commercial assets, each of them shall be entitled to
injunctive relief for any breach by another party of the provisions of Article
5, in addition to such remedies and relief that would otherwise be available to
it, and to protect against the unauthorized use of intellectual property
following termination of this Agreement. The rights and remedies herein
provided, or provided in any of the other Transaction Agreements, shall be
cumulative and not exclusive of any rights or remedies provided by law or
equity. It shall be not a defense to a claim for equitable relief that the
breaching party may be able to answer in damages.
Section 7.7 Further Assurances.
(a) In addition to the actions specifically provided for elsewhere in this
Agreement, each of the parties hereto shall use reasonable efforts to take,
19
<PAGE> 24
or cause to be taken, all actions and to do, or cause to be done, all
things, to the extent permitted under applicable laws, regulations and
agreements, to consummate and make effective the transactions contemplated in
the Transaction Agreements, including, without limitation, using its reasonable
efforts to make the filings and applications necessary or desirable to have been
obtained, entered into or made in order to consummate the transactions
contemplated in the Transaction Agreements.
(b) LASER and CLASSY LADY shall, and shall cause their respective
Affiliates, to use their voting power to insure that the Venture carries out any
actions which are required under the terms of this Agreement and any of the
other Transaction Agreements. Each of LASER and CLASSY LADY shall, in the
absence of any existing default of the other or of the Venture hereunder or
thereunder, take all responsible steps to ensure that all contracts between the
Venture and such party and any of its Affiliates shall be performed in
accordance with the respective terms of such contracts and none of the parties
shall do or omit to do anything for the purpose of causing a default or
preventing the Venture from remedying a default or from exercising or enforcing
such rights as it may have against such party thereunder.
Section 7.8 Severability. If any provision of this Agreement is held to be
invalid or unenforceable by any court or tribunal of competent jurisdiction, the
remainder of this Agreement shall not be affected thereby, and such provision
shall be carried out as nearly as possible according to its original terms and
intent to eliminate such invalidity or unenforceability.
Section 7.9 Governing Law. This Agreement shall in all respects be governed
by and construed in accordance with the laws of the State of [Delaware]
applicable to agreements made and fully to be performed in such state by
residents thereof.
Section 7.10 Arbitration. The parties hereto agree to submit all disputes
arising out of the interpretation of this Agreement to binding arbitration. Such
arbitration will be in New York City, before a panel of three (3) Arbitrators
certified by the American Arbitration Association under its rules, with any
decision thereunder to be final and nonappealable. The foregoing
20
<PAGE> 25
notwithstanding, either party may seek injunctive relief to enforce any alleged
violation of Article V hereof.
Section 7.11 Prevailing Party. The prevailing party in any arbitration or
litigation arising with respect to interpretation, performance, or enforcement
of this Agreement, shall recover all court costs and a reasonable attorney fee,
including attorney's fees for services rendered on appeal.
Section 7.12 Name Change. At such time as LASER owns less than fifty
percent (50%) of the outstanding shares of Common Stock and if LASER so
requests, CLASSY LADY and LASER shall use their best efforts to cause the
Venture to delete any reference to "Sharplan" from its name. If requested by
LASER, the Venture will enter into a licensing agreement with Sharplan Lasers,
Inc. concerning the use of the name "SHARPLAN".
Section 7.13 Counterparts. This Agreement may be executed in counterparts,
each of which will constitute an original and both of which together will
constitute one and the same Agreement.
21
<PAGE> 26
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
19th day of December, 1995.
BY: ___________________________________
THOMAS L. MEHL, SR., as President of
CLASSY LADY BY MEHL OF PUERTO RICO, INC.
BY: /s/ BENJAMIN GIVLI
____________________________________
BENJAMIN GIVLI, as Chairman of
LASER INDUSTRIES, LTD .
22
<PAGE> 1
Exhibit 11
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
Computation of average number of shares outstanding used in determining primary
and fully diluted earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
---- ----
<S> <C> <C>
PRIMARY:
Weighted average number of shares
outstanding 14,075,207 14,345,234
Assumed exercise of common stock
warrants and certain stock options
based on average market value 0 0
---------- ----------
Weighted average number of shares used
in primary per share computations 14,075,207 14,345,234
========== ==========
FULLY DILUTED:
Weighted average number of shares
outstanding 14,075,207 14,345,234
Assumed conversion of Series A
cumulative convertible stock 0 0
Assumed conversion of 1985 Series
cumulative convertible stock 0 0
Assumed conversion of Series C cumulative
convertible stock 0 0
Assumed conversion of convertible debentures 0 0
Assumed exercise of common stock
warrants and certain options
based on higher of average or
closing market price 0 0
---------- ----------
Weighted average number of shares
used in fully diluted per share
computations 14,075,207 14,345,234
========== ==========
</TABLE>
<PAGE> 2
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
---- ----
<S> <C> <C>
Weighted average number of shares outstanding:
Primary 14,075,207 14,345,234
============ ============
Fully diluted 14,075,207 14,345,234
============ ============
Primary:
Net income (loss) $ (590,872) $ 144,228
Paid and cumulative undeclared preferred
stock dividends (44,833) (58,200)
------------ ------------
$ (635,705) $ 86,028
============ ============
Net income (loss) per share $ (.05) $ .01
============ ============
</TABLE>
For the above years, earnings per share, assuming full dilution, has not been
presented since the effect would be antidiluting.
<PAGE> 1
Exhibit 21
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(FORMERLY SELVAC CORPORATION) AND SUBSIDIARY
STATEMENT RE: SUBSIDIARIES OF THE REGISTRANT
1. VIDEO KNIGHTS, INC.
INCORPORATED IN: NEW JERSEY
2. SELVAC ACQUISITION CORP.
INCORPORATED IN: DELAWARE
3. SLS (BIOPHILE) LTD.
INCORPORATED IN: WALES
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT INCLUDED IN PART II, ITEM 7 OF THE REGISTRANT'S
ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED MAY 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 9,838,998
<SECURITIES> 477,690
<RECEIVABLES> 827,598
<ALLOWANCES> 343,416
<INVENTORY> 387,700
<CURRENT-ASSETS> 11,349,855
<PP&E> 747,398
<DEPRECIATION> 741,470
<TOTAL-ASSETS> 16,448,596
<CURRENT-LIABILITIES> 330,672
<BONDS> 750,000
0
10,000,000
<COMMON> 181,325
<OTHER-SE> 5,186,599
<TOTAL-LIABILITY-AND-EQUITY> 16,448,596
<SALES> 2,351,945
<TOTAL-REVENUES> 2,545,373
<CGS> 1,330,726
<TOTAL-COSTS> 3,136,245
<OTHER-EXPENSES> 1,772,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,544
<INCOME-PRETAX> (590,872)
<INCOME-TAX> 0
<INCOME-CONTINUING> (590,872)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (590,872)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
