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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1999
Commission File Number: 33-17922-C
IMMUNE RESPONSE, INC.
(Name of small business issuer in its charter)
COLORADO 84-0950197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7001 POST ROAD, SUITE 100
DUBLIN, OH 43016
(Address of principal executive offices,
including zip code)
(614) 336-2000
(Issuer's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
The registrant 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 has been subject to the filing requirements for at least the past
90 days.
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and will not 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. [x]
The registrant had no revenues for the fiscal year ended December 31,
1999.
The aggregate market value of the registrant's common equity held by
non-affiliates of the registrant was approximately $15,165,012 on March 23,
2000.
There were 7,497,500 shares of the Registrant's Common Stock
outstanding on March 23, 2000.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No[x]
DOCUMENTS INCORPORATED BY REFERENCE
None.
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This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. The words
"anticipate," "believe," "expect," "estimate," and "project" and similar words
and expressions identify forward-looking statements which speak only as of the
date hereof. Investors are cautioned that such statements involve risks and
uncertainties that could cause actual results to differ materially from
historical or anticipated results due to many factors, including, but not
limited to, the factors discussed in "Description of Business - Business Risks
and Management's Discussion and Analysis." The Company undertakes no obligation
to publicly update or revise any forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Immune Response, Inc. (the "Company") was incorporated in the State of
Colorado on May 24, 1984 as Med-Mark Technologies, Inc. for the purpose of
marketing medical products. When the Company was unable to obtain suitable
products, it ceased operations and remained inactive from July 1985 until
November 10, 1986, when it changed its name to Immune Response, Inc. From
November 1986 until May 1991, the Company was a biomedical firm engaged in three
levels of activity - clinical testing, clinical research, and basic research.
While the Company established and operated the Clinical Testing and
Research Division until May 1991, the Board of Directors, following an analysis
of the results of the Division's operations, determined that the operations were
not commercially viable and that it was highly unlikely the Division would ever
be profitable. Accordingly, on May 10, 1991, the Company entered into an Asset
Purchase Agreement with Infinity Laboratories, Inc. ("Infinity") pursuant to
which it sold to Infinity all of the Company's assets relating to its laboratory
services. This sale was approved by the Company's stockholders at a Special
Meeting of Shareholders held on June 3, 1991. The Company suspended its
biomedical activities following this transaction and was inactive except for
evaluating alternative business opportunities.
On January 8, 1996, the Company announced that it had executed an
agreement to merge with Ocurest Laboratories, Inc. ("Ocurest") of Palm Beach
Gardens, Florida. Concurrent with executing the merger agreement, the Company
made a secured loan to Ocurest in the amount of $125,000. On February 23, 1996,
the Company announced the mutual termination of its merger agreement. As part of
the mutual termination agreement, Ocurest repaid the aforementioned loan with
interest. In addition, Ocurest agreed to pay the Company a fee of $10,000, with
interest, upon the successful completion of its planned initial public offering
which fee was paid during the fourth quarter of 1996.
On February 10, 1997 at an Annual Meeting of Stockholders, the
Company's shareholders approved a one-for-one hundred (1 for 100) reverse stock
split whereby every one hundred shares of the Company's $.0001 par value common
stock were converted to one share of $.0001 par value common stock and approved
a reduction in the number of authorized shares from 950,000,000 to 25,000,000
effective March 3, 1997. As a result, the Company's issued shares were decreased
from 312,470,000 to 3,124,700 and outstanding shares decreased from 294,970,000
to 2,949,700.
RECENT DEVELOPMENTS
On December 9, 1999, the Company, Opticon Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of the Company ("Sub"), and
Opticon Medical, Inc., an Iowa corporation ("Opticon"), entered into an
Agreement and Plan of Reorganization (the "Merger Agreement"), providing for the
merger of Opticon with and into Sub (the "Merger").
The Merger Agreement was approved by the Company, acting as sole
shareholder of Sub. The shareholders of Opticon approved and adopted the Merger
Agreement at a special meeting held on January 28, 2000. The Merger became
effective February 25, 2000, when Sub filed Articles of Merger with the office
of the Iowa Secretary of State and a Certificate of Merger with the office of
the Delaware Secretary of State. Through the Certificate of Merger, Sub changed
its name to Opticon Medical, Inc.
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At the Effective Date of the Merger, each outstanding share of
Opticon's Common Stock, no par value, Series A Preferred Stock, no par value,
and Series B Preferred Stock, no par value, totaling 4,482,906 shares (the
"Opticon Stock") and held by approximately 88 shareholders, was converted into
the right to receive 1.23 shares of common stock, $.0001 par value, of the
Company (the "Company Common Stock"), so that, in the aggregate, the holders of
Opticon Stock would, on the Effective Date, hold 80% of the outstanding Company
Common Stock, on a fully diluted basis, and the then current shareholders of the
Company would hold, in the aggregate, 20% of the outstanding Company Common
Stock on a fully diluted basis. No fractional shares were issued. All fractional
shares of Company Common Stock to which a holder of Opticon Stock would
otherwise be entitled at the Effective Date were aggregated, and any fractional
share resulting from such aggregation was rounded to the nearest whole. All
shares issued pursuant to the Merger Agreement were issued pursuant to
exemptions from registration under the Securities Act of 1933, as amended (the
"Act").
No other consideration was provided in connection with the Merger. The
merger consideration was determined based upon arms-length negotiations between
the Company and Opticon.
The Merger Agreement provided that the Company assume Opticon's rights
and obligations under all of Opticon's outstanding options, warrants and other
purchase rights. As a result, on the Effective Date, the right of any holder of
an outstanding option, warrant, or other purchase right was converted into the
right to receive the number of shares of Company Common Stock as would have been
issued or delivered to the holder if it had exercised the warrant or option and
received the shares of Opticon Stock upon such exercise immediately prior to the
effectiveness of the Merger. At the Effective Date, there were outstanding an
aggregate of 1,968,517 Opticon options and warrants.
In connection with the Merger, on January 20, 2000, the Company's
shareholders approved a one-for-three reverse stock split and authorized
1,000,000 shares of preferred stock and an increase in the authorized capital
stock to 26,000,000 shares. As a result, prior to the Effective Date, the
Company had a total of 1,983,526 shares of Company Common Stock issued and
outstanding. In the Merger, 5,513,974 shares of Company Common Stock were issued
in exchange for the outstanding shares of Opticon Stock, causing the Company to
have a total of 7,497,500 shares of Company Common Stock issued and outstanding.
If all of the Opticon options and warrants were to be exercised, approximately
another 2,421,276 shares of Company Common Stock would be issued.
Pursuant to the Merger Agreement, the directors of the Company in place
prior to the Closing of the Merger tendered their resignations from the Board of
Directors on the Effective Date and appointed such persons to the Board of
Directors as were designated by Opticon. As a result, the officers and directors
of Opticon in place prior to the Effective Date replaced the officers and
directors of the Company and Sub (See Item 9 - "Directors, Executive Officers
and Control Persons").
Immediately following the Merger, the Company entered into Securities
Purchase Agreements with certain investors (the "Investors") whereby the Company
agreed to sell, and the Investors to purchase $3,000,000 in principal amount of
6% Redeemable Convertible Debentures ("Debentures"), and warrants to purchase
300,000 shares of Company Common Stock ("Warrants"), for an aggregate purchase
price of $3,000,000. The Debentures were subsequently exchanged for 3,000 shares
of the Company's Series A 6% Convertible Preferred Stock (the "Preferred
Shares"). See "Market for Common Equity and Related Stockholder Matters."
Because the Company was inactive prior to the Merger, and because as a
result of the Merger the former shareholders of Opticon now hold a majority of
the outstanding Company Common Stock, under generally accepted accounting
principles as interpreted by the Securities and Exchange Commission, the Merger
is treated as a "reverse merger" with the financial statements of Opticon
becoming the financial statements of the Company. Consequently, discussion of
the business, financial condition and results of operations of the Company for
the fiscal year ended December 31, 1999, will relate primarily to Opticon,
rather than to the Company prior to the Merger. Unless otherwise indicated,
references to "Opticon" in the remainder of this Report are to Opticon Medical,
Inc., a Delaware corporation and wholly-owned subsidiary of the Company.
BUSINESS OF THE COMPANY
Background
Opticon Medical, Inc. (now a wholly-owned subsidiary of the Company)
began in 1994 as an Iowa corporation formed to develop, manufacture, and market
a series of innovative, proprietary, cost-effective,
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disposable devices designed to manage and control the symptoms of urinary
incontinence ("UI") in adults. UI, the involuntary loss of urine, affects an
estimated 18 million people in the United States, the vast majority of which are
female. UI can be an intrusive, debilitating, and embarrassing condition that
has a significant impact on a patient's quality of life. Opticon's founder,
Fouad A. Salama, M.D., conceived, produced, and tested a series of devices which
showed promise for treating individuals suffering from UI, and his efforts
ultimately resulted in the OPTICON(TM) device and its associated patents, which
form the basis of Opticon's business. Opticon has recently relocated to Dublin,
Ohio, and is preparing to enter into the commercialization phase of business
development.
Opticon's initial product is the OPTICON(TM), a disposable, silicone,
indwelling valved catheter designed to manage UI in females. Opticon has also
developed the OPTICON(TM) Direct, a non-valved, continuous drainage device to be
used in the same manner as a Foley catheter. Because of the greater innovation
and distinct value of the OPTICON (valved) device, Opticon intends to market the
OPTICON Direct on an opportunistic basis and only after the OPTICON has been
introduced commercially. Opticon has developed prototypes of male versions of
the devices as well. The Company believes that the OPTICON device represents a
whole new modality in the management of UI, particularly for the
moderate-to-severely incontinent patient who fails to be satisfied by wearing
absorbent pads or adult diapers, or for whom specific surgical remedies or other
treatments are not available. Additionally, early clinical trial experience has
suggested that Opticon's technology will have applications within the short-term
urinary management market as well. The OPTICON is more functional than urethral
plugs or patches and more convenient than traditional Foley catheters.
Individuals using the OPTICON will remain dry and odor free and better able to
engage in normal life activities with reduced fear and embarrassment.
Opticon expects to initially use a contract manufacturer to produce the
OPTICON and is pursuing arrangements with various vendors for different phases
of manufacturing, including tooling, component parts assembly, sterilization,
and packaging. Opticon plans to market its products in the United States using
multiple distribution channels, including a direct sales force and alliances
with major health care companies. Opticon also expects to develop distribution
relationships and corporate alliances for international distribution.
To date, Opticon has had no sales, generated no revenues, and has
operated as a "virtual corporation" by combining the contributions of a small
number of direct full-time employees with the services of a host of third-party
contractors. Opticon intends to apply working capital toward more fully
establishing its directly employed infrastructure, completing its clinical
trials for short-term use of the valved device, further progressing its product
development projects, and establishing its initial market channels. Opticon will
continue to outsource expertise in the legal and financial disciplines and
expects to continue with contract manufacturing at least through the first two
years of market experience.
Market and Competitive Business Conditions
The Company believes that Opticon's principal competition will come
initially from existing UI products, such as adult diapers and absorbents, with
additional competition from existing catheters and surgical products. Also,
pharmaceutical products have been introduced which have been shown to have a
certain effectiveness for urge incontinence. Procter & Gamble, Kimberly-Clark,
PMP, Inc., and Johnson & Johnson lead the market for diapers and pads. The
urological division of C.R. Bard is the market leader for current indwelling
catheters and supply products, holding over 50% of the market through its
branded and original equipment manufactured product lines. Other significant
participants in this market include Hollister, Sherwood, Rusch, Kendall, and
Mentor. Their primary market thrust continues to be in the area of traditional
urinary management. Bard also leads the United States market for bulking agents
with Contigen(TM), a collagen-based material which is injected into the
pertinent tissues for Intrinsic Sphincter Deficiency related incontinence.
The Company believes that Opticon is well positioned to ultimately
compete within a total domestic market that currently exceeds $1.2 billion
annually. The Company estimates similarly sized opportunities in markets
overseas.
Governmental Regulations
Government regulation in the United States and other countries is a
significant factor in the development and marketing of Opticon's products and in
Opticon's ongoing manufacturing and research and development activities. Opticon
and its products are subject to regulation by numerous governmental authorities,
primarily the United States Food and Drug Administration ("FDA") and
corresponding foreign agencies, under a number of statutes including the Food,
Drug and Cosmetic Act, as amended ("FDC Act"). Manufacturers of medical devices
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must comply with applicable provisions and associated government regulations
governing the development, testing, manufacturing, labeling, marketing, and
distribution of medical devices and the reporting of certain information
regarding their safety. The FDC Act requires certain clearances from the FDA
before medical devices, such as the OPTICON, can be marketed.
In August 1996, Opticon received 510(k) allowance from the FDA to
market the OPTICON Direct as a drainage device. Opticon expects to obtain FDA
510(k) allowance and to have the OPTICON (valved) product market-ready for
short-term use, and plans to enter the market for short-term urinary management
for indications requiring use for 14 or fewer days. Thereafter, Opticon intends
to seek an Investigational Device Exemption ("IDE") to permit clinical trials
regarding chronic use of the OPTICON and then file a Pre-Market Approval ("PMA")
application to obtain approval to market the OPTICON for chronic use in the
United States. The process for a PMA application often takes in excess of 2 1/2
years, including the clinical trial process and subsequent consideration from
the FDA. In addition, Opticon intends to seek ISO and CE mark certification,
which will facilitate the marketing of the OPTICON in Europe.
Patents
Following the initial research and development of Opticon's core
technology, an initial United States patent was issued in 1990 relating to the
one-way disposable urinary control valve. Several subsequent patents and patent
extensions have been issued, the most recent of which was in December 1997, and
notice of allowance for claims relating to a new discharge valve was received in
March 1998. Patents relating to this core technology have also been issued in
Canada, Australia, Japan, North Korea, South Korea, and a number of countries
throughout Europe, including those countries participating in the Patent
Cooperation Treaty.
Issued patent claims apply to the proprietary shape of the retention
balloon and to the method for adjusting length and anchoring the device in
place. The design and function of the discharge valve is also patented.
Continuing development has resulted in additional patent applications, and in
April 1999, a new patent was issued for a surgically implantable artificial
sphincter. Opticon originally acquired an exclusive and irrevocable license to
the OPTICON and its related technology from Dr. Salama. In 1997, the Company
entered into an ongoing exclusive consulting agreement with Dr. Salama, wherein
ownership of all existing patents was assigned, and all future patents developed
by Dr. Salama in the fields of urology, urogynecology, and urinary incontinence
care will be assigned, directly to Opticon.
PERSONNEL
As of March 23, 2000, Opticon employed 3 full time employees and used
the services of several external consultants. None of Opticon's employees are
subject to a collective bargaining agreement, and Opticon considers its
relationships with its employees to be good.
BUSINESS RISKS
We are a Development Stage Company and May Never Have Positive Earnings of Cash
Flow
Opticon's current business is limited to research and development
activities relating to the OPTICON and related products, from which it has yet
to derive any revenues. Therefore the business is subject to risks incident to
any early stage business, including the absence of earnings. As of December 31,
1999, Opticon had an accrued deficit of $4,365,416. Until a successful
commercial launch of the OPTICON (which is by no means assured) Opticon will
realize little, if any, revenue, and will be dependent upon the proceeds from
the Debentures and follow-on rounds of capitalizations to fund operations (See
"Item 5 - Market for Common Equity and Related Shareholder Matters").
Lack of Sales and Revenues and History of Losses; Anticipated Future Losses
Opticon has been engaged primarily in the research, development and
testing of the OPTICON and related products. The Company has not had any
commercial sales or generated any revenues from the OPTICON or any other product
to date and has experienced operating losses since its inception, including
those for fiscal year 1999 totaling $799,873. The Company expects to incur
substantial operating losses and the rate at which such losses are incurred is
expected to increase relative to prior years as the Company prepares for the
commercialization of the OPTICON. Until a successful commercial launch of the
OPTICON, which is by no means assured, we will realize
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little, if any, revenue, and will be dependent upon the proceeds of Debentures
to fund operations. There can be no assurance that the Company will ever
generate revenues or achieve profitability.
We Need to Raise Additional Capital in 2000 in Order to be Successful
We will likely incur substantial expenditures during 2000 to further
the development and commercialization of the OPTICON. We do not currently have
adequate funds to accomplish this objective, and anticipate that we may need to
raise additional capital in 2000. We are unsure whether capital will be
available at that time.
Product Development Risks; Uncertainty of Regulatory Approval
The OPTICON device is new and, accordingly, its safety and efficacy has
not yet been established. The production and marketing of Opticon's products,
including the OPTICON, and Opticon's ongoing research and development activities
are subject to regulations by numerous government authorities in the United
States and other countries. The manufacture and sale of the OPTICON and future
products are subject to FDA review and approval, which can be an expensive,
lengthy and uncertain process. Opticon received 510(k) allowance to market the
OPTICON Direct, a non-valved product, as a drainage device in the United States,
although Opticon does not anticipate marketing the OPTICON Direct at least until
after introducing the OPTICON. In February 1998, the FDA approved Opticon's
petition to permit Opticon to conduct human trials on acute patient populations
requiring short-term urinary management and to seek market clearance for
short-term use of the OPTICON via a 510(k) submission rather than via the
lengthier PMA process. The FDA, however, currently requires the more extensive
PMA process for qualifying transurethral devices for the long-term management of
incontinence. Once chronic use trials begin, a PMA filing is expected within 24
months. The approval process for a PMA application entails longer and more
complicated regulatory review, often taking 6 to 12 months or longer from the
time of filing.
Failure to complete clinical trials or obtain the necessary FDA
allowances or approvals, or to complete clinical trials or obtain such
allowances or approvals on a timely basis, would have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, the FDA and various state agencies inspect medical device
manufacturers (including contract manufactures, such as Opticon intends to
employ) from time to time to determine whether they are in compliance with
applicable regulations, including ones concerning manufacturing, testing,
quality control and product labeling practices. Noncompliance with applicable
regulatory requirements (including noncompliance by Opticon's third-party
contract manufacturers) 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 pre-market clearance or 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
Opticon.
Uncertainty of Market Acceptance
The OPTICON represents a new approach to managing certain types of UI,
and there can be no assurance that the OPTICON will gain any significant degree
of market acceptance even if necessary regulatory clearances or approvals are
obtained. Opticon believes that recommendations by physicians may be significant
for market acceptance of the OPTICON, and there can be no assurance that any
such recommendations will be obtained. In addition, there can be no assurance
that the OPTICON will be accepted by UI sufferers in the United States and
abroad. Further, the incontinence and urological device industry is highly
competitive. In order to compete successfully against other products, Opticon
must maintain competitive pricing. Insufficient market acceptance of the OPTICON
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Single Product
Although Opticon intends to develop a family of products for urology
and incontinence care, the Company expects that substantially all of Opticon's
revenues in the near-term will be derived from the OPTICON. Failure to
successfully commercialize the OPTICON would have a material adverse effect on
Opticon's business, financial condition and results of operations.
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Lack of Manufacturing Contracts; Dependence Upon Third Parties for Manufacturing
Initially, Opticon expects to contract with third parties for all of
its manufacturing and there can be no assurance that Opticon will be able to
enter into acceptable contracts with appropriate third parties. In addition,
Opticon has contracted with third parties for the creation of tooling, assembly,
packaging and sterilization. As a result, Opticon will be dependent on such
third parties to produce Opticon's products efficiently and on a timely basis.
Further, Opticon will be dependent on such third parties' quality control
procedures. Failure of such third parties to maintain adequate quality control
or to manufacture products in sufficient quantities and on a timely and
cost-effective basis could have a material adverse effect on the Company's
business, financial condition and results of operations. Any interruption in
supplies would also have a material adverse effect on the Company's business,
financial condition and results of operations.
Lack of Marketing and Sales Support
Opticon currently has no employees dedicated solely to marketing and
sales. Opticon expects to market its products initially through distribution
alliances. In the future, Opticon expects to market its products for the
incontinence market in part through a direct sales force. There can be no
assurance that Opticon can build a distribution alliance or an effective sales
force, attract and retain its own qualified marketing and sales group in the
United States, or otherwise design and implement an effective marketing and
sales strategy for the OPTICON or any future products developed by Opticon.
Opticon expects to market its products internationally principally
through distributors or strategic alliances. There can be no assurance that
Opticon will be able to engage such distributors or strategic partners or that
if retained such distributors or partners will be able to successfully market
and sell Opticon's products.
Competition and Technological Advances
Opticon's ability to compete in the UI management field will depend
primarily upon physician and consumer acceptance of the OPTICON device,
consistency of product quality and delivery, price, technical capability and the
training of health care professionals and consumers. Other factors within and
outside Opticon's control will also affect its ability to compete, including its
product development and innovation capabilities, its ability to obtain required
regulatory clearances, its ability to protect the proprietary technology
included in its products, its manufacturing and marketing capabilities, its
third-party reimbursement status and its ability to attract and retain skilled
employees. Certain of Opticon's competitors have significantly greater
financial, technical, research, marketing, sales, distribution and other
resources than Opticon. The OPTICON is intended to be a management option for
the treatment of UI, but it is not a permanent cure. The development of new
treatments that offer a permanent cure for UI could have a material adverse
effect on Opticon's business, financial condition and results of operations.
There can be no assurance that Opticon's competitors will not succeed in
developing or marketing technologies and products that are more effective or
commercially attractive than any products that may be offered by Opticon, nor
can there be any assurance that such competitors will not succeed in obtaining
regulatory clearance, introducing or commercializing any such products before
Opticon. Such developments could have a material adverse effect on the Company's
business, financial condition and results of operations.
Patents and Production of Proprietary Technology
Opticon's ability to compete effectively will depend, in part, on its
ability to develop and maintain proprietary aspects of its technology. Although
Opticon has a number of patents relating to the shape of the balloon and to the
design and function of the discharge valve, there can be no assurance that
Opticon's patents will not be challenged, invalidated or circumvented in the
future. Legal standards related to the enforceability, scope and validity of
patents are in transition and are subject to uncertainty due to broad judicial
discretion and evolving case law. Moreover, there can be no assurance that
competitors, many of which have substantial resources and have made substantial
investments in competing technologies, will not seek to apply for and obtain
patents that will prevent, limit or interfere with Opticon's ability to make,
use and sell its products either inside or outside the United States. The
defense and prosecution of patent litigation or other legal or administrative
proceedings related to patents is both costly and time-consuming, even if the
outcome is favorable to Opticon. An adverse outcome could subject Opticon to
significant liabilities to third parties, require disputed rights to be licensed
from others or require Opticon to cease making, using or selling any products.
There also can be no assurance that any licenses required under any patents or
proprietary rights would be made available on terms acceptable to Opticon, if at
all.
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Opticon also relies on unpatented proprietary technology, and there can
be no assurance that others may not independently develop the same or similar
technology or otherwise obtain access to Opticon's unpatented proprietary
technology. In addition, Opticon cannot be certain that others will not
independently develop substantially equivalent or superseding proprietary
technology, or that an equivalent product will not be marketed in competition
with Opticon's products, thereby substantially reducing the value of Opticon's
proprietary rights. There can be no assurance that any confidentiality
agreements between Opticon and its employees, consultants or contractors will
provide meaningful protection for Opticon's trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure of
such trade secrets, know-how or other proprietary information.
Uncertainty Relating to Third-Party Reimbursement
In the United States and many foreign countries, third-party
reimbursement is currently generally available for surgical procedures for
incontinence, but generally unavailable for patient-managed products such as
diapers and pads. Although Opticon believes that users of the OPTICON may
ultimately be eligible for third-party reimbursement, there can be no assurance
that such reimbursement will become available. The availability of third-party
reimbursement for the OPTICON in Europe will vary from country to country. If
third-party reimbursement is unavailable in the relevant European country or in
the United States, consumers will have to pay for the OPTICON themselves,
resulting in greater relative out-of-pocket costs of the OPTICON as compared to
surgical procedures and other management options for which third-party
reimbursement is available. Changes in the availability of third-party
reimbursement for the OPTICON, for products of Opticon's competitors or for
surgical procedures may affect the pricing of the OPTICON or the relative cost
to the consumer. Opticon is not able to predict the effect that the availability
or unavailability of third-party reimbursement for the OPTICON may have on the
commercialization of the OPTICON abroad or, ultimately, in the United States,
but such effect may be significant.
International Sales and Operations Risk
Opticon intends to sell the OPTICON and any future products to
customers outside the United States as well as domestically. International sales
and operations may be limited or disrupted by the imposition of government
controls, export license requirements, political instability, market
instability, trade restrictions, changes in tariffs or difficulties in staffing
and managing international operations. Foreign regulatory agencies often
establish product standards different from those in the United States, and any
inability to obtain foreign regulatory approvals on a timely basis could have an
adverse effect on the Company's international business and its financial
condition and results of operations. Additionally, the Company's business,
financial conditional and results of operations may be adversely affected by
fluctuations in currency exchange rates as well as increases in duty rates and
difficulties in obtaining export licenses. There can be no assurance that
Opticon will be able to successfully commercialize the OPTICON or any future
product in any foreign market.
Dependence on Key Personnel; Need for Additional Personnel
Opticon is currently dependent on the services of its officers and
directors as well as its founder and other consultants. The success of Opticon
is also dependent in large part upon the ability of Opticon to attract and
retain key management and operating personnel. Qualified individuals are in high
demand and are often subject to competing offers. In the immediate future,
Opticon will need to add additional skilled personnel and to retain consultants
in the areas of research and development, regulatory affairs, marketing and
manufacturing. There can be no assurance that Opticon will be able to attract
and retain the qualified personnel needed for its business. The loss of the
services of one or more members of Opticon's research or management group or the
inability to hire additional personnel as needed, would likely have a material
adverse effect on the business, financial condition and prospects of Opticon. In
addition, Opticon does not have in force key man life insurance policies on any
of its key officers.
Product Liability Risk; Limited Insurance Coverage
Opticon faces an inherent business risk of exposure to product
liability claims in the event that a consumer is adversely affected by its
prospective products. Based on the nature of the OPTICON technology and
Opticon's preliminary clinical results, Opticon is hopeful that the OPTICON may
potentially lower infection rates compared to traditional Foley catheters.
Because the OPTICON is a foreign body in the urethra, however, there is always a
chance of urinary tract infection. The OPTICON is also subject to other
potential risks that apply to all indwelling catheters and devices, including
urethral complications (balloon inflation in the urethra, urethral stricture,
damage to
8
<PAGE> 9
the urethra if catheter removal is attempted while balloon is inflated) and
bladder complications (hematuria due to irritation or infection, polypoid
cystitis associated with long-term use, bladder perforation). There can be no
assurance that Opticon's existing $2 million umbrella insurance policy is
adequate to protect Opticon from any liability it might incur in connection with
the clinical studies or sales of the OPTICON. In addition, Opticon may require
increased product liability coverage as the OPTICON is commercialized. Such
insurance is expensive, and there can be no assurance that such insurance in the
future will be available on commercially reasonable terms, or at all, or that
such insurance, even if obtained, would adequately cover any product liability
claim. A product liability or other claim with respect to uninsured liabilities
or in excess of insured liabilities could have a material adverse effect on the
business, financial condition and prospects of Opticon.
Limited Public Market
The Company Common Stock is currently traded in the Over-the-Counter
market on the OTC Bulletin Board. There can be no assurance that the Company
Common Stock will continue to be listed on the OTC Bulletin Board or that a
market for Company Common Stock will exist in the future should an investor wish
to sell any of its shares. There is no assurance that, if a market exists in the
future, that it will be an active, liquid or continuous trading market. The
stock market has experienced extreme price and volume fluctuations and
volatility that has particularly affected the market prices of many technology,
emerging growth, and developmental companies. Such fluctuations and volatility
have often been related or disproportionate to the operating performance of such
companies. Factors such as announcements of the introduction or enhanced
services or related products by the Company or its competitors may have a
significant impact on the market price of the Company's Common Stock.
Risks Relating to Low Priced Stocks
The Company Common Stock is currently trading at a price below $5.00
per share, subjecting trading in the stock to certain rules promulgated under
the Act requiring additional disclosures by broker-dealers. These rules
generally apply to any non-NASDAQ equity security that has a market price share
of less than $5.00 per share, subject to certain exceptions (a "penny stock").
Such rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally defined as an investor with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 individually or $300,000 together
with a spouse). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to the sale. The
broker-dealer also must disclose the commissions payable to the broker-dealer,
current bid and offer quotations for the penny stock and, if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Such information must be
provided to the customer orally or in writing before or with the written
confirmation of trade sent to the customer. Monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. The additional burdens
imposed upon broker-dealers by such requirements could discourage broker-dealers
from effecting transactions in our common shares which could severely limit the
market liquidity of the Company Common Stock and the ability of holders of
Company Common Stock to sell them.
No Dividends
The Company has never paid or declared a dividend on its capital stock
and does not anticipate doing so in the foreseeable future. The Company has
accumulated substantial losses since its inception and there can be no assurance
that the Company's operations will result in sufficient revenues to enable the
Company to operate at profitable levels or to generate positive cash flow. Any
earnings generated from the operations of the Company will be used to finance
the business and growth of the Company.
Dilution; Volatility
The Company has outstanding options and warrants to purchase Company
Common Stock that were issued pursuant to the exchange of options and warrants
held by Opticon shareholders before the Merger. Additional warrants were issued
pursuant to the purchasers of the Preferred Shares. If some or all of these
options and warrants are exercised, Company shareholders would experience a
dilution in their percentage of ownership of the Company and their voting power.
In addition, the Preferred Shares are convertible into Common Stock at a 35%
discount to the market price of the Common Stock at the time of conversion. If
the holders of the Preferred Shares were to
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<PAGE> 10
convert at the prevailing market price as of the date of this report, the
conversion would result in the issuance of approximately 1,538,000 additional
shares of Common Stock to the holders. The Company is required to promptly file
a registration statement under the Securities Act of 1933 under which such
shares may be immediately resold to the public. Such resales may adversely
affect the pricing and volatility of trading in the Common Stock.
If the Company issues equity securities to raise funds, each current
shareholder's interest may be reduced. Further, such equity securities may have
rights, preferences, or privileges senior to the Common Stock.
The Concentration of Ownership of the Common Shares May Limit Your Ability to
Influence Matters
The Company's directors, executive officers and principal shareholders
(5% or greater) collectively beneficially own or have the right to acquire under
currently exercisable options approximately 61.6% of the outstanding shares of
Company Common Stock. As a result, these shareholders will be able to exercise
significant influence over matters requiring shareholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership may have the effect of delaying or preventing a
change in control.
Volatility of Medical Technology Companies' Securities may Adversely Effect the
Market Price of Your Stock
Market prices of securities of medical technology companies, including
the shares of Company Common Stock, have experienced significant volatility from
time to time. There may be volatility in the market price of the Company Common
Stock due to factors that may not relate to the Company's performance. Various
factors and events, such as announcements by the Company or its competitors
concerning new product developments, governmental approvals, regulations or
actions, developments or disputes relating to patent or proprietary rights and
public concern over product liability may have a significant impact on the
market price the Company Common Stock.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices are located in Dublin, Ohio, in
approximately 4,100 square feet of space. The Company leases such space at an
annual net rent of $58,997.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been traded on the over-the-counter
market since July 1988. Trading in the Company's securities was reported by
National Quotation Services "Pink Sheets" until January 1992 when the Company's
securities ceased being listed. Effective July 1999, the Common Stock is
admitted for quotation on the NASD OTC Bulletin Board under the symbol "IMUN."
The following table sets forth, for the periods indicated, the high and low bid
per share, as reported by Nasdaq Trading & Market Services. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
<TABLE>
<S> <C> <C>
Third Quarter 1999............................... $ 0.9375 $ 0.5
Fourth Quarter 1999.............................. $ 0.7 $ 0.25
</TABLE>
On March 23, 2000, the last reported sale price of the Common Stock was
$3 per share. On March 23,
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<PAGE> 11
2000, there were 645 holders of record of shares of Common Stock. This figure
excludes an indeterminate number of stockholders whose shares are held in
"street" or "nominee" name.
The Company has not paid and does not anticipate paying any cash
dividends in the foreseeable future and intends to retain future earnings for
the development and expansion of its business. Any future determination to pay
dividends will be at the discretion of the Board and subject to certain
limitations under the Colorado Business Corporation Law and will depend upon the
Company's results of operations, financial condition, contractual restrictions
and other factors deemed relevant by the Board.
In November 1999 (and prior to a subsequent one-for-three reverse stock
split), the Company completed the private placement of 3,000,000 shares of
Common Stock, which was offered on a best efforts basis to accredited investors.
The gross proceeds from the private placement was $300,000 and were used for
working capital (see "Description of Business - Recent Developments"). The
Company claimed exemption from registration under Rule 506 of Regulation D of
the Act, and the sale of stock was restricted accordingly.
In February 2000, following the effectiveness of the Merger, the
Company sold to certain investors (the "Investors") $3,000,000 in principal
amount of 6% Redeemable Convertible Debentures ("Debentures"), and warrants to
purchase 300,000 shares of Company Common Stock ("Warrants"), for an aggregate
purchase price of $3,000,000. The Debentures were subsequently exchanged for
3,000 shares of the Company's Series A 6% Convertible Preferred Stock (the
"Preferred Shares"). The Preferred Shares are entitled to cumulative dividends
at the rate of 6% per annum. The Warrants are exercisable at a price equal to
$6.60 per share. The Preferred Shares are convertible from time to time at the
option of the holder into shares of Company Common Stock at a conversion price
equal to 65% of the average closing bid price of Company Common Stock for the 5
business days prior to conversion. Both the Preferred Shares and the Warrants
have adjustment features to compensate for the dilutive issuance by the Company
of common equity (or options, warrants or other rights convertible into or
exercisable for common equity) while the Preferred Shares and Warrants remain
outstanding. The Company also entered into a Registration Rights Agreement
pursuant to which it will be required to file and keep effective a registration
statement under the Securities Act of 1933 for the resale by the Investors of
shares of Company Common Stock issuable on conversion of the Preferred Shares or
exercise of the Warrants, and the Company will incur substantial penalties if
the registration statement is not declared effective within 180 days of the
closing of the sale of the Preferred Shares and Warrants. The Company's net
proceeds from this transaction, after payment of fees and expenses, was
approximately $2,547,265.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The Debenture/Preferred Share financing completed in February 2000,
produced net proceeds to the Company of just over $2.5 million, which are
expected to fund the Company's planned operations for a period of some 12-15
months, after which additional funds will be required for further business
development. The Company intends to apply its current cash resources to
executing the next stage of its business plan, specifically across four
initiatives - infrastructure, product development, regulatory approval and
manufacturing scale-up. Broadly, it is the Company's plan to advance
development to the point that initial market introduction of the OPTICON device
is considered imminent, thereby establishing the basis for subsequent funding.
The Company has, through the current time, operated as a "virtual
company," leveraging the contributions of a small number of direct employees
with those of a host of consulting contractors. The Company intends now to
commence the hiring of key employees with the requisite financial, engineering
and management skills. The Company has engaged a local consultant for internal
finance and accounting services and the Board of Directors has elected him as
the company's Chief Financial Officer. Management and operating personnel are
being recruited in the areas of product development/engineering and clinical and
regulatory affairs, although outside contractors will still be utilized to some
extent in these areas. Manufacturing and assembly will continue to be contracted
to outside sources, however a quality assurance supervisor will be recruited to
internally develop and maintain quality standards as well as serving the
Company's requirements for documentation. Marketing and business development
management will be added to the organization later in the cycle as the product
approaches market readiness. The Company currently expects to directly employ a
total of some 8-10 associates by the end of 2000.
The focus of our product development activities will center on
finalizing the specifications of the first-generation female device and on
progressing the male device from prototype stage to pilot production. In
addition, a final packaging design will be specified and sourced. The
development, construction and validation of a test fixture
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<PAGE> 12
(already specified and sourced) will be a high priority, as this equipment will
be used in qualifying manufactured devices to meeting certain performance
criteria and also to serve ongoing second-generation development plans. The
extent to which progress can be made in other developmental areas such as the
suprapubic configuration and the artificial sphincter will be limited by
resource constraints and the prioritization of first-generation market entry.
Conducting the clinical trials to support a 510(k) submission for
short-term urinary management will be the primary objective in regulatory
affairs. A trial protocol has been drafted and will be brought to final form
with assistance from our previously assembled network of clinical investigators,
after which we will collaborate with the FDA to gain agreement to proceed to
trial. The Company projects that a statistically valid sampling of patients can
be studied over a relatively short 4-5 month time frame once the Institutional
Review Boards of each of our investigative sites grant their approval to
proceed. Assuming trial results remain satisfactory, we expect to have made our
submission to the FDA before the end of the first quarter of 2001. Within that
same timeframe, it is our goal to have essentially completed the process
necessary to apply for the European CE marking - the regulatory requirement for
entering the markets abroad.
Finally, tooling will be specified and constructed to equip our
contract manufacturers for producing product components in scale quantities.
This will enable a marketing-level manufacturing capacity and provide for
meeting our initial unit cost forecasts. Such tooling is significant in cost,
however we are currently exploring means to leverage its capitalization through
debt or lease in order to mitigate some of the impact on same-year cash flow.
Lead times for tooling construction are estimated to run 6-8 months from the
point of order.
Underlying the operating plan described above is the objective to
secure sales and distribution channels to the urology markets in both the U.S.
and Europe. We continue to have dialog with a number of the established market
participants for creating a strategic alliance and as we get closer to
demonstrating market readiness, it is likely that one or more of these
discussions will become more meaningful and definitive.
ITEM 7. FINANCIAL STATEMENTS.
The response to this Item is submitted in a separate section of this
Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On November 2, 1999, the Company dismissed Davis & Co., CPA's, P.C.
("Davis") as its independent certified public accountant. There have been no
adverse opinions, disclaimers of opinion or qualifications or modifications as
to audit scope or accounting principles regarding the reports of Davis on the
Company's financial statements for each of the fiscal years ended December 31,
1998 and 1997, or any subsequent interim period. The Company's Board of
Directors approved the change of accountants and that action was ratified by the
Board of Directors of the Company as it had no formal audit committee.
For the fiscal years ended December 31, 1998 and 1997, the auditors
report contained a qualification as to uncertainty which read as follows:
"The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 8, the
Company has minimal capital resources presently available to meet obligations
which normally can be expected to be incurred by similar companies, and has
accumulated deficit of ($924,145) at December 31, 1998. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 8. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty."
Simultaneously with the dismissal of Davis, the Company approved and
engaged Gelfond Hochstadt Pangburn, P.C. ("Gelfond") to act as its independent
certified public accountant as successor to Davis. During the Company's fiscal
years ended December 31, 1998 and 1997, or subsequent interim period, the
Company had not consulted with Gelfond regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements,
or any other matter that was the subject of disagreement or a reportable
condition.
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<PAGE> 13
On March 13, 2000, the Company dismissed Gelfond as its independent
certified public accountant. Gelfond has not issued any opinions on the
Company's financial statements, and, therefore, there have been no adverse
opinions, disclaimers of opinion or qualifications or modification as to audit
scope or accounting principles regarding any report of Gelfond on the Company's
financial statements. The Company's Board of Directors approved the change of
accountants and that action was ratified by the Board of Directors of the
Company. There were no disagreements with Gelfond on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope of
procedures leading to their dismissal. The dismissal is a result of the change
of the Company's Board of Directors and the moving of the principal office of
the Company to Dublin, Ohio, as a result of the Merger.
Simultaneously with the dismissal of its former accountants, the
Company approved and engaged KPMG LLP ("KPMG") to act as its independent
certified public accountant as successor to Gelfond. During the Company's two
most recent fiscal years and subsequent interim periods the Company has not
consulted with KPMG regarding the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's financial statements, or any
matter that was the subject of a disagreement or a reportable event.
There were no reportable conditions, in each case, during either of
the Company's two most recent fiscal years or any subsequent interim period.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.
BOARD OF DIRECTORS
William J. Post, age 49, has served as President, Chief Executive
Officer and Director of Opticon since joining the company in March 1997. Mr.
Post has 24 years of experience in the health care industry, with significant
experience in new business development and turnarounds. Prior to joining
Opticon, Mr. Post had been employed from 1993 as Senior Vice President, Sales
and Marketing of Medex, Inc., a medical device manufacturer in the fields of
fluid and drug delivery and infusion systems. From 1988 to 1993, he served as
Vice President, Sales and Marketing of Spectramed, Inc., a manufacturer and
marketer of devices for hemodynamic monitoring and cardiovascular access, and,
after Spectramed was acquired by Ohmeda/BOC Health Care, served as Vice
President of Field Operations, where he had full profit and loss responsibility
for a $100 million division. From 1987 to 1988, Mr. Post was Director of
Worldwide Marketing and New Business Development for Instrumentation
Laboratories, Inc., and from 1985 to 1987 he was Director of Marketing for
Travenol-Genentech Diagnostics, a division of Baxter.
Walter L. Sembrowich, Ph.D., age 57, has served as Chairman of the
Board and a Director of Opticon since January 1996 and was Acting Chief
Executive Officer of Opticon from October 1996 to March 1997. Dr. Sembrowich is
Founder, Chairman and CEO of Birch Point Medical, Inc., a privately held
development-stage company specializing in non-invasive transdermal drug delivery
systems. He is also President and founder of Aviex, Inc., a provider of
investment and development services to start-up and early stage medical
companies. Dr. Sembrowich co-founded Diametrics Medical, Inc., a manufacturer
and marketer of point-of-care blood chemistry testing systems, where he served
as CEO from 1990 to 1993 and Director and Co-Chairman until 1996. He was also a
founder of Arden Medical Systems, Inc., a manufacturer and marketer of clinical
chemistry measurement products for physician offices, where he served as
Director and Vice President of Scientific Affairs from 1983 to 1988. Arden
Medical was acquired by Johnson & Johnson in 1987. Dr. Sembrowich is a current
Director of St. Jude Medical, the world's leading supplier of mechanical heart
valves, and serves on the board of Integ Incorporated. He has also been Director
for Minnesota Project Innovation and has served as Chairman and review board
member for the National Institutes of Health Small Business Innovative Research
program.
Ronald E. Eibensteiner, age 49, has served as a Director of Opticon
since January 1996. Since 1983, Mr. Eibensteiner has been involved in the
formation of several technology companies and in 1991, founded Wyncrest Capital,
Inc. to focus exclusively on early-stage seed investment opportunities in the
Minneapolis/St. Paul area. Prior to starting Wyncrest Capital, he was co-founder
of Diametrics Medical and provided the seed capital for OnHealth Network Company
(formerly IVI Publishing). From 1983 to 1987, Mr. Eibensteiner was co-founder of
Arden Medical Systems and served as its Chief Financial Officer until its sale
to Johnson & Johnson in 1987.
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<PAGE> 14
Currently, Mr. Eibensteiner is a Director of IntraNet Solutions Inc., a provider
of Web-based document management solutions for corporate intranets, and is
Chairman of the Board of OneLink Communications, Inc., a company specializing in
the transformation of raw telecommunications data into visual business
intelligence.
David Lundquist, age 57, has served as a Director of Opticon since
February 1995. Mr. Lundquist is the Managing Partner of Lundquist, Schiltz &
Associates, an investment management firm. From 1991 to 1996, he was Vice
Chairman of New Heritage Associates, a company in partnership with Meredith
Corporation, engaged in the acquisition and operation of cable television
systems. Until December 1990, Mr. Lundquist was Executive Vice President of
Finance for Heritage Communications, Inc., one of the largest cable television
operators in the country. From 1978 to 1980, he was Vice President of Finance
for First Data and from 1975 to 1977 was Treasurer of Valmont Industries. Mr.
Lundquist serves on the boards of QTech Systems, C.E. Software, MarketLink,
Genesis Systems Group, Ltd., and Horizon Technologies. He is also Director and
Vice Chairman of Da-Lite Screen Company.
Fouad A. Salama, M.D., age 60, founded Opticon, is the inventor of its
core technology, and has served as a Director since its inception. From 1994 to
1996, he served Opticon as President and CEO, and thereafter as Executive Vice
President of Scientific and Medical Affairs. In November 1997, Dr. Salama
entered into a consulting agreement with Opticon, whereby he is retained to
render his exclusive developmental services and design expertise in the areas of
urology, urogynecology and continence care. From 1973 to 1993, Dr. Salama was
Associate Professor of Medicine at the College of Osteopathic Medicine and
Surgery in Des Moines, Iowa, and practiced internal medicine and cardiology in
West Des Moines, Iowa. Currently, Dr. Salama is a private practitioner of
internal medicine in Temecula, California.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Opticon had a total of 5 meetings during the
year ended December 31, 1999. During 1999 each of the directors attended 75% or
more of the total number of meetings of the Board. Directors who are not
employees of Opticon received no cash compensation for their services, but are
reimbursed for their out-of-pocket expenses for attending Board meetings. In
1999 and prior years, non-employee directors received stock options as
compensation for their services.
At the February 23, 2000 meeting of the Board of Directors, the Board
authorized the formation of an Audit Committee and a Compensation Committee.
Both the Audit Committee and Compensation Committee consists of Messrs.
Sembrowich, Lundquist, and Eibensteiner. As of the date of this report, there
has been one meeting of the Audit Committee, and no meeting of the Compensation
Committee.
EXECUTIVE OFFICERS
In addition to Mr. Post, the following persons are executive officers
of the Company:
David B. Bittner, age 33, was appointed Treasurer and Chief Financial
Officer of the Company in February 2000. Mr. Bittner is the founder of Growth
Management Solutions, Inc. ("GMS"), incorporated in 1994. GMS administers
financial management functions for entrepreneurial businesses. Mr. Bittner has
led GMS since its inception and has personally served in a financial advisory
capacity to several GMS clients. Prior to this, Mr. Bittner worked at Price
Waterhouse as a CPA managing audits of both Fortune 500 firms and mid-market
companies, as well as working as a management consultant for the Center for
Entrepreneurship, where he advised clients on matters including process
reengineering and management systems design. In addition, Mr. Bittner worked for
CID, an Indianapolis-based venture capital firm, serving as roving CFO for
several of CID's portfolio companies. His industry experience includes
information technology, medical technology, business services and manufacturing.
His functional expertise includes strategic & financial planning, cash flow
management, financing, cost accounting & control and budgeting.
John LaMarche, age 50, has been Vice President of Operations of Opticon
since September 1994 and served as a Director of Opticon from September 1994 to
June 1998. From 1993 to 1994, LaMarche consulted to health care and health
insurance companies. Between 1977 and 1993, Mr. LaMarche held line management
positions with CIGNA and Equitable Life, where his responsibilities included
managing 150 employees, multiple offices and a $22 million operating budget.
Effective February 11, 2000, Mr. LaMarche has submitted his resignation as Vice
President of Operations and will depart from the Company within 60 days.
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<PAGE> 15
Officers are elected annually by the Board of Directors and serve at
its discretion. There are no family relationships among directors and executive
officers of Opticon.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors, and persons who are beneficial owners of 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. Reporting
persons are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all Section 16(a) forms filed by them. Based
on its review of the copies of Section 16(a) forms received by it and written
representations from reporting persons, the Company believes that all filing
requirements applicable to its reporting persons were complied with during 1999.
ITEM 10. EXECUTIVE COMPENSATION.
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to
Opticon's Chief Executive Officer (the "Named Executive Officer"). No other
executive officers had a combined salary and bonus exceeding $100,000 for the
fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
AWARDS
------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SECURITIES COMPENSATION
($) ($) UNDERLYING ($)
OPTIONS
(#)
------------------------------------- -------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
William J. Post, President and
Chief Executive Officer 1999 $160,000 $60,000(1) - -
1998 $160,000 $60,000(2) 150,000 -
1997 $133,333 $30,000(3) 250,000 -
</TABLE>
(1) $50,000 was deferred with interest at a rate of 10% per annum. The
deferral was paid in March 2000.
(2) $30,000 was deferred with interest at a rate of 10% per annum. The
deferral was paid in March 2000.
(3) $30,000 was deferred with interest at a rate of 10% per annum. The
deferral was paid in March 2000.
OPTIONS GRANTED IN LATEST FISCAL YEAR
No stock options were granted during 1999 to the Named Executive
Officer.
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<PAGE> 16
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain information regarding the number
and value of stock options held by the Named Executive Officer at December 31,
1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END (#) FISCAL YEAR-END ($)(1)
------------------------------- --------------------
SHARES
ACQUIRED VALUE
ON REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME EXERCISE ($)
(#)
- --------------------- ---------- --------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Post 0 $0 492,000 0 $0 $0
</TABLE>
(1) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per
share option exercise price and the per share fair market value at year end
($.39 on December 31, 1999). An option is in-the-money if the fair market
value of the underlying shares exceeds the exercise price of the option.
COMPENSATION OF DIRECTORS
Directors who are not employees of Opticon receive no cash compensation
for their services, but receive stock options as compensation for their
services. For board service during 1999, Messrs. Sembrowich, Eibensteiner,
Lundquist, and Salama, were each granted options to purchase 10,000 shares of
Opticon common stock (exercisable at the fair market value on the date of
grant). In addition, Directors are reimbursed for out-of-pocket expenses for
attending Board meetings.
EMPLOYMENT CONTRACTS WITH NAMED EXECUTIVE OFFICERS
In March 1997, Opticon entered into an employment agreement with Mr.
Post, which provides, among other things, for a salary of $160,000, payment of
bonus compensation upon achievement of certain milestones, grant of an option to
purchase 250,000 shares of Opticon common stock, indemnification for certain
breaches of his fiduciary duty as a director, continuation of his then current
base salary for a period of 12 months (or such lesser period until he finds
other full-time employment) if Opticon terminates his employment without "cause"
(as such term is defined in such agreement), and a covenant not to compete and
not to solicit Opticon's employees during the term of his employment and for two
years following the termination of his employment for any reason. Such
employment agreement has an initial term of two years and is automatically
extended for successive one year periods unless either party objects to such
extension at least 30 days prior to the end of the initial term or any extension
term. In light of Opticon's limited financial resources, such employment
agreement was amended in February 1998 to defer Mr. Post's unpaid bonuses earned
in 1997 and 1998, which deferred amount accrued interest at a rate of 10%. The
deferrals continued in 1999. In March 2000, the deferrals were paid with
interest.
In September 1997, Opticon entered into an employment agreement with
Mr. LaMarche, which agreement provides, among other things, for a salary of
$100,000, indemnification for certain breaches of his fiduciary duty as a
director, continuation of his then current base salary for a period of four
months (or such lesser period until he finds other full-time employment) if
Opticon terminates his employment without "cause" (as such term is defined in
such agreement), and a covenant not to compete and not to solicit Opticon
employees during the term of his employment and for two years following the
termination of his employment for any reason. Such employment agreement had an
initial term ending December 31, 1997, but is automatically extended for
successive one year periods unless either party objects to such extension at
least 30 days prior to the end of any extension term. In light of the Opticon's
limited financial resources, such employment agreement was amended in February
1998 to defer 27% of Mr. LaMarche's 1998 salary, which deferred amount accrued
interest at a rate of 10%. The deferrals continued in 1999. In March 2000, the
deferrals were paid with interest.
16
<PAGE> 17
In November 1997, Opticon entered into a four-year consulting agreement
with Dr. Salama, pursuant to which Dr. Salama agreed to render his exclusive
developmental services and design expertise in the areas of urology,
urogynecology and incontinence care. In return for his services, Dr. Salama
received $110,000 per year for the first two years of the agreement and will
receive $75,000 per year for the remaining two years as well as reasonable and
necessary out-of-pocket expenses. The consulting agreement also provides that
all future patents developed during the consulting period or within one year
thereafter and relating to Opticon's business will be assigned directly to
Opticon. In connection with the consulting agreement, Opticon also entered into
an agreement with Dr. Salama, providing, among other things, for (i) assignment
to Opticon of all of Dr. Salama's existing patents relating to Opticon's
business, (ii) continuation and extension of certain benefits and stock options,
(iii) mutual release of claims, and (iv) a two-year noncompetition agreement.
17
<PAGE> 18
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial
ownership of the Company's Common Stock by each director, the Company's
executive officers named in the Summary Compensation Table, each person known to
the Company to own beneficially more than 5% of the outstanding Common Stock,
and the directors and executive officers of the Company as a group as of March
23, 2000:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------------------------------- ---------------------- -------------------------
<S> <C> <C>
Ronald E. Eibensteiner(2) 1,308,090 13.9%
John LaMarche(3) 175,275 1.9%
David J. Lundquist(4) 492,431 5.2%
William J. Post(5) 634,680 6.8%
Fouad A. Salama, M.D.(6) 1,151,514 12.3%
Walter L. Sembrowich, Ph.D.(7) 386,847 4.1%
Iowa Seed Capital Corporation(8) 519,372 5.5%
Wayne Mills(9) 595,647 6.3%
Henry Fong(10) 525,167 5.6%
All directors and executive officers as a group
(6 persons)(11) 4,148,837 44.2%
- -------------------------------------------------------------
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power as to which the person has the right to acquire the
beneficial ownership within 60 days of March 30, 2000. Unless otherwise
indicated, voting power and investment power are exercised solely by the
person named above or shared with members of his household.
(2) Includes 270,600 shares which may be purchased under stock options and
warrants exercisable within 60 days of March 30, 2000 held by Mr.
Eibensteiner, and 975,990 shares (including 88,245 options and warrants
exercisable within 60 days of March 30, 2000) held by Wyncrest Capital,
Inc., of which Mr. Eibensteiner claims beneficial ownership.
(3) Includes 162,975 shares which may be purchased under stock options and
warrants exercisable within 60 days of March 30, 2000.
(4) Includes 249,290 shares which may be purchased under stock options and
warrants exercisable within 60 days of March 30, 2000.
(5) Includes 492,000 shares which may be purchased under stock options and
warrants exercisable within 60 days of March 30, 2000.
(6) Includes 206,757 shares which may be purchased under stock options and
warrants exercisable within 60 days of March 30, 2000.
(7) Includes 236,474 shares which may be purchased under stock options and
warrants exercisable within 60 days of March 30, 2000.
(8) Includes 44,436 shares which may be purchased under stock options and
warrants exercisable within 60 days of March 30, 2000.
(9) Includes 98,400 shares which may be purchased under stock options and
warrants exercisable within 60 days of March 30, 2000.
(10) Includes 49,200 shares which may be purchased under stock options and
warrants exercisable within 60 days of March 30, 2000.
(11) Includes 1,433,596 shares which may be purchased under stock options and
warrants exercisable within 60 days of March 30, 2000.
18
<PAGE> 19
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On November 29, 1999, Opticon issued a Promissory Note to the Company
for the sum of $100,000. The loan was made for the purpose of covering Opticon's
operating expenses pending the Merger. Immune financed the loan through its
Private Placement Offering in November 1999. The Promissory Note, together with
accrued interest at a rate of 8.5%, was settled as part of the Merger.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on
Form 10-KSB:
(1) The following financial statements are included in this report
under Item 7:
Audited Financial Statements of Immune Response, Inc.
Independent Auditors' Reports
Balance Sheet, December 31, 1999
Statements of Operations, Years ended December 31, 1999 and 1998
and the period from May 14, 1984 (date of inception) to
December 31, 1999
Statements of Changes in Stockholders' Equity
(Deficit) and Comprehensive Income, Years ended December
31, 1999 and 1998 and the period from May 14, 1984 (date
of inception) to December 31, 1999
Statements of Cash Flows, Years ended December 31,
1999 and 1998 and the period from May 14, 1984 (date of
inception) to December 31, 1999
Notes to Financial Statements
Audited Financial Statements of Opticon Medical, Inc.
Independent Auditors' Reports
Balance Sheets, December 31, 1999 and 1998
Statementof Operations, Years ended December 31,
1999 and 1998 and the period from July 28, 1994 (date of
inception) to December 31, 1999
Statements of Stockholders' Equity (Deficit), Years
ended December 31, 1999 and 1998 and the period from
July 28, 1994 (date of inception) to December 31, 1999
Statements of Cash Flows, Years ended December 31,
1999 and 1998 and the period from July 28, 1994 (date of
inception) to December 31, 1999
Notes to Financial Statements
Pro Forma Condensed Consolidated Financial Statements (unaudited)
Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statement of Operations
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
19
<PAGE> 20
(2) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
2.1 * Agreement and Plan of Reorganization, dated December 9, 1999, among Immune Response,
Inc., Opticon Medical, Inc., and Opticon Acquisition Corporation.
3.1 * Amended and Restated Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant (Previously filed with the Registrant's Registration
Statement on Form S-18, Commission file no. 33-17922-C, and incorporated herein by
reference.)
10.1 * Lease between Pharmacia & Upjohn Company, successor by merger to Adria Laboratories,
Inc., and Opticon Medical, Inc., dated August 20, 1998, for the lease of real property
located at 7001 Post Road, Dublin, Ohio 43016.
10.2 * First Amendment to Lease Agreement between Pharmacia & Upjohn Company, successor by
merger to Adria Laboratories, Inc., "Landlord," and Opticon Medical, Inc., "Tenant,"
dated October 27, 1998.
10.3 * Employment Agreement, dated March 10, 1997, between Opticon Medical, Inc. and William
J. Post.
10.4 * Amendment to Employment Agreement, dated February 12, 1998, between Opticon Medical,
Inc. and William J. Post.
10.5 * Employment Agreement, dated September 9, 1997, between Opticon Medical, Inc. and John
LaMarche.
10.6 * Amendment to Employment Agreement, dated February 12, 1998, between Opticon Medical,
Inc. and John LaMarche.
10.7 * Consulting Agreement, dated November 1, 1997, between Opticon Medical, Inc. and Dr.
Fouad A. Salama, M.D.
10.8 * Employee Stock Option Agreement, dated June 3, 1998, between Opticon Medical, Inc. and
William J. Post.
10.9 * Employee Stock Option Agreement, dated July 26, 1996, between Medical Device
International, Inc. and John LaMarche.
10.10 * Employee Stock Option Agreement, dated June 3, 1998, between Opticon Medical, Inc. and
John LaMarche.
10.11 * Form of Director's Stock Option Agreement, dated May 30, 1997, between Opticon
Medical, Inc. and Ron Eibensteiner, Opticon Medical, Inc. and Walter Sembrowich, and
Opticon Medical, Inc. and David Lundquist.
10.12 * Employee Stock Option Agreement, dated July 26, 1997, between Medical Device
International, Inc. and F.A. Salama, M.D.
10.13 * Amendment to Employee Stock Opticon Agreement, dated November 1, 1997, between Opticon
Medical, Inc. and Dr. Fouad A. Salama.
10.14 * Form of Securities Purchase Agreement between Immune Response, Inc. and certain
investors.
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C>
10.15 * Form of Registration Rights Agreement between Immune Response, Inc. and certain
investors.
16.1 Letter from Davis & Co., CPA's, P.C., dated November 2, 1999, addressed to the
Securities and Exchange Commission. (Previously filed as Exhibit 16.1 to Registrant's
Current Report on Form 8-K, dated November 2, 1999, Commission file no. 33-17922-C,
and incorporated herein by reference.)
16.2 Letter from Gelfond Hochstadt Pangburn, P.C., dated March 14, 2000, addressed to the
Securities and Exchange Commission. (Previously filed as Exhibit 16.1 to Registrant's
Current Report on Form 8-K, dated March 17, 2000, Commission file no. 33-17922-C, and
incorporated herein by reference.)
21 * List of Subsidiaries
23.1 * Consent of KPMG LLP
23.2 * Consent of Lund Koehler Cox & Arkema LLP
23.3 * Consent of Davis & Co., CPA's, P.C.
24 * Powers of Attorney
27 * Financial Data Schedule
</TABLE>
* Filed with this Report.
(b) Reports on Form 8-K
Current Report on Form 8-K, dated November 2, 1999, reporting
a change in accountants, pursuant to Item 4. No financial
statements were filed therewith.
(c) The exhibits to this report begin on page F-40.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Immune Response, Inc.
Date: March 30, 2000 By: /s/ William J. Post
-------------------------
William J. Post
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 30th day of March, 2000.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/ William J. Post President, Chief Executive Officer and Director
- --------------------------------------------
William J. Post
*David B. Bittner Treasurer and Chief Financial Officer
- --------------------------------------------
David B. Bittner
*John LaMarche Vice President of Operations
- --------------------------------------------
John LaMarche
*Walter L. Sembrowich, Ph.D. Chairman of the Board
- --------------------------------------------
Walter L. Sembrowich, Ph.D.
*Ronald E. Eibensteiner Director
- --------------------------------------------
Ronald E. Eibensteiner
*David Lundquist Director
- --------------------------------------------
David Lundquist
*Fouad A. Salama, M.D. Director
- --------------------------------------------
Fouad A. Salama, M.D.
*By: /s/ William J. Post
--------------------------------------
William J. Post, Attorney in fact
</TABLE>
22
<PAGE> 23
Annual Report on Form 10-KSB
Item 7, Item 13(a)
List of Financial Statements
Certain Exhibits
Year ended December 31, 1999
Immune Response, Inc.
Dublin, Ohio
23
<PAGE> 24
ITEM 7. FINANCIAL STATEMENTS
IMMUNE RESPONSE, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
Audited Financial Statements of Immune Response, Inc. (a development stage enterprise)
<S> <C>
Independent Auditors' Reports.................................................................... F-2
Balance Sheet, December 31, 1999................................................................. F-4
Statements of Operations, Years ended December 31, 1999 and 1998 and the
period from May 14, 1984 (date of inception) to December 31, 1999........................... F-5
Statements of Changes in Stockholders' Equity (Deficit) and Comprehensive Income, Years ended
December 31, 1999 and 1998 and the period from May 14, 1984
(date of inception) to December 31, 1999.................................................... F-6
Statements of Cash Flows, Years ended December 31, 1999 and 1998 and the
period from May 14, 1984 (date of inception) to December 31, 1999........................... F-10
Notes to Financial Statements.................................................................... F-12
Audited Financial Statements of Opticon Medical, Inc. (a development stage enterprise)
Independent Auditors' Reports.................................................................... F-18
Balance Sheets, December 31, 1999 and 1998....................................................... F-20
Statement of Operations, Years ended December 31, 1999 and 1998 and the
period from July 28, 1994 (date of inception) to December 31, 1999.......................... F-21
Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1999 and 1998 and the period from July 28, 1994
(date of inception) to December 31, 1999.................................................... F-22
Statements of Cash Flows, Years ended December 31, 1999 and 1998 and the
period from July 28, 1994 (date of inception) to December 31, 1999.......................... F-23
Notes to Financial Statements.................................................................... F-24
Pro Forma Condensed Consolidated Financial Statements (unaudited)
Pro Forma Condensed Consolidated Balance Sheet.............................................. F-36
Pro Forma Condensed Consolidated Statement of Operations.................................... F-37
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.................... F-38
</TABLE>
F-1
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Immune Response, Inc.:
We have audited the accompanying balance sheet of Immune Response, Inc. (a
development stage enterprise) as of December 31, 1999, and the related
statements of operations, stockholders' equity and comprehensive income,
and cash flows for year ended December 31, 1999 and for the period from May
14, 1984 (inception) to December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
cumulative statements of operations, stockholders' equity, and cash flows
for the period May 14, 1984 (inception) to December 31, 1999 include
amounts for the period from May 14, 1984 (inception) to December 31, 1998
and for the year ended December 31, 1998, which were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as
it relates to the amounts included for the period May 14, 1984 through
December 31, 1998 is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Immune Response, Inc. (a development
stage enterprise) as of December 31, 1999, and the results of its
operations and its cash flows for each of the year ended December 31, 1999
and for the period May 14, 1984 (inception) to December 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 6 to the
financial statements, the Company has suffered recurring losses from
operations that raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from this uncertainty.
/S/ KPMG LLP
KPMG LLP
Columbus, Ohio
March 25, 2000
F-2
<PAGE> 26
9137 E. Mineral Circle, Suite 110
Englewood, Colorado 80112-3422
303-792-3900, Fax 303-792-2811
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Immune Response, Inc.
We have audited the accompanying statements of operations, changes in
stockholders' equity (deficit) and cash flows of Immune Response, Inc. (a
development stage company) for the year ended December 31, 1998, and for the
period from inception (May 14, 1984) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Immune
Response, Inc. (a development stage company) for the year ended December 31,
1998, and for the period from inception (May 14, 1984) to December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. The Company has
minimal capital resources presently available to meet obligations which normally
can be expected to be incurred by similar companies, and has an accumulated
deficit of ($924,145) at December 31, 1998. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The Company
has no significant fixed commitments as of December 31, 1998 or March 23, 1999.
Management believes that the remaining minimal cash flow requirements needed to
pursue potential mergers or other business opportunities can be met through use
of the Company's current cash balance and additional sales of IntraNet stock.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Davis & Co., CPAs, P.C.
Davis & Co., CPAs, P.C.
Certified Public Accountants
Englewood, Colorado
March 23, 1999
F-3
<PAGE> 27
IMMUNE RESPONSE, INC.
(a development stage enterprise)
Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 90,366
Investment securities 18,093
Deferred merger costs 18,226
Note receivable from Opticon Medical Inc. 100,000
Interest receivable from related parties 1,537
--------------
Total assets $ 228,222
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,630
Accounts payable to related party 4,461
Interest payable to related party 22,453
--------------
Total liabilities 48,544
Stockholders' equity:
Common stock, $.0001 par value; 25,000,000
shares authorized; 2,041,566 shares
issued; 1,983,233 shares outstanding 204
Additional paid-in capital 1,207,284
Stock subscription receivable (100,000)
Deficit accumulated during the development stage (944,602)
Accumulated other comprehensive income -
net unrealized appreciation on investment securities 16,792
Treasury stock, at cost (58,333 shares) --
--------------
Total stockholders' equity 179,678
--------------
Total liabilities and stockholders' equity $ 228,222
==============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 28
IMMUNE RESPONSE, INC.
(a development stage enterprise)
Statements of Operations
Years Ended December 31, 1999 and 1998 and the Period from Inception
(May 14, 1984) to December 31, 1999
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
INCEPTION
FOR THE YEARS (MAY 14, 1984)
ENDED DECEMBER 31, TO DECEMBER 31,
1999 1998 1999
-------------- -------------- -----------------------
<S> <C> <C> <C>
Revenue:
Interest income $ 2,184 408 127,861
Laboratory test income -- -- 50,187
Revenue from sale of marketing
rights to related party -- -- 7,004
Miscellaneous income -- 13 12,710
Gain on sale of investment securities 19,564 -- 211,753
Debt forgiveness income -- -- 35,147
-------------- -------------- -----------------------
21,748 421 444,662
Expenses:
Write-off of deferred warrant
registration costs -- -- 29,422
Loss on sale of laboratory -- -- 74,710
Realized loss on investment -- -- 178,668
Laboratory supplies -- -- 55,244
Consulting fees to related parties -- -- 37,500
Interest -- -- 138,306
Abandoned license agreement costs -- -- 50,000
Research and development -- -- 28,680
Rent -- -- 79,232
Salary -- -- 275,287
Depreciation and amortization -- -- 34,848
Bad debt expense -- -- 17,971
General and administrative 42,205 9,068 389,396
-------------- -------------- -----------------------
42,205 9,068 1,389,264
-------------- -------------- -----------------------
Net loss $ (20,457) (8,647) (944,602)
============== ============== =======================
Net loss per common share $ (0.02) (0.01) (1.12)
============== ============== =======================
Weighted average number
of common shares 1,180,494 983,233 842,720
============== ============== =======================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 29
IMMUNE RESPONSE, INC.
(a development stage company)
Statements of Stockholder' Equity (Deficit) and Comprehensive Income
For the Period from Inception (May 14, 1984) to December 31, 1999
<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON STOCK PAID-IN SUBSCRIPTION
SHARES AMOUNT CAPITAL RECEIVABLE
------------- ---------- -------------- -----------------
<S> <C> <C> <C> <C>
Shares of common stock issued to officers and
directors during the formation of the Company
in exchange for services valued at $.0003 per share 300,000 $ 30 60 --
Shares of common stock issued during the
formation of the Company in exchange for cash of
$.30 per share to unrelated individuals 46,667 5 13,995 --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1984 346,667 35 14,055 --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1985 346,667 35 14,055 --
Shares of common stock issued to unrelated
individuals in December 1986 in exchange for
cash of:
$.15 per share 46,667 5 6,995 --
$.015 per share 5,000 1 74 --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1986 398,334 41 21,124 --
Shares of common stock issued to unrelated
individuals in exchange for cash of:
$.15 per share in:
April 1987 6,667 1 999 --
May 1987 33,333 3 4,997 --
June 1987 33,333 3 4,997 --
$.075 per share in:
April 1987 33,333 3 2,497 --
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED TOTAL
DURING THE OTHER STOCKHOLDERS'
DEVELOPMENT COMPREHENSIVE EQUITY
STAGE INCOME (DEFICIT)
------------------ -------------------- -------------------
<S> <C> <C> <C>
Shares of common stock issued to officers and
directors during the formation of the Company
in exchange for services valued at $.0003 per share -- -- 90
Shares of common stock issued during the
formation of the Company in exchange for cash of
$.30 per share to unrelated individuals -- -- 14,000
Net loss and comprehensive loss (11,185) -- (11,185)
------------------ -------------------- -------------------
Balance at December 31, 1984 (11,185) -- 2,905
Net loss and comprehensive loss (64,398) -- (64,398)
------------------ -------------------- -------------------
Balance at December 31, 1985 (75,583) -- (61,493)
Shares of common stock issued to unrelated
individuals in December 1986 in exchange for
cash of:
$.15 per share -- -- 7,000
$.015 per share -- -- 75
Net loss and comprehensive loss (17,557) -- (17,557)
------------------ -------------------- -------------------
Balance at December 31, 1986 (93,140) -- (71,975)
Shares of common stock issued to unrelated
individuals in exchange for cash of:
$.15 per share in:
April 1987 -- -- 1,000
May 1987 -- -- 5,000
June 1987 -- -- 5,000
$.075 per share in:
April 1987 -- -- 2,500
</TABLE>
(Continued)
F-6
<PAGE> 30
IMMUNE RESPONSE, INC.
(a development stage company)
Statements of Stockholder' Equity (Deficit) and Comprehensive Income
For the Period from Inception (May 14, 1984) to December 31, 1999
<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON STOCK PAID-IN SUBSCRIPTION
SHARES AMOUNT CAPITAL RECEIVABLE
------------- ---------- -------------- -----------------
<S> <C> <C> <C> <C>
Shares of common stock issued in August 1987
in exchange for cash of $.15 per share to:
Related parties 91,667 $ 9 13,741 --
Others 53,333 5 7,995 --
Shares of common stock issued in August 1987
to an officer and director in exchange for
services valued at $.15 per share 50,000 5 7,495 --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1987 700,000 70 63,845 --
Shares of common stock issued in July 1988,
pursuant to a public offering for cash of
$3 per share, net of issuance costs of $199,761 300,000 30 700,209 --
Shares of common stock issued to underwriter
in July 1988, pursuant to public offering for
cash of $.0003 per share 9,600 1 2 --
Shares of common stock issued in October 1988,
pursuant to exercise of Class B warrants,
for cash of $6 per share 1,000 -- 6,000 --
Shares of common stock issued in October and
November 1988, pursuant to exercise of
Class A warrants, for cash of $4.50 per share,
net of issuance costs of $100 18,233 2 81,948 --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1988 1,028,833 103 852,004 --
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED TOTAL
DURING THE OTHER STOCKHOLDERS'
DEVELOPMENT COMPREHENSIVE EQUITY
STAGE INCOME (DEFICIT)
------------------ -------------------- -------------------
<S> <C> <C> <C>
Shares of common stock issued in August 1987
in exchange for cash of $.15 per share to:
Related parties -- -- 13,750
Others -- -- 8,000
Shares of common stock issued in August 1987
to an officer and director in exchange for
services valued at $.15 per share -- -- 7,500
Net loss and comprehensive loss (41,815) -- (41,815)
------------------ -------------------- -------------------
Balance at December 31, 1987 (134,955) -- (71,040)
Shares of common stock issued in July 1988,
pursuant to a public offering for cash of
$3 per share, net of issuance costs of $199,761 -- -- 700,239
Shares of common stock issued to underwriter
in July 1988, pursuant to public offering for
cash of $.0003 per share -- -- 3
Shares of common stock issued in October 1988,
pursuant to exercise of Class B warrants,
for cash of $6 per share -- -- 6,000
Shares of common stock issued in October and
November 1988, pursuant to exercise of
Class A warrants, for cash of $4.50 per share,
net of issuance costs of $100 -- -- 81,950
Net loss and comprehensive loss (102,626) -- (102,626)
------------------ -------------------- -------------------
Balance at December 31, 1988 (237,581) -- 614,526
</TABLE>
(Continued)
F-7
<PAGE> 31
IMMUNE RESPONSE, INC.
(a development stage company)
Statements of Stockholder' Equity (Deficit) and Comprehensive Income
For the Period from Inception (May 14, 1984) to December 31, 1999
<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON STOCK PAID-IN SUBSCRIPTION
SHARES AMOUNT CAPITAL RECEIVABLE
------------- ---------- -------------- -----------------
<S> <C> <C> <C> <C>
Shares of common stock issued in January 1989,
pursuant to the exercise of 3,433 "A" warrants
at $4.50 per share, net of issuance costs of $184 3,433 $ -- 15,266 --
Shares of common stock issued in January 1989,
pursuant to the exercise of 9,300 "A" warrants
at $4.50 per share, net of issuance costs of $70 9,300 1 41,779 --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1989 1,041,566 104 909,049 --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1990 1,041,566 104 909,049 --
Shares received from employee as part of
June 1991 sale of laboratory assets (58,333) (6) -- --
Shares placed in treasury in June 1991 58,333 6 -- --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1991 1,041,566 104 909,049 --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1992 1,041,566 104 909,049 --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1993 1,041,566 104 909,049 --
Net loss and comprehensive loss -- -- -- --
------------- ---------- -------------- -----------------
Balance at December 31, 1994 1,041,566 104 909,049 --
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED TOTAL
DURING THE OTHER STOCKHOLDERS'
DEVELOPMENT COMPREHENSIVE EQUITY
STAGE INCOME (DEFICIT)
------------------ -------------------- -------------------
<S> <C> <C> <C>
Shares of common stock issued in January 1989,
pursuant to the exercise of 3,433 "A" warrants
at $4.50 per share, net of issuance costs of $184 -- -- 15,266
Shares of common stock issued in January 1989,
pursuant to the exercise of 9,300 "A" warrants
at $4.50 per share, net of issuance costs of $70 -- -- 41,780
Net loss and comprehensive loss (210,550) -- (210,550)
------------------ -------------------- -------------------
Balance at December 31, 1989 (448,131) -- 461,022
Net loss and comprehensive loss (170,446) -- (170,446)
------------------ -------------------- -------------------
Balance at December 31, 1990 (618,577) -- 290,576
Shares received from employee as part of
June 1991 sale of laboratory assets -- -- (6)
Shares placed in treasury in June 1991 -- -- 6
Net loss and comprehensive loss (247,279) -- (247,279)
------------------ -------------------- -------------------
Balance at December 31, 1991 (865,856) -- 43,297
Net loss and comprehensive loss (61,434) -- (61,434)
------------------ -------------------- -------------------
Balance at December 31, 1992 (927,290) -- (18,137)
Net loss and comprehensive loss (40,873) -- (40,873)
------------------ -------------------- -------------------
Balance at December 31, 1993 (968,163) -- (59,010)
Net loss and comprehensive loss (95,355) -- (95,355)
------------------ -------------------- -------------------
Balance at December 31, 1994 (1,063,518) -- (154,365)
</TABLE>
(Continued)
F-8
<PAGE> 32
IMMUNE RESPONSE, INC.
(a development stage company)
Statements of Stockholder' Equity (Deficit) and Comprehensive Income
For the Period from Inception (May 14, 1984) to December 31, 1999
<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON STOCK PAID-IN SUBSCRIPTION
SHARES AMOUNT CAPITAL RECEIVABLE
------------- ---------- -------------- -----------------
<S> <C> <C> <C> <C>
Net income -- $ -- -- --
Net unrealized change in investment securities -- -- -- --
Comprehensive income
------------- ---------- -------------- -----------------
Balance at December 31, 1995 1,041,566 104 909,049 --
Net income -- -- -- --
Net unrealized change in investment securities -- -- -- --
Comprehensive income
------------- ---------- -------------- -----------------
Balance at December 31, 1996 1,041,566 104 909,049 --
Net loss -- -- -- --
Net unrealized change in investment securities -- -- -- --
Comprehensive loss
------------- ---------- -------------- -----------------
Balance at December 31, 1997 1,041,566 104 909,049 --
Net loss -- -- -- --
Net unrealized change in investment securities -- -- -- --
Comprehensive loss
------------- ---------- -------------- -----------------
Balance at December 31, 1998 1,041,566 104 909,049 --
Net loss -- -- -- --
Net unrealized change in investment securities -- -- -- --
Comprehensive loss
Shares of common stock issued at $.30 per share,
net of issuance costs of $1,665, in:
October 1999 113,333 11 33,989 --
November 1999 886,667 89 264,246 (100,000)
------------- ---------- -------------- -----------------
Balance at December 31, 1999 2,041,566 $ 204 1,207,284 (100,000)
============= ========== ============== =================
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED TOTAL
DURING THE OTHER STOCKHOLDERS'
DEVELOPMENT COMPREHENSIVE EQUITY
STAGE INCOME (DEFICIT)
------------------ -------------------- -------------------
<S> <C> <C> <C>
Net income 106,276 -- 106,276
Net unrealized change in investment securities -- 48,260 48,260
------------------
Comprehensive income 154,536
------------------ -------------------- -------------------
Balance at December 31, 1995 (957,242) 48,260 171
Net income 71,435 -- 71,435
Net unrealized change in investment securities -- (44,028) (44,028)
Comprehensive income 27,407
------------------ -------------------- -------------------
Balance at December 31, 1996 (885,807) 4,232 27,578
Net loss (29,691) -- (29,691)
Net unrealized change in investment securities -- (93) (93)
------------------
Comprehensive loss (29,784)
------------------ -------------------- -------------------
Balance at December 31, 1997 (915,498) 4,139 (2,206)
Net loss (8,647) -- (8,647)
Net unrealized change in investment securities -- (838) (838)
------------------
Comprehensive loss (9,485)
------------------ -------------------- -------------------
Balance at December 31, 1998 (924,145) 3,301 (11,691)
Net loss (20,457) -- (20,457)
Net unrealized change in investment securities -- 13,491 13,491
------------------
Comprehensive loss (6,966)
------------------
Shares of common stock issued at $.30 per share,
net of issuance costs of $1,665, in:
October 1999 -- -- 34,000
November 1999 -- -- 164,335
------------------ -------------------- -------------------
Balance at December 31, 1999 (944,602) 16,792 179,678
================== ==================== ===================
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 33
IMMUNE RESPONSE, INC.
(a development stage company)
Statements of Cash Flows
Years Ended December 31, 1999 and 1998 and the Period from Inception
(May 14, 1984) to December 31, 1999
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
INCEPTION
FOR THE YEARS (MAY 14, 1984)
ENDED DECEMBER 31, TO DECEMBER 31,
1999 1998 1999
-------------- -------------- -----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (20,457) (8,647) (944,602)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation -- -- 34,848
Abandoned license agreement costs -- -- 50,000
Services for stock 34,000 -- 41,597
Bad debt expense -- -- 10,887
Realized net gain on investment securities (19,564) -- (33,083)
Write-off of deferred warrant
registration costs -- -- 29,422
Changes in assets and liabilities:
Increase in deferred merger costs (18,226) -- (18,226)
Increase in notes receivable (100,000) -- (392,395)
Increase in interest receivable (1,537) -- (1,537)
Increase in accounts payable to related party -- 515 4,461
Increase in interest payable to
related party -- -- 22,453
Increase in accounts payable to others 20,399 1,502 21,630
-------------- -------------- -----------------------
Net cash used by operating activities (105,385) (6,630) (1,174,545)
-------------- -------------- -----------------------
Cash flows from investing activities:
Proceeds from sale of investment securities 22,221 -- 320,291
Purchase of certificates of deposit -- -- (75,278)
Redemption of certificates of deposit -- -- 75,278
Capital expenditures -- -- (92,094)
Disposal of laboratory assets -- -- 57,246
Purchase of license agreement -- -- (50,000)
Acquisition of investment - related party -- -- (7,000)
-------------- -------------- -----------------------
Net cash provided by investing activities 22,221 -- 228,443
-------------- -------------- -----------------------
</TABLE>
(continued)
F-10
<PAGE> 34
IMMUNE RESPONSE, INC.
(a development stage company)
Statements of Cash Flows, continued
Years Ended December 31, 1999 and 1998 and the Period from Inception
(May 14, 1984) to December 31, 1999
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
INCEPTION
FOR THE YEARS (MAY 14, 1984)
ENDED DECEMBER 31, TO DECEMBER 31,
1999 1998 1999
-------------- -------------- -----------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of notes payable to bank $ -- -- 50,000
Proceeds from issuance of notes payable to
related party and other -- -- 144,964
Payments to retire notes payable to bank -- -- (50,000)
Payments to retire notes payable to others -- -- (68,864)
Payments to retire notes payable to related party -- -- (76,100)
Increase in deferred warrant registration costs -- -- (29,422)
Proceeds from issuance of common stock 164,335 -- 1,065,891
-------------- -------------- -----------------------
Net cash provided by financing activities 164,335 -- 1,036,469
-------------- -------------- -----------------------
Net increase (decrease) in cash and cash
equivalents 81,171 (6,630) 90,367
-------------- -------------- -----------------------
Cash and cash equivalents at beginning of period 9,195 15,825 --
-------------- -------------- -----------------------
Cash and cash equivalents at end of period $ 90,366 9,195 90,367
============== ============== =======================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ -- -- 138,306
============== ============== =======================
NON-CASH FINANCING ACTIVITIES:
Common stock issued in exchange for stock
subscription receivable $ 100,000 -- 100,000
Investment in common stock of related entity
received in exchange for marketing rights -- -- 7,000
Exchange of note receivable for investment in SAC -- -- 281,506
============== ============== =======================
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE> 35
IMMUNE RESPONSE, INC.
(A development stage enterprise)
Notes to Financial Statements
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS
Immune Response, Inc. (the Company) was incorporated under the
laws of the State of Colorado on May 14, 1984 as Med Mark
Technologies, Inc. and was inactive during the period from July 1,
1985 to November 9, 1986. On November 10, 1986, the Company
changed its name to Immune Response, Inc. and resumed its
organizational activities.
Until the Company sold its laboratory assets in May 1991, the
Company performed research and provided testing facilities for
disorders of the immune system. Although the Company received
laboratory test income and revenue from the sale of marketing
rights in 1990 and early 1991, the amounts received were minimal
and did not represent revenues from the Company's principal
planned line of business. The Company has been inactive since the
sale of its lab assets in May 1991. The Company's Directors do
maintain some minimal level of activity which is performed at
another entity affiliated with the Directors. The Company
reimburses the affiliated entity for these activities. These
amounts are included in accounts payable to related parties in the
accompanying balance sheet. The Company also owes $22,453 in
accrued interest to this entity.
The accompanying financial statements have been prepared on the
basis that the Company will continue as a going concern, which
contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has
incurred operating losses in each period since inception. There is
no assurance that the Company will be profitable in the future.
(b) CASH AND CASH EQUIVALENTS
Cash equivalents consist of money market funds. For purposes of
the statement of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months
or less to be cash equivalents.
(c) INVESTMENT SECURITIES
Investment securities at December 31, 1999 consist of equity
securities. The Company classifies its equity securities as
available-for-sale. These securities are recorded at fair value.
Unrealized holding gains and losses on available for sale
securities are excluded from earnings and are reported as a
separate component of other comprehensive income until realized.
Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis.
A decline in the market value of available-for-sale securities
below cost that is deemed to be other than temporary results in a
reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is
established. Dividend income is recognized when earned.
F-12
<PAGE> 36
IMMUNE RESPONSE, INC.
(A development stage enterprise)
Notes to Financial Statements
(d) 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 financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(e) FINANCIAL INSTRUMENTS
At December 31, 1999 and 1998, the financial statement carrying
amounts of cash and cash equivalents, current assets, current
liabilities and current notes receivable approximated the fair
value of these instruments because of the short-term maturity of
these instruments. The fair value of investment securities are
based on quoted market prices at the reporting date for those
investments.
(f) RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of Statement of Financial
Accounting Standards "(SFAS") No. 130, "Reporting Comprehensive
Income" in 1998. SFAS No. 130 requires the Company to report in
its financial statements, in addition to its net loss,
comprehensive income (loss), which includes all changes in equity
during a period from non-owner sources including, as applicable,
foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and
equity securities. During 1999, the Company had unrealized holding
gains of $33,055, less a reclassification adjustment for gains
realized in income $19,564.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way that public enterprises report
information about operating segments. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers. The Company has determined
that it does not have any reportable segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other
contracts, and for hedging activities. Subsequently, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No.
133. SFAS No. 137 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. This statement is not
expected to affect the Company, as the Company does not have any
derivative instruments or engage in hedging activities.
F-13
<PAGE> 37
IMMUNE RESPONSE, INC.
(A development stage enterprise)
Notes to Financial Statements
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(h) NET INCOME (LOSS) PER COMMON SHARE
The net loss per common share is computed by dividing the net
income (loss) by the weighted average number of shares outstanding
for each period shown. There are no differences in basic and
diluted loss per share for the Company related to any of the years
presented. The net loss per common share for all periods presented
excludes any common shares issuable upon exercise of outstanding
stock options or warrants since such inclusion would be
antidilutive.
2. INVESTMENT SECURITIES
In January of 1994, the Company converted its Class B preferred stock of
MacGregor Sports and Fitness into 133,904 shares of unrestricted common
stock. This conversion was completed in April of 1994 resulting in the
Company owning 167,360 unrestricted shares of MacGregor's common stock
at December 31, 1994. During the fourth quarter of 1995, the Company
sold 133,904 of the shares in the open market for $208,567. During
January of 1996, the Company sold an additional 27,500 shares in the
open market for $89,503 leaving 5,956 shares still owned by the Company.
MacGregor successfully merged with Technical Publishing Solutions, Inc.
on July 31, 1996 and the combined entity was renamed IntraNet Solutions.
IntraNet provides integrated solutions to large corporations for the
management and distribution of business critical information contained
in documents using proprietary and standard internet technologies. In
October 1996, IntraNet declared a 1-for-4 reverse stock split resulting
in 1,489 shares still owned by the Company at December 31, 1998. During
1999, the Company sold 1,000 shares on the open market for $22,221,
leaving 489 shares still owned by the Company.
At December 31, 1999, the Company's historical cost of the securities
was $1,301. The fair value at that date was $18,093, resulting in an
unrealized gain of $16,792. At December 31, 1998, the Company's
historical cost of the securities was $3,958. The fair value at that
date was $7,259, resulting in an unrealized gain of $3,301.
F-14
<PAGE> 38
IMMUNE RESPONSE, INC.
(A development stage enterprise)
Notes to Financial Statements
3. NOTE RECEIVABLE FROM OPTICON MEDICAL INC.
On November 29, 1999, the Company executed a 8.5% note payable with
Opticon Medical Inc. On December 9, 1999, the Company entered into an
Agreement and Plan of Reorganization, providing for the merger of the
Opticon Medical Inc. into the Company. This transaction closed on
February 25, 2000 (see Note 6).
4. INCOME TAXES
The Company has net operating loss carryforwards of approximately
$860,000 at December 31, 1999, which can be used to offset future
taxable income. These net operating loss carryforwards, if not used,
will expire in the years 2000-2019. The Company had a deferred tax asset
of $292,000 and $302,000 at December 31, 1999 and 1998, respectively,
that relates primarily to the aforementioned net operating losses. A
valuation allowance equal to the full amount of the related deferred tax
asset has been recorded due to the uncertainty of realization of the
deferred tax asset.
Under Sections 382 and 383 of the Internal Revenue Code (IRC) of 1986,
as amended, the utilization of the net operating loss carryforwards may
be limited under the change in stock ownership rules.
5. STOCKHOLDERS' EQUITY
On July 5, 1988, the Company completed a sale of 300,000 units of its
$.0001 par value common stock in a public offering. Net proceeds from
the sale were $700,239 after deducting the Underwriter's commission of
$90,000 and direct offering costs of $109,761.
Each unit consisted of one share of the Company's common stock, one
Class A common stock purchase warrant and one Class B common stock
purchase warrant. One Class A unit warrant entitles the holder to
purchase one share of common stock at $4.50 per share. One Class B unit
warrant entitles the holder to purchase one share of common stock at
$6.00 per share. The Class A and Class B warrants expired on December
16, 1995.
F-15
<PAGE> 39
IMMUNE RESPONSE, INC.
(A development stage enterprise)
Notes to Financial Statements
STOCKHOLDERS' EQUITY (continued)
In October and November, 1988, Class A warrants to purchase a total of
18,233 shares of common stock of the Company were exercised at $4.50 per
share for total proceeds of $81,950, net of costs. In October 1988,
Class B warrants to purchase 1,000 shares of common stock were exercised
at $6.00 per share for total proceeds of $6,000. In January 1989, Class
A warrants to purchase a total of 12,733 shares of common stock of the
Company were exercised at $4.50 per share for total proceeds of $57,046,
net of costs.
During October and November 1999, the Company sold 1,000,000 shares of
common stock at a price of $0.30. The Company received cash proceeds of
$166,000, less issuance costs of $1,665, for 553,334 shares. In
addition, the Company executed a stock subscription agreement for
$100,000 for 333,333 shares and issued 113,333 shares to the Company's
Officers/Directors at fair value in settlement of outstanding fees. The
stock subscription receivable accrues interest at 8.5% per year. This
receivable was collected in January 2000.
On February 10, 1997, the Company's shareholders approved a 1-for-100
reverse split whereby every one hundred shares of the Company's $.0001
par value common stock were converted to one share of $.0001 par value
common stock. The shareholders also approved a reduction in the number
of authorized shares from 950,000,000 to 25,000,000 effective March 3,
1997. The financial statements herein have been adjusted to reflect the
1-for-100 reverse stock split back to the date of inception.
On January 20, 2000, The Company's shareholders approved a 1-for-3
reverse stock split and authorized 1,000,000 shares of preferred stock
and an increase in the authorized capital stock to 26,000,000 shares.
The financial statements herein have been adjusted to reflect the
1-for-3 reverse stock split back to the date of inception.
(6) SUBSEQUENT EVENTS AND LIQUIDITY
On December 9, 1999, the Company entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with Opticon Medical Inc., an
Iowa Corporation. The Merger became effective February 25, 2000.
At the effective date of the Merger, each outstanding share of Opticon
common and preferred stock was converted to the right to receive 1.23
shares of Company common stock, $.0001 par value, so that, in the
aggregate, the holders of the Opticon's stock would, on the effective
date, hold 80% of the outstanding common stock of the Company, on a
fully diluted basis.
The Merger Agreement provided that the Company assume Opticon's rights
and obligations under all of Opticon's outstanding options, warrants and
other purchase rights. As a result, on the effective date, the right of
any holder of an outstanding option, warrant, or other purchase right,
was converted into the right to receive the number of shares of Company
common stock as would have been issued or delivered to the holder if it
had exercised the warrant or option and received the shares of Opticon
stock upon such exercise immediately prior to the effectiveness of the
Merger. At the option of the holder, the Debentures may be converted,
either in whole or in part, into common shares, at any time, and from
time to time, at a conversion price per share of common stock equal to
the lesser of: (a) $4.50 and (b) 65% of the market price of the Company.
On the third anniversary of the Debentures, the Company shall convert
all debt outstanding at the conversion price unless such conversion
would exceed 19.99% of the common stock outstanding on the mandatory
conversion date, unless the Company's shareholders approve the issuance
of an amount of the common stock in excess of the 19.99% threshold. In
the event of no shareholder approval, any amounts in excess of the
19.99% threshold are to be redeemed in cash.
F-16
<PAGE> 40
IMMUNE RESPONSE, INC.
(A development stage enterprise)
Notes to Financial Statements
SUBSEQUENT EVENTS AND LIQUIDITY (continued)
The transaction between Opticon and the Company is a business
combination between an operating enterprise (Opticon) and a "shell
company," (the Company) in which the shell company is the issuer of
securities and the operating enterprise has been determined to be the
acquiring enterprise for financial reporting purposes. Thus, the
business combination will be treated for financial reporting purposes as
an issuance of securities by Opticon.
Immediately following the merger, the Company entered into Securities
Purchase Agreements with certain investors whereby the Company agreed to
sell, and the Investors to purchase $3 million in principal amount of 6%
convertible debentures and warrants to purchase 300,000 shares of the
Company's common stock.
The convertible debt will be recorded at the amount of gross proceeds
less the fair value of the warrants. The calculated conversion price at
February 25, 2000, the first available conversion date, was $2.93 per
share. In accordance with the FASB's Emerging Issues Task Force Issue
98-5, the difference between this conversion price and the market price
of $4.50 per share will be reflected as additional interest expense in
the merged company's statement of operations for the quarter ended March
31, 2000.
On March 22, 2000, the convertible debentures were exchanged for 3,000
shares of Series A 6% Preferred Stock. The Preferred Stock has
conversion terms identical to the Convertible Debentures. In addition,
the Preferred Stockholders will be entitled to 6% dividends payable
quarterly in cash or common stock.
The Company has suffered recurring losses from operations. The merged
company intends to use the proceeds from the convertible debentures, as
well as proceeds from potential future debt or equity financing, to more
fully establish its infrastructure and continue Opticon's research and
development activities. There can be no assurance that the Company will
be able to raise sufficient capital to fully establish its
infrastructure and continue to execute its business plans. These
circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
F-17
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Opticon Medical Inc.
We have audited the accompanying balance sheet of Opticon Medical Inc. (a
development stage enterprise) as of December 31, 1999, and the related
statements of operations, stockholders' equity (deficit), and cash flows
for year ended December 31, 1999 and for the period from July 28, 1994
(inception) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
cumulative statements of operations, stockholders' equity (deficit), and
cash flows for the period July 28, 1994 (inception) to December 31, 1999
include amounts for the period from July 28, 1994 (inception) to December
31, 1998 and year ended December 31, 1998, which were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as
it relates to the amounts included for the period July 28, 1994 through
December 31, 1998 is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Opticon Medical Inc. (a development
stage enterprise) as of December 31, 1999, and the results of its
operations and its cash flows for each of the year ended December 31, 1999
and for the period July 28, 1994 (inception) to December 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from this uncertainty.
/s/ KPMG LLP
KPMG LLP
Columbus,Ohio
March 24, 2000
F-18
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
To Opticon Medical Inc.:
We have audited the accompanying balance sheets of Opticon Medical Inc. (a
development stage company) as of December 31, 1998, and the related
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1998, and the period from July 28, 1994 (inception) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Opticon Medical Inc. as
of December 31, 1998, and the results of its operations and its cash flows
for the year ended December 31, 1998, and the period from July 28, 1994
(inception) to December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Opticon Medical Inc. will continue as a going concern. As discussed in Note
1 to the financial statements, Opticon Medical Inc. has suffered recurring
losses from operations that raises substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
LUND KOEHLER COX & ARKEMA, LLP
Minneapolis, Minnesota
August 12, 1999
F-19
<PAGE> 43
OPTICON MEDICAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
--------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,736 51,961
Deferred merger costs 32,344 --
Prepaid expenses and other current assets 1,031 2,641
--------------- --------------
Total current assets 47,111 54,602
Property and equipment, net 44,099 75,436
Intangibles, net of accumulated amortization of $69,700 in 1999
and $58,084 in 1998 127,801 139,416
Deposits 7,264 7,264
--------------- --------------
Total assets $ 226,275 276,718
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations $ 4,644 6,776
Note payable to Immune Response, Inc. 100,000 --
Accounts payable 43,273 61,578
Accrued compensation and related taxes 168,178 93,410
Accrued liabilities due to related parties for consulting services 99,727 38,687
Accrued interest to related parties 21,446 7,606
--------------- --------------
Total current liabilities 437,268 208,057
Capital lease obligations, net of current portion 480 5,261
--------------- --------------
Total liabilities 437,748 213,318
Stockholders' equity (deficit):
Preferred stock, no par value, 20,000,000 shares authorized:
Series A convertible preferred stock, 1,200,000 shares authorized,
1,062,613 shares issued and outstanding in 1999 and 1998; 1,541,581 1,541,581
liquidation preference of $1,593,950
Series B convertible preferred stock, 4,000,000 shares authorized,
932,778 and 582,778 shares issued and outstanding in 1999 1,394,167 869,167
and 1998, respectively; liquidation preference of $1,399,167
Common stock, no par value, 20,000,000 shares authorized,
2,487,495 shares issued and outstanding in 1999 and 1998 1,139,695 1,139,695
Additional paid-in capital 78,500 78,500
Deficit accumulated during the development stage (4,365,416) (3,565,543)
--------------- --------------
Total stockholders' equity (deficit) (211,473) 63,400
--------------- --------------
Total liabilities and stockholders' equity (deficit) $ 226,275 276,718
=============== ==============
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 44
OPTICON MEDICAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Statements of Operations
Years Ended December 31, 1999 and 1998 and the Period from July 28, 1994
(date of inception) to December 31, 1999
<TABLE>
<CAPTION>
CUMULATIVE
FROM
JULY 28, 1994
FOR THE YEARS (INCEPTION) TO
ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- -------------- ----------------------
<S> <C> <C> <C>
Costs and expenses:
Selling, general and administrative $ 550,382 459,569 1,829,256
Research and development 166,761 148,924 1,218,764
Clinical and regulatory 31,136 305,202 929,457
Depreciation of property and equipment 29,991 27,157 134,374
Amortization of intangible assets 11,615 92,613 150,695
-------------- -------------- ----------------------
Loss from operations (789,885) (1,033,465) (4,262,546)
-------------- -------------- ----------------------
Other income (expense):
Interest income 4,621 7,601 50,935
Interest expense (14,609) (136,360) (153,805)
-------------- -------------- ----------------------
Total other expense (9,988) (128,759) (102,870)
-------------- -------------- ----------------------
Loss before income taxes (799,873) (1,162,224) (4,365,416)
Provision for income taxes -- -- --
-------------- -------------- ----------------------
Net loss $ (799,873) (1,162,224) (4,365,416)
============== ============== ======================
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 45
OPTICON MEDICAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Statements of Stockholders' Equity (Deficit)
For the Period from July 28, 1994 (Date of Inception) to December 31, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK
SERIES A CONVERTIBLE SERIES B CONVERTIBLE
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Balance - July 28, 1994 (inception) -- $ -- -- --
Issuance of shares to founder -- -- -- --
Issuance of shares for services -- -- -- --
Net loss -- -- -- --
------------- ------------ ----------- -------------
Balance - December 31, 1994 -- -- -- --
Issuance of shares at $1.00 per share -- -- -- --
Net loss -- -- -- --
------------- ------------ ----------- -------------
Balance - December 31, 1995 -- -- -- --
Issuance of shares at $1.00 per share -- -- -- --
Issuance of shares at $1.00 per share -- -- -- --
Issuance of Series A Convertible
preferred stock at $1.50 per share,
net of issuance costs 713,967 1,035,508 -- --
Net loss -- -- -- --
------------- ------------ ----------- -------------
Balance - December 31, 1996 713,967 1,035,508 -- --
Conversion of debt at $.77 per share -- -- -- --
Issuance of Series A Convertible
preferred stock at $1.50 per share,
net of issuance costs 348,646 506,073 -- --
Net loss -- -- -- --
------------- ------------ ----------- -------------
Balance - December 31, 1997 1,062,613 1,541,581 -- --
Issuance of warrants in connection
with convertible debentures -- -- -- --
Conversion of debt and accrued interest
at $1.50 per share, net of issuance costs -- -- 582,778 869,167
Net loss -- -- -- --
------------- ------------ ----------- -------------
Balance - December 31, 1998 1,062,613 1,541,581 582,778 869,167
Issuance of Series B Convertible
preferred stock at $1.50 per share -- -- 350,000 525,000
Net loss -- -- -- --
------------- ------------ ----------- -------------
Balance - December 31, 1999 $ 1,062,613 1,541,581 932,778 1,394,167
============= ============ =========== =============
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
-------------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
----------- ------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance - July 28, 1994 (inception) -- -- -- -- --
Issuance of shares to founder 1,500,000 219,350 -- -- 219,350
Issuance of shares for services 37,500 5,350 -- -- 5,350
Net loss -- -- -- (5,350) (5,350)
----------- ------------- -------------- ----------------- ---------------
Balance - December 31, 1994 1,537,500 224,700 -- (5,350) 219,350
Issuance of shares at $1.00 per share 467,495 467,495 -- -- 467,495
Net loss -- -- -- (244,982) (244,982)
----------- ------------- -------------- ----------------- ---------------
Balance - December 31, 1995 2,004,995 692,195 -- (250,332) 441,863
Issuance of shares at $1.00 per share 32,500 32,500 -- -- 32,500
Issuance of shares at $1.00 per share 300,000 300,000 -- -- 300,000
Issuance of Series A Convertible
preferred stock at $1.50 per share,
net of issuance costs -- -- -- -- 1,035,508
Net loss -- -- -- (770,440) (770,440)
----------- ------------- -------------- ----------------- ---------------
Balance - December 31, 1996 2,337,495 1,024,695 -- (1,020,772) 1,039,431
Conversion of debt at $.77 per share 150,000 115,000 -- -- 115,000
Issuance of Series A Convertible
preferred stock at $1.50 per share,
net of issuance costs -- -- -- -- 506,073
Net loss -- -- -- (1,382,547) (1,382,547)
----------- ------------- -------------- ----------------- ---------------
Balance - December 31, 1997 2,487,495 1,139,695 -- (2,403,319) 277,957
Issuance of warrants in connection
with convertible debentures -- -- 78,500 -- 78,500
Conversion of debt and accrued interest
at $1.50 per share, net of issuance costs -- -- -- -- 869,167
Net loss -- -- -- (1,162,224) (1,162,224)
----------- ------------- -------------- ----------------- ---------------
Balance - December 31, 1998 2,487,495 1,139,695 78,500 (3,565,543) 63,400
Issuance of Series B Convertible
preferred stock at $1.50 per share -- -- -- -- 525,000
Net loss -- -- -- (799,873) (799,873)
----------- ------------- -------------- ----------------- ---------------
Balance - December 31, 1999 2,487,495 1,139,695 78,500 (4,365,416) (211,473)
=========== ============= ============== ================= ===============
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 46
OPTICON MEDICAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Statements of Cash Flows
Years Ended December 31, 1999 and 1998 and the Period from July 28, 1994
(date of inception) to December 31, 1999
<TABLE>
<CAPTION>
CUMULATIVE FROM
JULY 28, 1994
FOR THE YEARS (INCEPTION) TO
ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1999
--------------- --------------- ----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (799,873) (1,162,224) (4,365,416)
Adjustment to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 41,607 119,770 285,070
Loss on disposal 1,345 -- 1,344
Amortization of original issuance discount -- 78,500 78,500
Changes in operating assets and liabilities:
Prepaid expenses and other assets (30,734) 2,154 (40,639)
Accounts payable (18,305) 60,979 81,960
Accrued liabilities 135,808 62,628 229,218
Accrued interest to related parties 13,840 55,899 70,614
--------------- --------------- ----------------------
Cash used in operating activities (656,312) (782,294) (3,659,349)
Cash flows from investing activities:
Purchases of property and equipment -- (37,899) (158,306)
Purchases of intangibles -- -- (59,147)
--------------- --------------- ----------------------
Cash used in investing activities -- (37,899) (217,453)
Cash flows from financing activities:
Proceeds from the issuance of Series A
convertible preferred stock, net -- -- 1,541,581
Proceeds from the issuance of Series B
convertible preferred stock 525,000 -- 525,000
Proceeds from the issuance of common stock -- -- 805,345
Proceeds from the issuance of note payable to Immune
Response, Inc. 100,000 -- 100,000
Proceeds from convertible debentures with warrants -- 525,000 525,000
Proceeds from convertible promissory note with
warrants -- 300,000 300,000
Proceeds from long-term debt -- -- 115,000
Series B convertible preferred stock issuance costs -- (5,000) (5,000)
Payments on capital lease obligations (6,913) (6,036) (16,389)
--------------- --------------- ----------------------
Cash provided by financing activities 618,087 813,964 3,890,537
Increase (decrease) in cash and cash equivalents (38,225) (6,229) 13,735
Cash and cash equivalents, beginning of period 51,961 58,190 --
--------------- --------------- ----------------------
Cash and cash equivalents, end of period $ 13,736 51,961 13,735
=============== =============== ======================
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest $ 769 1,962 4,692
=============== =============== ======================
NONCASH INVESTING ACTIVITY:
Equipment acquired through capital lease obligations $ -- -- 21,513
=============== =============== ======================
NONCASH FINANCING ACTIVITIES:
Conversion of debt in exchange for common stock $ -- -- 115,000
=============== =============== ======================
Conversion of debt and accrued interest in exchange for
Series B convertible preferred stock $ -- 874,167 874,167
=============== =============== ======================
Issuance of common stock in exchange for intangibles $ -- -- 219,350
=============== =============== ======================
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 47
OPTICON MEDICAL INC.
(a development stage enterprise)
Notes to the Financial Statements
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS
Opticon Medical Inc. (the Company) was incorporated in Iowa on
July 28, 1994 and is currently headquartered in Dublin, Ohio. The
Company was formed to design, develop and market innovative,
cost-effective disposable devices to manage and control the
symptoms of urinary incontinence in adults. The Company plans to
market its product in the United States and other world markets
using multiple distribution channels.
The accompanying financial statements have been prepared on the
basis that the Company will continue as a going concern, which
contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has
incurred operating losses in each period since inception. There is
no assurance that the Company will be profitable in the future.
(b) CASH AND CASH EQUIVALENTS
Cash equivalents consist of overnight repurchase agreements with
an initial term of less than three months. For purposes of the
statement of cash flows, the Company considers all highly liquid
debt instruments with original maturities of three months or less
to be cash equivalents.
(c) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Property and
equipment under capital leases are stated at the present value of
the minimum lease payments.
Depreciation on property and equipment is calculated using
accelerated methods (primarily double declining balance) over the
estimated useful lives of the assets ranging from three to seven
years. Property and equipment held under capital leases and
leasehold improvements are amortized straight line over the
shorter of the lease term or estimated useful life of the asset
and is included in depreciation. Maintenance, repairs and minor
renewals are expensed when incurred.
(d) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense when
incurred.
(e) INTANGIBLES
The Company's founder paid certain patent and intellectual
property costs prior to incorporating the Company. The founder
contributed this property in exchange for common stock valued at
$219,350. These amounts were capitalized and are being amortized
using the straight-line method over 17 years. Intellectual
property consists of designs, concepts and inventions related to
the Company's urinary product development.
F-24
<PAGE> 48
OPTICON MEDICAL INC.
(a development stage enterprise)
Notes to the Financial Statements
(f) 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 financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(g) FINANCIAL INSTRUMENTS
At December 31, 1999 and 1998, the financial statement carrying
amounts of cash and cash equivalents, current assets, current
liabilities and current notes payable approximated the fair value
of these instruments because of the short-term maturity of these
instruments.
(h) RECENT PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other
contracts, and for hedging activities. Subsequently, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No.
133. SFAS No. 137 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. This statement is not
expected to affect the Company, as the Company does not have any
derivative instruments or engage in hedging activities.
(i) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(j) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
Long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less cost to sell.
F-25
<PAGE> 49
OPTICON MEDICAL INC.
(a development stage enterprise)
Notes to the Financial Statements
(k) ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations, in accounting for its fixed plan stock options.
As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure
requirements using a fair value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No.
123, the Company has elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted
the disclosure requirements of SFAS No. 123.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Leasehold improvements (useful life of 3 years) $ 35,198 36,543
Tooling, fixtures and equipment (useful lives of 5-7 years) 143,275 142,276
--------------- ---------------
Total 178,473 179,819
Less: accumulated depreciation and amortization 134,374 104,383
--------------- ---------------
Property and equipment, net $ 44,099 75,436
=============== ===============
</TABLE>
Included in property and equipment is approximately $22,000 of equipment
under capital leases at December 31, 1999 and 1998. Accumulated
amortization on this equipment was approximately $18,000 and $12,000 at
December 31, 1999 and 1998, respectively.
F-26
<PAGE> 50
OPTICON MEDICAL INC.
(a development stage enterprise)
Notes to the Financial Statements
3. LEASES
The Company has one operating lease having an initial or remaining
noncancelable lease term in excess of one year for its principal office
facility and has various other capital leases for property and
equipment. The Company's operating lease requires annual base rent,
including the Company's pro rata share of real estate taxes and
operating expenses. Future minimum lease payments under the
noncancelable leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------------- ----------------
<S> <C> <C>
Year ending December 31:
2000 $ 4,851 59,780
2001 489 45,315
---------------- ----------------
Total minimum lease payments 5,340 105,095
================
Less amount representing interest (at rates of
12.4% to 13.2%) (216)
----------------
Present value of minimum lease payments 5,124
Less: current portion of capital lease obligations 4,644
----------------
Capital lease obligations, less current portion $ 480
================
</TABLE>
Total rent expense was $58,997 in 1999 and $66,398 in 1998.
4. NOTE PAYABLE TO IMMUNE RESPONSE
On November 29, 1999, the Company executed a 8.5% note payable with
Immune Response, Inc. On December 9, 1999, the Company entered into an
Agreement and Plan of Reorganization, providing for the merger of the
Company into Immune Response, Inc. This transaction closed on February
25, 2000 (see Note 8).
F-27
<PAGE> 51
OPTICON MEDICAL INC.
(a development stage enterprise)
Notes to the Financial Statements
5. INCOME TAXES
The Company has net operating loss carryforwards of approximately $4.1
million at December 31, 1999, which can be used to offset future taxable
income. These net operating loss carryforwards, if not used, will expire
in the years 2009-2019. The Company had a deferred tax asset of
$1,504,000 and $1,050,000 at December 31, 1999 and 1998, respectively,
that relates primarily to the aforementioned net operating losses. A
valuation allowance equal to the full amount of the related deferred tax
asset has been recorded due to the uncertainty of realization of the
deferred tax asset.
Under Sections 382 and 383 of the Internal Revenue Code (IRC) of 1986,
as amended, the utilization of the net operating loss carryforwards may
be limited under the change in stock ownership rules.
6. STOCKHOLDERS' EQUITY
PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS - During 1995 and 1996,
the Company sold 499,995 shares of its common stock in a private
placement for $1.00 per share and received net proceeds of $499,995. A
second private placement of common stock was completed in 1996 for
300,000 shares of common stock for $1.00 per share and resulted in net
proceeds of $300,000. In connection with the second private placement,
the Company issued warrants to purchase 300,000 shares of common stock
at $1.00. The warrants are exercisable for 10 years.
CONVERSION OF DEBT - During 1994, the Company entered into a venture
agreement with Iowa Seed Capital Corporation. The venture agreement
provided for a convertible loan of $115,000 and required the Company to
pay a percentage of revenues in lieu of interest as defined in the
agreement. The loan was converted into 150,000 shares of common stock in
November 1997.
During January 1998, the Company approved the issuance of Series 1998
Convertible Debentures (the Debentures) of up to $750,000. The
Debentures accrued interest at 10%, and were secured by substantially
all of the assets of the Company. During 1998, the Company issued
Debentures in the amount of $525,000 and issued detachable warrants to
purchase an aggregate of 378,512 shares of common stock at an exercise
price of $1.50 exercisable for ten years. The proceeds from the issuance
of the Debentures and warrants were allocated between the Debentures and
warrants based on the relative fair value of the two securities at the
time of issuance. The resulting original issuance discount of $71,500
was amortized as interest expenses during the year ended December 31,
1998. The principal and accrued interest on the Debentures were
converted into 378,512 shares of the Company's Series B convertible
preferred stock in December 1998 at a conversion price of $1.50 per
share.
During August 1998, a stockholder of the Company advanced the Company
$300,000 pursuant to a convertible promissory note. The convertible
promissory note accrued interest at 6%. The principal and four months'
accrued interest on the loan were converted into 204,266 shares of the
Company's Series B preferred stock in December 1998 at a conversion
price of $1.50 per share. Concurrent with the issuance of the
convertible promissory note, the Company also issued a ten year warrant
to purchase 30,000 shares of common stock of the Company to the
stockholder at an exercise price of $1.50 per share. The proceeds from
the issuance of the convertible promissory note and warrants were
allocated between the convertible promissory note and warrants based on
the relative fair value of the two securities at the time of issuance.
The resulting original issuance discount of $7,000 was amortized as
interest expense during the year ended December 31, 1998.
F-28
<PAGE> 52
OPTICON MEDICAL INC.
(a development stage enterprise)
Notes to the Financial Statements
STOCKHOLDERS' EQUITY (continued)
PRIVATE PLACEMENT OF SERIES A CONVERTIBLE PREFERRED STOCK - During 1996
and 1997, the Company sold 1,062,633 shares of Series A convertible
preferred stock (Series A preferred stock) in a private offering for
$1.50 per share and received net proceeds of $1,541,581. Dividends are
payable on the Series A preferred stock only if declared by the Board of
Directors. No dividends have been declared to date. The Series A
preferred stockholders are entitled to a liquidation preference of $1.50
per share. Series A preferred shares are eligible to vote on stockholder
matters on an "as if converted" basis with holders of the Company's
common stock. The Series A preferred stock is convertible at the option
of the holder into common stock at any time on a share-for-share basis.
The Series A preferred stock will be automatically converted into common
stock upon the occurrence of a significant initial public offering.
SERIES B CONVERTIBLE PREFERRED STOCK - During 1998, the Company
converted debt and accrued interest of $874,167 into 582,778 shares of
Series B convertible preferred stock (Series B preferred stock).
Dividends are payable on the Series B preferred stock only if declared
by the Board of Directors. No dividends have been declared to date. The
Series B preferred stockholders are entitled to a liquidation preference
of $1.50 per share. Series B preferred shares are eligible to vote on
stockholder matters on an "as if converted" basis with holders of the
Company's common stock. The Series B preferred stock is convertible at
the option of the holder into common stock at any time on a
share-for-share basis. The Series B preferred stock will be
automatically converted into common stock upon the occurrence of a
significant initial public offering.
In February, May and June 1999, the Company sold 350,000 shares of its
Series B convertible preferred stock in a private placement for $1.50
per share, and received gross proceeds of $525,000. Concurrent with the
issuance of the Series B preferred shares, the Company also issued five
year warrants to purchase 60,000 shares of common stock of the Company
at an exercise price of $2.00 per share.
STOCK OPTION PLANS - The Company adopted an Incentive Stock Option Plan,
pursuant to which options to acquire an aggregate of 1,000,000 shares of
the Company's common stock may be granted at fair market value as
determined by the Board of Directors. In general, the options granted
vest as determined by the Board of Directors ranging from immediately to
four years, and expire five or ten years from the date of the grant. In
addition, the Company adopted a Director Stock Option Plan, pursuant to
which options to acquire an aggregate of 1,000,000 shares of the
Company's common stock may be granted at fair market value as determined
by the Board of Directors. In general, the options granted vest as
determined by the Board of Directors ranging from immediately to three
years, and expire five or ten years from the date of grant.
F-29
<PAGE> 53
OPTICON MEDICAL INC.
(a development stage enterprise)
Notes to the Financial Statements
STOCKHOLDERS' EQUITY (continued)
The Company applies APB Opinion 25 "Accounting for Stock Issued to
Employees" and related Interpretations in accounting for its stock
options. According, no compensation cost has been recognized for its
stock options. Had compensation cost for the Company's stock options
been determined based on the fair value at the grant dates consistent
with the method of Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" (Statement 123), the Company's
net loss would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
CUMULATIVE
FROM JULY 28,
1994
YEAR ENDED YEAR ENDED (INCEPTION ) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
------------------------ ------------------------ -----------------------
Net loss:
<S> <C> <C> <C>
As reported $ 817,423 1,162,224 4,382,966
Pro forma 977,533 1,343,260 4,853,343
</TABLE>
Information regarding the Company's stock options is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RANGE OF OPTION
OPTIONS EXERCISE PRICE EXERCISE PRICES
------------------ -------------------- --------------------
<S> <C> <C> <C>
Options outstanding, December 31, 1997 813,750 $ 1.01 .20 - 1.10
Granted during 1998 321,255 1.38 1.00 - 1.50
------------------
Options outstanding, December 31, 1998 1,135,005 1.11 .20 - 1.50
Granted during 1999 40,000 1.50 .20 - 1.50
------------------
Options outstanding, December 31, 1999 1,175,005 1.12 .20 - 1.50
------------------
Weighted average fair value of options
granted during 1999 $ 0.36
====================
Weighted average fair value of
options granted during 1998 $ 0.60
====================
</TABLE>
F-30
<PAGE> 54
OPTICON MEDICAL INC.
(a development stage enterprise)
Notes to the Financial Statements
STOCKHOLDERS' EQUITY (continued)
The following table summarizes information about the Company's stock
options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -----------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
AVERAGE REMAINING EXERCISE
RANGE OF EXERCISE CONTRACTUAL
EXERCISE PRICES NUMBER PRICE LIFE NUMBER PRICE
----------------------------------- -------------- ------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$0.20 10,000 $0.20 6.75 years 10,000 $0.20
$1.00-$1.50 1,165,005 $1.13 6.14 years 984,560 $1.11
-------------- -----------
$0.20-$1.50 1,175,005 $1.12 6.15 years 994,560 $1.10
============== ===========
</TABLE>
In determining the compensation cost of the options granted, as
specified by Statement 123, the fair value of each option grant has been
estimated on the date of grant using the following assumptions:
Risk free interest rate 5.5%
Expected life of options granted 5-10 years
Expected dividend yield 0%
==============
7. RELATED PARTIES
EMPLOYMENT AGREEMENTS -The Company has employment agreements with two of
its officers. In February 1998, the agreements were amended whereby the
officers elected to defer a portion of their annual compensation. The
deferred amount accrues interest at 10% and is convertible into
approximately 36,000 shares of Series B preferred stock at $1.50 per
share as defined in the amended agreements. At December 31, 1999, the
Company had accrued deferred compensation totaling $164,000. The Company
had also accrued $20,700 at December 31, 1999 in interest under these
agreements, which is included in accrued interest due to related
parties. Subsequent to year-end, the Company settled all of these
obligations in cash, with the exception of $22,000, which was used to
exercise outstanding stock options.
CONSULTING AGREEMENTS - On November 1, 1997, the Company entered into a
consulting agreement with a director, stockholder and the original
founder of the Company. The agreement is for a four-year period and
requires annual consulting fees of $110,000 for the first two years and
$75,000 for the last two years of the agreement. The agreement includes
a two-year non-compete provision. In addition, the Company also has a
consulting agreement with a consulting company affiliated with a member
of the Company's Board of Directors. The Company incurred costs of
$45,150 in 1999 and $60,000 in 1998 under this agreement. Amounts due
under both agreements are included in accrued liability due to related
parties for consulting services in the accompanying balance sheets.
F-31
<PAGE> 55
OPTICON MEDICAL INC.
(a development stage enterprise)
Notes to the Financial Statements
8. SUBSEQUENT EVENTS AND LIQUIDITY
On December 9, 1999, the Company entered into an Agreement and Plan or
Reorganization (the "Merger Agreement") with Immune Response, Inc
(Immune), a Colorado Corporation. The Company's shareholders approved
and adopted the merger agreement on January 28, 2000. The Merger became
effective February 25, 2000.
At the effective date of the Merger, each outstanding share of common
stock, Series A preferred stock, and Series B preferred stock was
converted to the right to receive 1.23 shares of common stock, $.0001
par value, of Immune, so that, in the aggregate, the holders of the
Company's stock would, on the effective date, hold 80% of the
outstanding common stock of Immune, on a fully diluted basis.
The Merger Agreement provided that Immune assume the Company's rights
and obligations under all of the Company's outstanding options, warrants
and other purchase rights. As a result, on the effective date, the right
of any holder of an outstanding option, warrant, or other purchase
right, was converted into the right to receive the number of shares of
Immune common stock as would have been issued or delivered to the holder
if it had exercised the warrant or option and received the shares of
Company stock upon such exercise immediately prior to the effectiveness
of the Merger.
The transaction between Immune and the Company is a business combination
between an operating enterprise (the Company) and a "shell company,"
(Immune) in which the shell company is the issuer of securities and the
operating enterprise has been determined to be the acquiring enterprise
for financial reporting purposes. Thus, the business combination will be
treated for financial reporting purposes as an issuance of securities by
the Company.
Immediately following the merger, Immune entered into Securities
Purchase Agreements with certain investors whereby Immune agreed to
sell, and the Investors to purchase $3 million in principal amount of 6%
convertible debentures and warrants to purchase 300,000 shares of
Immune's common stock at a price of $6.60 per share. At the option of
the holder, the Debentures may be converted, either in whole or in part,
into common shares, at any time, and from time to time, at a conversion
price per share of common stock equal to the lesser of: (a) $4.50 and
(b) 65% of the market price of Immune Response, Inc. On the third
anniversary of the Debentures, Immune shall convert all debt outstanding
at the conversion price unless such conversion would exceed 19.99% of
the common stock outstanding on the mandatory conversion date, unless
Immune's shareholders approve the issuance of an amount of the common
stock in excess of the 19.99% threshold. In the event of no shareholder
approval, any amounts in excess of 19.99% are to be redeemed for cash.
The convertible debt will be recorded at the amount of gross proceeds
less the fair value of the warrants. The calculated conversion price at
February 25, 2000, the first available conversion date, was $2.93 per
share. In accordance with the FASB's Emerging Issues Task Force Issue
98-5, the difference between this conversion price and the market price
of $4.50 per share will be reflected as additional interest expense in
the merged company's statement of operations for the quarter ended March
31, 2000.
F-32
<PAGE> 56
OPTICON MEDICAL INC.
(a development stage enterprise)
Notes to the Financial Statements
SUBSEQUENT EVENTS AND LIQUIDITY (continued)
On March 22, 2000, the convertible debentures were exchanged for 3,000
shares of Series A 6% Preferred Stock. The Preferred Stock has
conversion terms identical to the Convertible Debentures. In addition,
the Preferred Stockholders will be entitled to 6% dividends payable
quarterly in cash or common stock.
The Company has suffered recurring losses from operations and has a net
capital deficiency as of December 31, 1999. The merged company intends
to use the proceeds from the convertible debentures, as well as proceeds
from potential future debt or equity financing, to more fully establish
its infrastructure and continue its research and development activities.
There can be no assurance that the Company will be able to raise
sufficient funds to fully establish its infrastructure and continue its
research and development activities and continue to execute its business
plans. These circumstances raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
F-33
<PAGE> 57
IMMUNE RESPONSE, INC.
Pro Forma Condensed Consolidated Financial Statements
(unaudited)
On December 9, 1999, the Company, Opticon Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of the Company ("Sub"), and Opticon
Medical, Inc. (Opticon), an Iowa corporation entered into an Agreement and Plan
of Reorganization (the "Merger Agreement"), providing for the merger of Opticon
with and into Sub (the "Merger").
The Merger Agreement was approved by the Company, acting as sole shareholder of
Sub. The shareholders of Opticon approved and adopted the Merger Agreement at a
special meeting held on January 28, 2000. The Merger became effective February
25, 2000. Through the Certificate of Merger, Sub changed its name to Opticon
Medical, Inc.
At the Effective Date of the Merger, each outstanding share of Common Stock, no
par value, Series A Preferred Stock, no par value, and Series B Preferred Stock,
no par value, of Opticon, totaling 4,482,906 shares (the "Opticon Stock") and
held by approximately 88 shareholders, was converted into the right to receive
1.23 shares of common stock, $.0001 par value, of the Company (the "Company
Common Stock"), so that, in the aggregate, the holders of Opticon Stock would,
on the Effective Date, hold 80% of the outstanding Company Common Stock, on a
fully diluted basis, and the then current shareholders of the Company would
hold, in the aggregate, 20% of the outstanding Company Common Stock on a fully
diluted basis. No fractional shares were issued. All fractional shares of
Company Common Stock to which a holder of Opticon Stock would otherwise be
entitled at the Effective Date were aggregated, and any fractional share
resulting from such aggregation was rounded to the nearest whole. All shares
issued pursuant to the Merger Agreement were issued pursuant to exemptions from
registration under the Securities Act of 1933, as amended (the "Act").
No other consideration was provided in connection with the Merger. The merger
consideration was determined based upon arms-length negotiations between the
Company and Opticon.
The Merger Agreement provided that the Company assume Opticon's rights and
obligations under all of Opticon's outstanding options and warrants and other
purchase rights. As a result, on the Effective Date, the right of any holder of
an outstanding option, warrant, or other purchase right, was converted into the
right to receive the number of shares of Company Common Stock as would have been
issued or delivered to the holder if it had exercised the warrant or option and
received the shares of Opticon Stock upon such exercise immediately prior to the
effectiveness of the Merger. At the Effective Date, there were outstanding an
aggregate of 1,968,517 Opticon options and warrants.
In connection with the Merger, on January 20, 2000, the Company's shareholders
approved a one-for-three reverse stock split and authorized 1,000,000 shares of
preferred stock and an increase in the authorized capital stock to 26,000,000
shares. As a result, prior to the Effective Date, the Company had a total of
1,983,526 shares of Company Common Stock issued and outstanding. In the Merger,
5,513,974 shares of Company Common Stock were issued in exchange for the
outstanding shares of Opticon Stock, causing the Company to have a total of
7,497,500 shares of Company Common Stock issued and outstanding. If all of the
Opticon options and warrants were to be exercised, approximately another
2,421,276 shares of Company Common Stock would be issued.
Immediately following the Merger, the Company entered into Securities Purchase
Agreements with certain investors (the "Investors") whereby the Company agreed
to sell, and the Investors to purchase $3,000,000 in principal amount of 6%
Redeemable Convertible Debentures ("Debentures"), and warrants to purchase
300,000 shares of Company Common Stock ("Warrants"), for an aggregate purchase
price of $3,000,000.
The transaction between the Company and Opticon is a business combination
between an operating enterprise (Opticon) and a "shell company," (the Company)
in which the shell company is the issuer of securities and the operating
enterprise has been determined to be the acquiring enterprise for financial
reporting purposes. In this case, the business combination is being treated for
financial reporting purposes as an issuance of securities by Opticon. Opticon
will credit equity for the fair value of the tangible net assets of the Company
(i.e., no goodwill or intangible assets will be recognized in this transaction).
Costs related to this transaction will be charged directly to equity.
In future filings, the historical financial statements of Opticon (accounting
acquirer) will be presented as the
F-34
<PAGE> 58
historical financial statements of the combined enterprise and the assets and
liabilities of the Company (legal acquirer) will be accounted for as required by
the purchase method of accounting without regard to which enterprise is the
surviving enterprise. The results of operations of the Company (legal acquirer)
will be included in the financial statements of the combined enterprise only
from the date of acquisition. The equity of Opticon will be presented as the
equity of the combined enterprise; however, the capital stock account of Opticon
will be adjusted to reflect the par value of the outstanding stock of the
Company after giving effect to the number of shares issued in the business
combination. The difference between the capital stock account of Opticon and the
capital stock account of the Company will be recorded as an adjustment to
additional paid-in capital of the combined enterprise. For periods prior to the
business combination, the equity of the combined enterprise will be the
historical equity of Opticon prior to the merger retroactively restated to
reflect the number of shares received in the business combination. The
accumulated deficit of Opticon will be carried forward after the acquisition.
Earnings (loss) per share for periods prior to the business combination will be
restated to reflect the number of equivalent shares received by Opticon.
The unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1999 gives affect to the acquisition of Opticon as if it
had occurred on January 1, 1999. The Pro Forma Statement of Operations is based
on historical results of operations of the Company and Opticon for the year
ended December 31, 1999. The unaudited Pro Forma Condensed Balance Sheet as of
December 31, 1999 gives effect to the acquisition of Opticon as if the
acquisition has occurred on that date. The Pro Forma Statement of Operations and
the Pro Forma Balance Sheet and accompanying notes (the "Pro Forma financial
information") should be read in conjunction with and are qualified by the
historical financial statements of the Company and Opticon and notes thereto.
The Pro Forma Financial Information is intended for informational purposes only
and is not necessarily indicative of the future financial position or future
results of operations of the consolidated Company after the acquisition of
Opticon, or of the financial position or results of operations of the
consolidated Company that would have actually occurred has the acquisition of
Opticon been effected on January 1, 1999.
F-35
<PAGE> 59
IMMUNE RESPONSE, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
IMMUNE OPTICON
ASSETS RESPONSE, INC. MEDICAL, INC.
-------------------- -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents 90,366 13,736
Investment securities 18,093
Deferred merger costs 18,226 32,344
Notes receivable from Opticon Medical Inc. 100,000 --
Interest receivable from related parties 1,537
Prepaid expenses and other current assets -- 1,031
-------------------- -------------------
Total current assets 228,222 47,111
Property and equipment, net -- 44,099
Intangibles, net of accumulated amortization of $69,700 in 1999
and $58,084 in 1998 -- 127,801
Other assets -- 7,264
-------------------- -------------------
Total assets 228,222 226,275
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations -- 4,644
Note payable to Immune Response, Inc. -- 100,000
Accounts payable 21,631 43,273
Accrued compensation and related taxes -- 168,178
A/P and accrued liabilities to related parties 4,461 99,727
Accrued interest to related parties 22,453 21,446
-------------------- -------------------
Total current liabilities 48,545 437,268
Convertible 6% Debentures --
Capital lease obligations, net of current portion -- 480
-------------------- -------------------
Total liabilities 48,545 437,748
Stockholders' equity (deficit) 179,677 (211,473)
-------------------- -------------------
Total liabilities and stockholders' equity (deficit) 228,222 226,275
==================== ===================
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ASSETS ADJUSTMENTS AS ADJUSTED
--------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents 2,547,265 (b) 2,651,367
Investment securities 18,093
Deferred merger costs (50,570) (a) 0
Notes receivable from Opticon Medical Inc. (100,000) (a) 0
Interest receivable from related parties (745) (a) 792
Prepaid expenses and other current assets 1,031
--------------- -----------------
Total current assets 2,395,950 2,671,283
Property and equipment, net -- 44,099
Intangibles, net of accumulated amortization of $69,700 in 1999
and $58,084 in 1998 -- 127,801
Other assets 452,735 (b) 459,999
--------------- -----------------
Total assets 2,848,685 3,303,182
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations -- 4,644
Note payable to Immune Response, Inc. (100,000) (a) 0
Accounts payable 40,000 104,904
Accrued compensation and related taxes -- 168,178
A/P and accrued liabilities to related parties -- 104,188
Accrued interest to related parties (745)(a) 43,154
--------------- -----------------
Total current liabilities (60,745) 425,068
Convertible 6% Debentures 2,225,000 (b) 2,225,000
Capital lease obligations, net of current portion -- 480
--------------- -----------------
Total liabilities 2,164,255 2,650,548
(40,000) (a)
(50,570) (a)
775,000 (b)
1,613,013 (b)
Stockholders' equity (deficit) (1,613,013) (b) 652,634
--------------- -----------------
Total liabilities and stockholders' equity (deficit) 2,848,685 3,303,182
=============== =================
</TABLE>
F-36
<PAGE> 60
IMMUNE RESPONSE, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
December 31, 1999
<TABLE>
<CAPTION>
IMMUNE OPTICON
Response, Inc. Medical, Inc.
--------------------- ---------------------
<S> <C> <C>
Costs and expenses:
Selling, general and administrative $ 42,205 550,382
Research and development -- 166,761
Clinical and regulatory -- 31,136
Depreciation of property and equipment -- 29,991
Amortization of intangible assets -- 11,615
--------------------- ---------------------
Loss from operations (42,205) (789,885)
--------------------- ---------------------
Other income (expense):
Interest income 2,184 4,621
Gain on sale of stock 19,564 --
Interest expense -- (14,609)
--------------------- ---------------------
Total other expense 21,748 (9,988)
--------------------- ---------------------
Net loss $ (20,457) (799,873)
===================== =====================
Basic and diluted net loss per share $ (0.02)
---------------------
Weighted average basic and diluted shares outstanding 1,180,494
=====================
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED
--------------------- ---------------
<S> <C> <C>
Costs and expenses:
Selling, general and administrative -- 592,587
Research and development -- 166,761
Clinical and regulatory -- 31,136
Depreciation of property and equipment -- 29,991
Amortization of intangible assets -- 11,615
--------------------- ---------------
Loss from operations -- (832,090)
--------------------- ---------------
Other income (expense):
Interest income (745) 6,060
Gain on sale of stock -- 19,564
745 (a) 745
(150,912)(b) (150,912)
(258,333)(b) (258,333)
Interest expense (1,613,013)(b) (1,627,622)
--------------------- ---------------
Total other expense (2,022,258) (2,010,498)
--------------------- ---------------
Net loss (2,022,258) (2,842,588)
===================== ===============
Basic and diluted net loss per share (0.42)
---------------
Weighted average basic and diluted shares outstanding 5,513,974 (c) 6,694,468
===================== ===============
</TABLE>
F-37
<PAGE> 61
IMMUNE RESPONSE, INC.
Notes to Pro Forma Condensed Consolidated Financial Statements
(unaudited)
1. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
(a) On December 9, 1999, the Company, Opticon Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of the Company
("Sub"), and Opticon Medical, Inc. (Opticon), an Iowa corporation
entered into an Agreement and Plan of Reorganization (the "Merger
Agreement"), providing for the merger of Opticon with and into Sub (the
"Merger").
The Merger Agreement was approved by the Company, acting as sole
shareholder of Sub. The shareholders of Opticon approved and adopted
the Merger Agreement at a special meeting held on January 28, 2000. The
Merger became effective February 25, 2000.
At the Effective Date of the Merger, each outstanding share of Common
Stock, no par value, Series A Preferred Stock, no par value, and Series
B Preferred Stock, no par value, of Opticon, totaling 4,482,906 shares
(the "Opticon Stock") and held by approximately 88 shareholders, was
converted into the right to receive 1.23 shares of common stock, $.0001
par value, of the Company (the "Company Common Stock"), so that, in the
aggregate, the holders of Opticon Stock would, on the Effective Date,
hold 80% of the outstanding Company Common Stock, on a fully diluted
basis, and the then current shareholders of the Company would hold, in
the aggregate, 20% of the outstanding Company Common Stock on a fully
diluted basis. No fractional shares were issued. All fractional shares
of Company Common Stock to which a holder of Opticon Stock would
otherwise be entitled at the Effective Date were aggregated, and any
fractional share resulting from such aggregation was rounded to the
nearest whole. All shares issued pursuant to the Merger Agreement were
issued pursuant to exemptions from registration under the Securities
Act of 1933, as amended (the "Act").
No other consideration was provided in connection with the Merger. The
merger consideration was determined based upon arms-length negotiations
between the Company and Opticon.
In the Merger, 5,513,974 shares of Company Common Stock were issued in
exchange for the outstanding shares of Opticon Stock, causing the
Company to have a total of 7,497,500 shares of Company Common Stock
issued and outstanding.
The transaction between the Company and Opticon is a business
combination between an operating enterprise (Opticon) and a "shell
company," (the Company) in which the shell company is the issuer of
securities and the operating enterprise has been determined to be the
acquiring enterprise for financial reporting purposes. Thus, the
business combination is being treated for financial reporting purposes
as an issuance of securities by Opticon. Opticon credited equity for
the fair value of the tangible net assets of the Company (i.e., no
goodwill or intangible assets were recognized in this transaction).
Costs related to this transaction, totaling $90,570, have been charged
directly to equity.
In addition, the intercompany notes, totaling $100,000, and the related
accrued interest totaling $745 were canceled in the Merger.
(b) In connection with the Merger, the Company entered into Securities
Purchase Agreements with certain investors (the "Investors") whereby
the Company agreed to sell, and the Investors to purchase $3,000,000 in
principal amount of 6% Redeemable Convertible Debentures
("Debentures"), and warrants to purchase 300,000 shares of Company
Common Stock ("Warrants"), for an aggregate purchase price of
$3,000,000.
The Company received gross proceeds from the Debenture issuance of
$3,000,000, less issuance costs of $452,735, resulting in net proceeds
of $2,547,265. The issuance costs, which have been recorded as an
asset, will be amortized as interest expense over the 3 year life of
the Debentures. Total amortization in 1999 if the Debentures had been
outstanding for the entire period would have been $150,912.
F-38
<PAGE> 62
IMMUNE RESPONSE, INC.
Notes to Pro Forma Condensed Consolidated Financial Statements
(unaudited)
The Company also recorded the warrants at their fair value ($775,000
calculated using a Black Sholes valuation model) as a discount on the
face amount of the Debentures with a corresponding credit to additional
paid-in capital. This discount will also be amortized as interest
expense over the 3 year life of the Debentures. Total amortization in
1999 if the Debentures had been outstanding for the entire period would
have been $258,333.
The calculated conversion price of the Debentures at February 25, 2000,
the first available conversion date, was $2.93 per share. In accordance
with the FASB's Emerging Issues Tax Force Issue 98-5, the difference
between this conversion price and the market price of $4.50 per share
were reflected as additional interest expense in the Company's Pro
Forma Condensed Statement of Operations and a credit to additional
paid-in capital in the Pro Forma Condensed Balance Sheet.
(c) In the Merger, 5,513,974 shares of Company Common Stock were issued in
exchange for the outstanding shares of Opticon Stock, causing the
Company to have a total of 7,497,500 shares of Company Common Stock
issued and outstanding. The pro forma based and diluted net loss per
share is computed by dividing the net loss attributable to common
shareholders by the weighted average number of common shares
outstanding. The calculation of the weighted average number of shares
outstanding assumes that shares issued in connection with the Merger
were outstanding for the entire period. Diluted net loss per share
equals basic net loss per share, as common stock equivalents are
anti-dilutive for all pro forma periods presented.
F-39
<PAGE> 63
IMMUNE RESPONSE, INC.
FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1999
EXHIBIT INDEX
F-40
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 * Agreement and Plan of Reorganization, dated December 9, 1999, among Immune Response,
Inc., Opticon Medical, Inc., and Opticon Acquisition Corporation.
3.1 * Amended and Restated Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant (Previously filed with the Registrant's Registration
Statement on Form S-18, Commission file no. 33-17922-C, and incorporated herein by
reference.)
10.1 * Lease between Pharmacia & Upjohn Company, successor by merger to Adria Laboratories,
Inc., and Opticon Medical, Inc., dated August 20, 1998, for the lease of real property
located at 7001 Post Road, Dublin, Ohio 43016.
10.2 * First Amendment to Lease Agreement between Pharmacia & Upjohn Company, successor by
merger to Adria Laboratories, Inc., "Landlord," and Opticon Medical, Inc., "Tenant,"
dated October 27, 1998.
10.3 * Employment Agreement, dated March 10, 1997, between Opticon Medical, Inc. and William
J. Post.
10.4 * Amendment to Employment Agreement, dated February 12, 1998, between Opticon Medical,
Inc. and William J. Post.
10.5 * Employment Agreement, dated September 9, 1997, between Opticon Medical, Inc. and John
LaMarche.
10.6 * Amendment to Employment Agreement, dated February 12, 1998, between Opticon Medical,
Inc. and John LaMarche.
10.7 * Consulting Agreement, dated November 1, 1997, between Opticon Medical, Inc. and Dr.
Fouad A. Salama, M.D.
10.8 * Employee Stock Option Agreement, dated June 3, 1998, between Opticon Medical, Inc. and
William J. Post.
10.9 * Employee Stock Option Agreement, dated July 26, 1996, between Medical Device
International, Inc. and John LaMarche.
10.10 * Employee Stock Option Agreement, dated June 3, 1998, between Opticon Medical, Inc. and
John LaMarche.
10.11 * Form of Director's Stock Option Agreement, dated May 30, 1997, between Opticon
Medical, Inc. and Ron Eibensteiner, Opticon Medical, Inc. and Walter Sembrowich, and
Opticon Medical, Inc. and David Lundquist.
10.12 * Employee Stock Option Agreement, dated July 26, 1997, between Medical Device
International, Inc. and F.A. Salama, M.D.
10.13 * Amendment to Employee Stock Opticon Agreement, dated November 1, 1997, between Opticon
Medical, Inc. and Dr. Fouad A. Salama.
10.14 * Form of Securities Purchase Agreement between Immune Response, Inc. and certain
investors.
</TABLE>
F-41
<PAGE> 65
<TABLE>
<S> <C>
10.15 * Form of Registration Rights Agreement between Immune Response, Inc. and certain
investors.
16.1 Letter from Davis & Co., CPA's, P.C., dated November 2, 1999, addressed to the
Securities and Exchange Commission. (Previously filed as Exhibit 16.1 to Registrant's
Current Report on Form 8-K, dated November 2, 1999, Commission file no. 33-17922-C,
and incorporated herein by reference.)
16.2 Letter from Gelfond Hochstadt Pangburn, P.C., dated March 14, 2000, addressed to the
Securities and Exchange Commission. (Previously filed as Exhibit 16.1 to Registrant's
Current Report on Form 8-K, dated March 17, 2000, Commission file no. 33-17922-C, and
incorporated herein by reference.)
21 * List of Subsidiaries
23.1 * Consent of KPMG LLP
23.2 * Consent of Lund Koehler Cox & Arkema LLP
23.3 * Consent of Davis & Co., CPA's, P.C.
24 * Powers of Attorney
27 * Financial Data Schedule
</TABLE>
* Filed with this Report.
F-42
<PAGE> 1
EXHIBIT 2.1
Agreement and Plan of Reorganization
AMONG
Immune Response, Inc.
(a Colorado corporation)
-----------------------------------
Opticon Medical, Inc.
(an Iowa corporation)
-----------------------------------
AND
Opticon Acquisition Corporation
(a Delaware corporation)
DECEMBER 9, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 Basic Plan of Reorganization.........................................................................1
1.1 Merger..........................................................................................1
1.2 Continuing Corporate Existence..................................................................1
1.3 Effective Date..................................................................................1
1.4 Corporate Government of the Surviving Corporation...............................................2
1.5 Closing.........................................................................................2
1.6 Tax Consequences................................................................................2
ARTICLE 2 Conversion of Shares.................................................................................3
2.1 Conversion of Shares............................................................................3
2.2 Fractional Shares...............................................................................3
2.3 Options, Warrants and Convertible Securities....................................................3
2.4 Exchange of Opticon Stock.......................................................................4
2.5 Adjustment......................................................................................6
2.6 Status of Parent Securities.....................................................................6
ARTICLE 3 Representations and Warranties of Opticon............................................................6
3.1 Organization and Good Standing of Opticon.......................................................6
3.2 Foreign Qualification...........................................................................6
3.3 Company Power and Authority.....................................................................6
3.4 No Subsidiaries.................................................................................7
3.5 Authorization...................................................................................7
3.6 Absence of Restrictions and Conflicts...........................................................7
3.7 Capitalization of Opticon.......................................................................7
3.8 Opticon Information.............................................................................8
3.9 Financial Statements and Records of Opticon.....................................................8
3.10 Reports.........................................................................................9
3.11 Absence of Certain Changes......................................................................9
3.12 No Material Undisclosed Liabilities............................................................10
3.13 Tax Returns; Taxes.............................................................................11
3.14 Material Contracts.............................................................................11
3.15 Litigation and Government Claims...............................................................11
3.16 Compliance With Laws...........................................................................12
3.17 Licenses and Permits...........................................................................12
3.18 Employee Benefit Plans.........................................................................12
3.19 Employment Agreements; Labor Relations.........................................................12
3.20 Intellectual Property..........................................................................13
3.21 Software.......................................................................................15
3.22 Properties and Related Matters.................................................................15
3.23 Insurance......................................................................................15
3.24 Material Interests of Certain Persons..........................................................15
3.25 Registration Obligations.......................................................................16
3.26 Environmental Matters..........................................................................16
3.27 Referral Sources; Investors....................................................................17
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
3.28 Compliance with Year 2000 Requirements.........................................................17
3.29 Brokers and Finders............................................................................18
3.30 Opticon's Representations and Warranties Modified by Knowledge of Parent.......................18
ARTICLE 4 Representations and Warranties of Parent and
the Merger Subsidiary..........................................................................18
4.1 Organization and Good Standing.................................................................18
4.2 Foreign Qualification..........................................................................18
4.3 Corporate Power and Authority..................................................................19
4.4 Authorization..................................................................................19
4.5 Absence of Restrictions and Conflicts..........................................................19
4.6 Capitalization of Parent.......................................................................19
4.7 Capitalization of Merger Subsidiary............................................................20
4.8 Parent SEC Reports.............................................................................20
4.9 Financial Statements and Records of Parent.....................................................21
4.10 Absence of Certain Changes.....................................................................21
4.11 No Material Undisclosed Liabilities............................................................23
4.12 Tax Returns; Taxes.............................................................................23
4.13 Material Contracts.............................................................................23
4.14 Litigation and Government Claims...............................................................24
4.15 Compliance with Laws...........................................................................24
4.16 Employment Agreements; Labor Relations.........................................................24
4.17 Parent Employee Benefit Plans..................................................................25
4.18 Intellectual Property..........................................................................25
4.19 Properties and Related Matters.................................................................25
4.20 Brokers and Finders............................................................................25
4.21 Year 2000 Compliance...........................................................................25
4.22 Interim Operations of Merger Subsidiary........................................................26
4.23 Parent and Merger Subsidiary's Representations and Warranties Modified By Knowledge of Opticon.26
ARTICLE 5 Certain Covenants and Agreements...............................................................26
5.1 Conduct of Business by Opticon.................................................................26
5.2 Conduct of Business by Parent..................................................................28
5.3 Inspection and Access to Information...........................................................30
5.4 Parent Exchange Act Reports....................................................................30
5.5 Reasonable Efforts; Further Assurances; Cooperation............................................31
5.6 Public Announcements...........................................................................31
5.7 No Solicitations...............................................................................32
ARTICLE 6 Conditions Precedent to Obligations of Opticon.................................................32
6.1 Compliance.....................................................................................32
6.2 Representations and Warranties.................................................................32
6.3 Material Adverse Changes.......................................................................32
6.4 Certificates...................................................................................32
6.5 Consents; Litigation...........................................................................33
6.6 Due Diligence..................................................................................33
6.7 Accounting Treatment...........................................................................33
6.8 Tax-free Reorganization........................................................................33
6.9 Financing......................................................................................33
6.10 Stockholder Approval; Dissenting Shares........................................................33
6.11 Legal Opinion..................................................................................33
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 7 Conditions Precedent to Obligations of Parent
and the Merger Subsidiary......................................................................34
7.1 Compliance.....................................................................................34
7.2 Representations and Warranties.................................................................34
7.3 Material Adverse Change........................................................................34
7.4 Certificates...................................................................................34
7.5 Consents; Litigation...........................................................................34
7.6 Due Diligence..................................................................................35
7.7 Accounting Treatment...........................................................................35
7.8 Tax-free Reorganization........................................................................35
7.9 Stockholder Approval; Dissenting Shares........................................................35
7.10 Legal Opinion..................................................................................35
ARTICLE 8 Miscellaneous..................................................................................36
8.1 Termination....................................................................................36
8.2 Expenses.......................................................................................36
8.3 Entire Agreement...............................................................................36
8.4 Survival of Representations and Warranties.....................................................36
8.5 Counterparts...................................................................................36
8.6 Notices........................................................................................37
8.7 Successors; Assignments........................................................................38
8.8 Governing Law..................................................................................38
8.9 Waiver and Other Action........................................................................38
8.10 Severability...................................................................................38
8.11 Mutual Contribution............................................................................38
List of Schedules ...............................................................................................40
</TABLE>
iv
<PAGE> 5
AGREEMENT
AND
PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as
of the 9th day of December, 1999, among Immune Response, Inc., a Colorado
corporation ("Parent"); Opticon Medical, Inc., an Iowa corporation ("Opticon");
and Opticon Acquisition Corporation, a Delaware corporation (the "Merger
Subsidiary"), which is wholly owned by Parent.
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent and Opticon each
have determined that it is in the best interests of their respective
stockholders to effect a reorganization whereby Opticon will be merged by
statutory merger with and into the Merger Subsidiary upon the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and certain other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE 1
BASIC PLAN OF REORGANIZATION
1.1 MERGER. In accordance with the provisions of the business
corporation laws of the States of Colorado and Iowa and Delaware at the
Effective Date (as hereinafter defined), Opticon shall be merged with and into
the Merger Subsidiary (the "Merger"), within ten business days following the
satisfaction or waiver, if permissible, of the conditions set forth in Articles
6 and 7 of this Agreement or on such other date as may be agreed to by the
parties (the "Closing Date"). Following the Merger, the Merger Subsidiary shall
continue as the surviving corporation (the "Surviving Corporation") and shall
continue to be governed by the laws of the State of Delaware.
1.2 CONTINUING CORPORATE EXISTENCE. Except as may otherwise be set
forth herein, the corporate existence and identity of Opticon, with all its
purposes, powers, franchises, privileges, rights and immunities, shall merge
with and into the Merger Subsidiary, and the corporate existence and identity of
Merger Subsidiary, with all its purposes, powers, franchises, privileges, rights
and immunities, at the Effective Date shall continue unaffected by the merger,
and the Surviving Corporation shall be vested fully therewith and the separate
corporate existence and identity of Opticon shall thereafter cease except to the
extent continued by statute.
1.3 EFFECTIVE DATE. The Merger shall become effective upon the filing
of the Certificate of Merger with the Secretaries of State of the States of Iowa
and Delaware pursuant to the provisions of the Iowa Business Corporation Act and
the General Corporation Law of Delaware. The date and time when the Merger shall
become effective is hereinafter referred to as the "Effective Date."
<PAGE> 6
1.4 CORPORATE GOVERNMENT OF THE SURVIVING CORPORATION.
(a) The Certificate of Incorporation of the Merger Subsidiary, as in
effect on the Effective Date, shall continue in full force and effect and shall
be the Certificate of Incorporation of the Surviving Corporation, except that
Article First of the Certificate of Incorporation shall be amended to read:
"FIRST: The name of the Corporation is Opticon Medical, Inc."
(b) The Bylaws of the Merger Subsidiary, as in effect as of the
Effective Date, shall continue in full force and effect and shall be the Bylaws
of the Surviving Corporation.
(c) The members of the Board of Directors of the Surviving Corporation
shall be the persons holding such office in Opticon as of the Effective Date.
(d) The officers of the Surviving Corporation shall be the persons
holding such offices in Opticon as of the Effective Date.
1.5 CLOSING. Consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Friedlob Sanderson
Raskin Paulson & Tourtillott, LLC in Denver, Colorado, commencing at 10:00 a.m.,
Mountain Time, as soon as practicable after the last to be fulfilled or waived
of the conditions set forth in Articles 6 and 7 or at such other place, time and
date as shall be fixed by mutual agreement between Parent and Opticon; provided,
however, the Closing shall occur on or before December 31, 1999, subject to an
automatic 30 day extension if necessary to accommodate a special meeting of the
shareholders of Parent to approve certain corporate actions necessary to
complete the transactions contemplated by this Agreement, unless the date is
extended by mutual agreement of Parent and Opticon. The day on which the Closing
shall occur is referred to herein as the "Closing Date." Each party will cause
to be prepared, executed and delivered the Certificate of Merger to be filed
with the Secretary of State of Iowa and the Secretary of State of Delaware, and
all other appropriate and customary documents as any party or its counsel may
reasonably request for the purpose of consummating the transactions contemplated
by this Agreement. All actions taken at the Closing shall be deemed to have been
taken simultaneously at the time the last of any such actions is taken or
completed. Immediately prior to the Closing, all of the members of the Board of
Directors of Parent, except for one director, shall submit their resignations
from the Board of Directors, which shall be effective upon consummation of the
Closing, and the remaining director shall at the Closing, acting as the Board of
Directors of Parent, adopt a resolution accepting such resignations and
appointing such persons as are designated by Opticon to fill the vacancies
thereby created. The remaining incumbent director shall thereupon submit his
resignation from the Board of Directors of the Parent, to take effect at the
Effective Date.
1.6 TAX CONSEQUENCES. It is intended that the Merger shall constitute a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code.
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<PAGE> 7
ARTICLE 2
CONVERSION OF SHARES
2.1 CONVERSION OF SHARES. At the Effective Date, by virtue of the
Merger and without any action on the part of the holder thereof: each and every
outstanding share of Opticon no par value common stock, and each and every
outstanding share of Opticon Series A preferred stock, no par value, and Series
B preferred stock, no par value (collectively, the "Opticon Stock") outstanding,
on a fully diluted basis, taking into account the conversion potential of any
preferred stock, immediately prior to the Effective Date will be converted into
and represent the right to receive that number of shares of Parent Common Stock,
par value $.0001 ( the "Parent Common Stock") so that, in the aggregate, the
holders of Opticon Stock will, on the Effective Date, hold 80% of the
outstanding Parent Common Stock on a fully diluted basis, and the current
shareholders of Parent will hold, in the aggregate, 20% of the outstanding
Parent Common Stock on a fully diluted basis. The shares of Parent Common Stock
issued pursuant to this Section 2.1(a) shall be referred to as the "Merger
Consideration" and each share of Opticon Stock converted pursuant to this
Section 2.1(a) shall be referred to as a "Converted Share."
2.2 FRACTIONAL SHARES. No scrip or fractional shares of Parent Common
Stock shall be issued in the Merger. All fractional shares of Parent Common
Stock to which a holder of Opticon Stock immediately prior to the Effective Date
would otherwise be entitled at the Effective Date shall be aggregated. If a
fractional share results from such aggregation the share shall be rounded to the
nearest whole share.
2.3 OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES. Except as set forth
on Schedule 2.3, there are no options, warrants, preferred stock or convertible
securities outstanding entitling the holder thereof to purchase shares of
Opticon's no par value Common Stock ("Opticon Common Stock"). On the Effective
Date, the right of any holder of an outstanding option or warrant listed on
Schedule 2.3 to purchase and receive shares of Opticon Common Stock on the
exercise of such option or warrant shall be converted into the right to receive
the number of shares of Parent Common Stock as would have been issued or
delivered to the holder if it had exercised the warrant or option and received
shares of Opticon Common Stock upon such exercise immediately prior to the
effectiveness of the Merger.
3
<PAGE> 8
2.4 EXCHANGE OF OPTICON STOCK.
(a) Subject to the terms and conditions of this Agreement and
an Exchange Agent Agreement in the form attached hereto as Exhibit B,
prior to the Closing Date, the parties will appoint Corporate Stock
Transfer as exchange agent (the "Exchange Agent"), and shall
irrevocably authorize the Exchange Agent, in accordance with the terms
of this Agreement and the Exchange Agent Agreement, to effect the
exchange of the Merger Consideration for certificates representing the
Opticon Stock. At the Closing, Parent shall deposit with the Exchange
Agent, in trust for the benefit of the holders of Opticon Stock or
exchange in accordance with this Article 2, certificates representing
the aggregate number of shares of Parent Common Stock issuable pursuant
to Section 2.1(a) in exchange for issued and outstanding shares of
Opticon Stock.
(b) Promptly after the Effective Date, the Exchange Agent
shall mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Date represented shares of
Opticon Stock (the "Certificates") a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to
the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and instructions for use
in effecting the surrender of the Certificates in exchange for
certificates representing shares of Parent Common Stock. Upon surrender
of a Certificate to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor the certificates representing
the whole number of shares of Parent Common Stock which such holder has
the right to receive pursuant to the provisions of this Agreement, and
the Certificate so surrendered shall forthwith be canceled.
Parent shall pay any transfer or other taxes required by
reason of the issuance of a certificate representing shares of Parent
Common Stock, provided that such certificate is issued in the name of
the person in whose name the Certificate surrendered in exchange
therefor is registered. If any portion of the consideration to be
received pursuant to this Article 2 upon exchange of a Certificate is
to be issued or paid to a person other than the person in whose name
the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such issuance and payment that the Certificate
so surrendered shall be properly endorsed or otherwise in proper form
for transfer and that the person requesting such exchange shall pay in
advance any transfer or other taxes or transfer fee required by reason
of the issuance of a certificate representing shares of Parent Common
Stock to such other person, or establish to the satisfaction of the
Exchange Agent that such tax has been paid or that no such tax is
applicable.
Until surrendered as contemplated by this Section, each
Certificate shall be deemed at any time after the Effective Date to
represent only the right to receive the consideration specified herein;
provided that if any holder of a Certificate exercises his Dissenter's
Rights (as such term is defined in Section 2.4(f) below) and becomes
entitled to receive payment for his shares of Opticon Stock instead of
the shares of into which such shares of Opticon Stock shall have been
converted, Parent shall pay such holder the
4
<PAGE> 9
amount to which he is entitled for such shares of Opticon Stock,
together with any other sums which it may owe him as a result of the
Dissenter's Rights proceeding, upon his surrender to the Exchange Agent
of the certificate or certificates which immediately prior to the
Effective Date represented the shares of Opticon Stock as to which his
Dissenter's Rights were asserted, and the Exchange Agent shall not
thereafter be required to deliver to such holder any shares of Parent
Common Stock.
(c) Any certificates for shares of Parent Common Stock which
remain unclaimed by the holders of Certificates for twelve months after
the Effective Date shall be returned by the Exchange Agent to Parent,
and any holders of Certificates who have not theretofore complied with
Section 2.4 (b) shall thereafter receive delivery (subject to abandoned
property, escheat or other similar laws) of the shares of Parent Common
Stock issuable upon the conversion of their Certificates and any
dividends payable on such shares of Parent Common Stock, without any
interest thereon, only after delivering their Certificates and letters
of transmittal to the Parent, and otherwise complying with Section
2.4(b).
(d) In the case of any lost, mislaid, stolen or destroyed
Certificates, the holder thereof may be required, as a condition
precedent to the delivery to such holder of the consideration described
in this Article 2, to deliver to the Exchange Agent a bond, in such
reasonable sum as Parent may direct, or other form of indemnity
satisfactory to Parent, as indemnity against any claim that may be made
against the Exchange Agent, Parent or Opticon with respect to the
Certificate alleged to have been lost, mislaid, stolen or destroyed.
(e) After the Effective Date, there shall be no transfers on
the stock transfer books of Opticon of the shares of Opticon Common
Stock or Opticon Preferred Stock that were outstanding immediately
prior to the Effective Date. If, after the Effective Date, Certificates
are presented to Opticon for transfer, they shall be canceled and
exchanged as provided in this Article 2.
(f) If any holder of shares of Opticon Stock shall be entitled
to exercise dissenter's rights under Section 490.1302 of the Iowa Code
("Dissenter's Rights"), and if such holder exercises that right when
and in the manner required by Sections 490.1320 through 490.1328 of the
Iowa Code, Opticon shall give Parent notice thereof and the Parent
shall have the right to participate in all negotiations and proceedings
with respect to any such Dissenter's Rights. Opticon shall not, except
with the prior written consent of Parent, voluntarily make any payment
with respect to, or settle or offer to settle, any such Dissenter's
Rights.
5
<PAGE> 10
2.5 ADJUSTMENT. If, between the date of this Agreement and the Closing
Date or the Effective Date, as the case may be, the outstanding shares of
Opticon Stock or Parent Common Stock shall have been changed into a different
number of shares or a different class by reason of any classification,
recapitalization, split-up, combination, exchange of shares, or readjustment or
a stock dividend thereon shall be declared with a record date within such
period, then the consideration to be received pursuant to Section 2.1 hereof by
the holders of shares of Opticon Stock shall be adjusted to accurately reflect
such change.
2.6 STATUS OF PARENT SECURITIES. The shares of Parent Common Stock
being issued in the Merger are and will be "restricted securities" as defined in
Rule 144 (the "Rule") under the Securities Act of 1933, as amended (the
"Securities Act") and (unless registered for resale or some other exemption from
registration is available) the shares of Parent Common Stock must be held for a
minimum of one year following the Merger, and thereafter may be sold in only
limited amounts in a specified manner in accordance with the terms and
conditions of the Rule, if the Rule is applicable (there being no representation
by Parent that it will be applicable). If the Rule is not applicable, any sales
may be made only pursuant to an effective registration statement or an available
exemption from registration. Parent will cause its stock transfer agent to
reflect such restrictions in Parent's stock transfer books and to place an
appropriate restrictive legend or legend on any certificates evidencing the
Parent Common Stock and any certificates issued in replacement or exchange
therefor.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF OPTICON
Opticon represents and warrants to Parent that the statements contained
in Article 3 are true and correct in all material respects, except as set forth
in the schedules attached hereto. As used in this Article 3 and elsewhere in
this Agreement, the phrases "to Opticon' knowledge" or "to Opticon' actual
knowledge" shall mean to the knowledge of the officer of Opticon who has the
principal responsibility for the matter being stated.
3.1 ORGANIZATION AND GOOD STANDING OF OPTICON. Opticon is a corporation
duly organized, validly existing and in good standing under the laws of Iowa.
3.2 FOREIGN QUALIFICATION. Opticon is duly qualified or licensed to do
business and is in good standing as a foreign corporation in every jurisdiction
where the failure so to qualify would have a material adverse effect on (a) the
business, operation, assets or financial condition of Opticon or (b) the
validity or enforceability of, or the ability of Opticon to perform its
obligations under, this Agreement.
3.3 COMPANY POWER AND AUTHORITY. Opticon has the corporate or company
power and authority to own, lease and operate its properties and assets and to
carry on its business as currently being conducted. Opticon has furnished Parent
with true and correct copies of its Certificate of Incorporation and by-laws, as
amended.
6
<PAGE> 11
3.4 NO SUBSIDIARIES. Opticon does not own beneficially, directly or
indirectly, more than 5% of any class of equity securities or similar interests
of any corporation, bank, business trust, association, limited liability company
or similar organization, and is not, directly or indirectly, a partner in any
partnership, or joint venture.
3.5 AUTHORIZATION. Opticon has the corporate power and authority to
execute and deliver this Agreement and, subject to the approval of this
Agreement and the Merger by its stockholders, to perform its obligations under
this Agreement and to consummate the Merger. The execution, delivery and
performance by Opticon of this Agreement has been duly authorized by all
necessary corporate action. Subject to such approval of stockholders and of
government agencies and other government boards having regulatory authority over
Opticon as may be required by statute or regulation, this Agreement is the
legal, valid and binding obligation of Opticon enforceable in accordance with
its terms, subject to limitations which may be placed on enforceability by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors' rights
and by general principles of equity (the "Enforceability Exceptions").
3.6 ABSENCE OF RESTRICTIONS AND CONFLICTS. The execution, delivery and
performance of this Agreement and the consummation of the Merger and the
fulfillment of and compliance with the terms and conditions of this Agreement do
not and will not, with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default under, result in the
loss of any material benefit under, or permit the acceleration of any obligation
under, (i) any term or provision of the Certificate of Incorporation or Bylaws
of Opticon, (ii) any "Material Contract" (as defined in Section 3.13), (iii) any
judgment, decree or order of any court or governmental authority or agency to
which Opticon is a party or by which Opticon or any of its properties is bound,
or (iv) any statute, law, regulation or rule applicable to Opticon. Except for
the filing of the Certificate of Merger with the Secretary of State of the State
of Delaware and the Secretary of State of the State of Iowa, compliance with the
applicable requirements of the Iowa Business Corporation Act, Securities Act,
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and applicable
state securities and banking laws, no consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental agency or
public or regulatory unit, agency, body or authority, with respect to Opticon,
is required in connection with the execution, delivery or performance of this
Agreement by Opticon or the consummation of the transactions contemplated
hereby.
3.7 CAPITALIZATION OF OPTICON.
(a) The authorized capital stock of Opticon consists of (i)
20,000,000 shares of common stock, no par value ("Opticon Common
Stock"); (ii) 20,000,000 shares of preferred stock, no par value, of
which 1,200,000 shares have been designated as Series A Preferred
Stock, and 4,000,000 shares have been designated as Series B Preferred
Stock ("Opticon Preferred Stock.") As of the date hereof, there were
(i) 2,487,495 shares of Opticon Common Stock issued and outstanding and
4,010,928 shares of Opticon Common Stock reserved for issuance upon the
exercise of options, warrants or convertible securities (including
shares issuable upon conversion of the Opticon Preferred Stock); and
(ii) 1,995,411 shares of Opticon Preferred Stock outstanding.
7
<PAGE> 12
(b) All of the issued and outstanding shares of Opticon Common
Stock and Opticon Preferred Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights.
(c) To Opticon's knowledge there are no voting trusts,
stockholder agreements or other voting arrangements between or among
the stockholders of Opticon.
(d) Except as set forth on Schedule 2.3 and pursuant to the
terms of the Opticon Preferred Stock, no equity security of Opticon is
or may be required to be issued by reason of any option, warrant,
scrip, preemptive right, right to subscribe to, call or commitment of
any character whatsoever relating to, or security or right convertible
into, any shares of capital stock of Opticon, and there are no
contracts, commitments, understandings or arrangements by which Opticon
is bound to issue additional shares of its capital stock, or any option
warrant or right to purchase or acquire any additional shares of its
capital stock.
(e) Since December 31, 1998, no shares of capital stock have
been purchased, redeemed or otherwise acquired, directly or indirectly,
by Opticon and no dividends or other distributions have been declared,
set aside, made or paid to the stockholders of Opticon.
3.8 OPTICON INFORMATION. Opticon has made or will make available to
Parent and the Merger Subsidiary all information that Opticon has available
(including all tax returns, financial statements given to any other person,
contracts, payroll schedules, financial books and records), and all other
information concerning Opticon, its business, its customers, its management, and
its financial condition which Parent may have requested (all such information
being referred to herein as the "Opticon Information"). As of their respective
dates, the Opticon Information did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.9 FINANCIAL STATEMENTS AND RECORDS OF OPTICON. Opticon has made
available and will provide to Parent and the Merger Subsidiary true, correct and
complete copies of the following financial statements (the "Opticon Financial
Statements") (i) audited balance sheets of Opticon as of December 31, 1998 and
1997 and related audited statements of income, stockholder's equity and cash
flows for the two years ended December 31, 1998, together with the notes thereto
(the "Opticon Year-End Statements"); (ii) unaudited balance sheets of Opticon
and related statements of income, equity and cash flows as of and for the
quarter ended March 31, 1999 and as soon as they are available, the quarter
ending September 30, 1999, and for each quarter ended prior to Closing (the
"Opticon Quarterly Statements"):
The Opticon Year-End Statements and Opticon Quarterly Statements have
been and will be prepared from, and are in accordance with, the books
and records of Opticon and present or will present fairly, in all
material respects, the financial position of Opticon as of the dates
thereof and the results of operations and cash flows thereof for the
periods
8
<PAGE> 13
then ended, in each case in conformity generally accepted accounting
principles, consistently applied, except as noted therein and, except
in the case of the Opticon Quarterly Statements, for the absence of
notes, and subject to normal year-end adjustments. Since January 1,
1999, there has been no change in accounting principles applied to, or
methods of accounting utilized by, Opticon, except as noted in the
Opticon Financial Statements. The books and records of Opticon are
complete and correct in all material respects and present fairly in all
material respects the basis for the financial position and results of
operations of Opticon as set forth on the Opticon Year-End Statements
and Opticon Quarterly Statements.
3.10 REPORTS. Since December 31, 1994, Opticon has filed all
registrations and statements, together with any required amendments thereto,
that it was required to file with the Food and Drug Administration ("FDA"). All
such registrations and statements filed with the FDA and any similar regulatory
body or authority are collectively referred to herein as the "Opticon Reports."
As of their respective dates, the Opticon Reports complied in all material
respects with the rules and regulations promulgated by the FDA and applicable
state authorities, as the case may be, and did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. True, correct and
complete copies of all the Opticon Reports have been made available to Parent by
Opticon.
3.11 ABSENCE OF CERTAIN CHANGES. Since January 1, 1999, Opticon has
not, except as otherwise set forth in the Opticon Information, the Opticon
Financial Statements, or Schedule 3.11:
(a) suffered any adverse change in its business, operation,
assets, or financial condition, except for such changes that would not
result in a material adverse effect on the business, operation, assets,
or financial condition;
(b) suffered any material damage, destruction, loss or
forfeiture of its assets, whether or not covered by insurance, which
property or assets are material to its operations or business;
(c) settled, forgiven, compromised, canceled, released, waived
or permitted to lapse any material rights or claims other than in the
ordinary course of business;
(d) entered into or terminated any Material Contract or agreed
or made any changes in any Material Contract, other than renewals or
extensions thereof and leases, agreements, transactions and commitments
entered into or terminated in the ordinary course of business;
(e) entered into any transaction, other than at arms-length in
the ordinary course of business, between Opticon and any , director,
officer, or any affiliate of any such officer, director or ;
9
<PAGE> 14
(f) made any material change in the accounting policy,
procedure or practice employed with respect to Opticon;
(g) sold any of the assets of Opticon (tangible or
intangible);
(h) paid or incurred any capital expenditures, other than
capital expenditures incurred in the ordinary course of business which
does not exceed $10,000 (any single item or group of related items);
(i) written up, written down or written off the book value of
any material amount of assets other than in the ordinary course of
business;
(j) declared, paid or set aside for payment any dividend or
distribution with respect to its capital stock;
(k) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its
capital stock or securities or any rights to acquire such capital stock
or securities, or agreed to changes in the terms and conditions of any
such rights outstanding as of the date of this Agreement;
(l) increased the compensation of or paid any bonuses to any
employees or contributed to any employee benefit plan, other than in
accordance with established policies, practices or requirements and as
provided in Section 6.1 hereof;
(m) entered into any employment, consulting or compensation
agreement with any person or group;
(n) entered into any collective bargaining agreement with any
person or group;
(o) entered into, adopted or amended any employee benefit
plan; or
(p) entered into any agreement to do any of the foregoing.
3.12 NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of Opticon of any nature, whether absolute, accrued, contingent, or
otherwise, other than:
(a) the liabilities and obligations that are reflected,
accrued or reserved against on the Opticon Financial Statements, or
referred to in the footnotes thereto, or incurred in the ordinary
course of business and consistent with past practices since December
31, 1998; or
(b) liabilities and obligations which in the aggregate would
not have a material adverse effect on the business, operation, assets
or financial condition of Opticon (a "Opticon Material Adverse
Effect").
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3.13 TAX RETURNS; TAXES. Opticon has filed all federal, state, county,
local, and foreign tax returns, including information returns, required to be
filed by it, and paid all taxes owed by it, including those with respect to
income, withholding, social security, unemployment, workers' compensation,
franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on
such returns to be owed by it or assessments received by it are delinquent.
Federal income tax returns of Opticon for the fiscal year ended December 31,
1995, and for all fiscal years prior thereto, are for the purposes of routine
audit by the Internal Revenue Service closed because of the statute of
limitations, and no claims for additional taxes for such fiscal years are
pending. No tax return of Opticon is being audited. Opticon is not a party to
any pending action or proceeding, nor, to Opticon's knowledge, is any such
action or proceeding threatened by any governmental authority, for the
assessment or collection of taxes, interest, penalties, assessments or
deficiencies and no issue has been raised by any federal, state, local or
foreign taxing authority in connection with any audit or examination of the tax
returns, business or properties of Opticon which has not been settled, resolved
and fully satisfied. Except for amounts not yet due and payable, Opticon has
paid all taxes owed or which it is required to withhold from amounts owing to
employees, creditors or other third parties. The balance sheet as of December
31, 1998, referred to in Section 3.9, includes adequate provision for all
accrued but unpaid federal, state, county, local and foreign taxes, interests,
penalties, assessments or deficiencies of Opticon with respect to all periods
through the date thereof.
3.14 MATERIAL CONTRACTS. Opticon has furnished or made available to
Parent accurate and complete copies of the Material Contracts (as defined
herein) applicable to Opticon. Except as set forth on Schedule 3.14, there is
not under any of the Material Contracts any existing breach, default or event of
default by Opticon nor any event that with notice or lapse of time or both would
constitute a, breach, default or event of default by Opticon other than
breaches, defaults or events of default which would not have an Opticon Material
Adverse Effect nor does Opticon know of, and Opticon has not received notice of,
or made a claim with respect to, any breach or default by any other party
thereto which would, severally or in the aggregate, have an Opticon Material
Adverse Effect. As used herein, the term "Material Contracts" shall mean (i) all
strategic alliance contracts and agreements; (ii) all agreements to pay
percentages or profits, revenue or volume of loans originated, brokered or
assigned; and (iii) all other contracts and agreements providing for
expenditures or commitments by Opticon in excess of $10,000 over more than a
12-month period all as set forth on Schedule 3.14 (which Schedule contains true
and accurate information regarding the nature and status of such contracts and
agreements).
3.15 LITIGATION AND GOVERNMENT CLAIMS. There is no pending suit, claim,
action or litigation, or administrative, arbitration or other proceeding or
governmental investigation or inquiry against Opticon to which its business or
assets are subject which would, severally or in the aggregate, reasonably be
expected to result in an Opticon Material Adverse Effect nor to the knowledge of
Opticon have any such proceedings been threatened or contemplated. Opticon is
not subject to any judgment, decree, injunction, rule or order of any court, or,
to the knowledge of Opticon, any governmental restriction applicable to Opticon
which is reasonably likely (i) to have an Opticon Material Adverse Effect or
(ii) to cause a material limitation on Parent's ability to operate the business
of Opticon (as it is currently operated) after the Closing.
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3.16 COMPLIANCE WITH LAWS. Opticon has all material authorizations,
approvals, licenses and orders to carry on its business as it is now being
conducted, to own or hold under lease the properties or assets it owns or holds
under lease and to perform all of its obligations under the agreements to which
it is a party, except for instances which would not have an Opticon Material
Adverse Effect. Opticon has been and is, to the knowledge of Opticon, in
compliance with all applicable laws (including those referenced in the Opticon
Reports), regulations and administrative orders of any country, state or
municipality or any subdivision of any thereof to which its businesses and its
employment of labor or its use or occupancy of properties or any part hereof are
subject, the violation of which would have an Opticon Material Adverse Effect.
3.17 LICENSES AND PERMITS. Opticon has obtained all licenses, permits,
qualifications, franchises and other governmental authorizations and approvals,
including, without limitation, all state licenses and, as applicable, approvals
by the FDA, required in order for it to conduct its business as presently
conducted, all of which are listed on Schedule 3.17 hereto. All of such
licenses, permits, qualifications, franchises and other authorizations are in
full force and effect and will remain in full force and effect immediately after
the Closing and shall not be violated by or effected, impaired or acquire any
further action to remain effective as a result of the Closing. No material
violation exists in respect of any such license, permit, qualification,
franchise, authorization or approval. No proceeding is pending, or to the
knowledge of Opticon, threatened to revoke or limit any such license, permit,
qualification, franchise, authorization or approval.
3.18 EMPLOYEE BENEFIT PLANS.
Opticon has no employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
3.19 EMPLOYMENT AGREEMENTS; LABOR RELATIONS.
(a) Schedule 3.19 sets forth a complete and accurate list of
all material employee benefit or compensation plans, agreements and
arrangements to which Opticon is a party and which are not disclosed in
the Opticon Information, including without limitation (i) all
severance, employment, consulting or similar contracts, (ii) all
material agreements and contracts with "change of control" provisions
or similar provisions and (iii) all indemnification agreements or
arrangements with directors or officers.
(b) Opticon is in compliance in all material respects with all
laws (including Federal and state laws) respecting employment and
employment practices, terms and conditions of employment, wages and
hours, and is not engaged in any unfair labor or unlawful employment
practice.
(c) No work stoppage involving Opticon is pending or, to
Opticon's knowledge, threatened. Opticon is not involved in, affected
by or, to Opticon's knowledge, threatened with, any labor dispute,
arbitration, lawsuit or administrative proceeding which could have a
Opticon Material Adverse Effect. No employees of
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Opticon are represented by any labor union or any collective bargaining
agreement otherwise in effect with respect to such employees.
3.20 INTELLECTUAL PROPERTY.
(a) Opticon owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property
necessary for the operation if its business as presently conducted and
as presently proposed to be conducted. Each item of Intellectual
Property owned or used by Opticon immediately prior to the Closing will
be owned or available for use by the Merger Subsidiary on no less
favorable terms and conditions immediately subsequent to the Closing
except the extent the Merger Subsidiary has agreed to modify such terms
and conditions. Opticon has taken all necessary action, consistent with
industry standards, to maintain and protect each item of Intellectual
Property that it owns or uses.
(b) To the knowledge of Opticon, Opticon has not interfered
with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of third parties. None of the
directors and officers of Opticon (including employees with
responsibility for Intellectual Property matters) has ever received any
charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or violation (including
any claim that Opticon must license or refrain from using any
Intellectual property rights of any third party except as listed in
Schedule 3.20(b)). To the Knowledge of Opticon and its employees with
responsibility for Intellectual Property matters, no third party has
interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of Opticon.
(c) Schedule 3.20(c) identifies each patent or registration
which has been issued to Opticon, or invention disclosures prepared by
Opticon, if any, with respect to any of its Intellectual Property,
identifies each pending patent application or application for
registration which Opticon has made with respect to any of its
Intellectual Property, and identifies each license, agreement, or other
permission which Opticon has granted to any third party with respect to
any of the Intellectual Property (together with any exceptions) of
Opticon. Opticon has delivered to Parent correct and complete copies of
all such patents, registrations, applications, licenses, agreements and
permission (as amended to date) and has made available to Parent
correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such item.
Schedule 3.20(c) also identifies each trade name or unregistered
trademark used by Opticon. With respect to each item of Intellectual
Property required to be identified on Schedule 3.20(c):
(i) Opticon possesses all right, title and
interest in and to the item, free and clear
of any Lien, license or restriction;
(ii) The item is not subject to any outstanding
injunction, judgment, order, decree, ruling,
or charge;
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(iii) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim or
demand is pending or to the knowledge of
Opticon and any employees with
responsibility for Intellectual Property
matters, is threatened which challenges the
legality, validity, enforceability, use or
ownership of the item; and
(iv) Except as identified on Schedule 3.20(c),
Opticon has never agreed to indemnify any
person for or against any interference,
infringement, misappropriation or other
conflict with respect to the item.
(d) Schedule 3.20(d) identifies each item of Intellectual
Property that any third party owns and that Opticon uses pursuant to
license, sublicense, agreement or permission and which is material to
the Business of Opticon as currently conducted (excluding packaged
commercially available software available to the public through retail
dealers which have been licensed to Opticon pursuant to end-user
licenses). Opticon has delivered to Parent complete and correct copies
of all such licenses, sublicense, agreements, and permission (as
amended to date). With respect to each of the foregoing items of
Intellectual Property required to be identified on Schedule 3.20(d):
(i) The license, sublicense, agreement or
permission covering the item is legal,
valid, binding, enforceable, and in full
force and effect;
(ii) The license, sublicense, agreement or
permission will continue to be legal, valid,
binding, enforceable, and in full force and
effect on identical terms following the
consummation of the transactions
contemplated hereby;
(iii) No party to the license, sublicense,
agreement or permission is in breach or
default, and no event has occurred which
with notice or lapse of time would
constitute a breach of default or permit
termination, modification or acceleration
thereunder;
(iv) To the knowledge of Opticon, no party to the
license, sublicense, agreement or permission
has repudiated any provision thereof;
(v) With respect to each sublicense, the
representations and warranties set for in
subparagraphs (i) through (iv) above are
true and correct with respect to the
underlying license;
(vi) The underlying item of Intellectual Property
is not subject to any outstanding
injunction, judgment, order, decree, ruling
or charge;
(vii) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim or
demand is pending or to the knowledge of
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<PAGE> 19
Opticon and any employees with
responsibility for Intellectual Property
matters is threatened which challenges the
legality, validity or enforceability of the
underlying item of Intellectual Property;
and
(viii) Opticon has not granted any sublicense or
similar right with respect to the license,
sublicense, agreement or permission.
(e) To the knowledge of Opticon and any Opticon employees with
responsibility for Intellectual Property matters, the business of
Opticon will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its business as
presently conducted and as presently proposed to be conducted.
3.21 SOFTWARE. All of the computer software used by or for Opticon in
the conduct of its business (the "Software") is either (i) owned by Opticon free
and clear of any and all liens, claims, equities, security interests, and
encumbrances whatsoever, or (ii) used by Opticon pursuant to a fully-paid
license granted to Opticon for the third party pursuant to the terms of such
license. No such computer software license shall terminate or become terminable
as a result of the transactions contemplated hereby. There are no infringement
suits pending or, to Opticon's knowledge, threatened against Opticon with
respect to any of the Software, and, to the knowledge of Opticon, no fact or
condition exists which could give rise to any such infringement suit.
3.22 PROPERTIES AND RELATED MATTERS. Except as may be reflected in the
Opticon Financial Statements and except for any lien for current taxes not yet
delinquent, Opticon has good title free and clear of any material liens, claims,
charges, options, encumbrances, or similar restrictions to all the personal
property reflected in Opticon's balance sheet as of December 31, 1998, and all
personal property acquired since that date, except such personal property as has
been disposed of in the ordinary course of business. All leases of real property
and all other leases material to Opticon pursuant to which Opticon, as lessee,
leases real or personal property, which leases are described on Schedule 3.22,
are, to the knowledge of Opticon, valid and effective in accordance with their
respective terms, and there is not, under any such lease, any material existing
default by Opticon or any event which, with notice or lapse of time or both,
constitute such a material default.
3.23 INSURANCE. Opticon maintains and has maintained insurance, for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance acquired by applicable law and regulation.
3.24 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as set forth on
Schedule 3.24, to Opticon's knowledge no officer or director of Opticon, or any
"associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of
any such officer or director, has any interest in
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any material contract or property (real or personal), tangible or intangible,
used in or pertaining to the business of Opticon. Schedule 3.24 sets forth a
correct and complete list of any loan from Opticon to any present officer,
director, employee or associate or related interest of any such person.
3.25 REGISTRATION OBLIGATIONS. Except as described on Schedule 3.25,
Opticon is not under any obligation, contingent or otherwise, which will survive
the Merger by reason of any agreement to register any of its securities under
the Securities Act.
3.26 ENVIRONMENTAL MATTERS. To the knowledge of Opticon:
(a) No Hazardous Material (as defined below) has been disposed
of on, released to or from, threatened to be released to or from or is
presently at, on, beneath, in or upon any partial of real property
owned or leased by Opticon or upon any adjacent parcels of real estate
in amounts or concentration which constitute or constituted a violation
of, or which could reasonably be expected to give rise to liability
under, any Environmental Law (as defined below).
(b) There has been no generation, production, refining,
processing, manufacturing, use, storage, disposal, treatment, shipment
or receipt of a Hazardous Material at or from any parcel of real
property owned or leased by Opticon relating to the operations of
Opticon in violation of or in a manner that could give rise to
liability under Environmental Laws.
(c) The operations of Opticon are in compliance and have been
in compliance with all applicable Environmental Laws, and there is no
violation of any Environmental Law with respect to any parcels of real
property owned or leased by Opticon which could interfere with the
continued operation of the business of Opticon or impair its fair
salable value.
(d) Opticon has not received any notice of violation, alleged
violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with environmental laws with regard
to any parcels of real property owned or leased by Opticon from any
person, nor does Opticon have knowledge or reason to believe that any
such notice will be received from or is being threatened by any person.
(e) No judicial proceedings, governmental administrative
actions, investigations or internal or non-public agency proceedings
are pending or threatened, under any environmental law, to which
Opticon is or will be named as a party, nor are the any consent
decrees, or other decrees, consent orders, agreements, administrative
orders, other orders, judicial or administrative requirements
outstanding under any environmental law with respect to Opticon .
(f) "Hazardous Materials" means any substance (a) the presence
of which at, on, over, beneath, in or upon any real or personal
property, building, structure, container of any nature or description,
subsurface strata, ambient air or ambient water (including
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surface and groundwater) requires investigation, removal or remediation
under any Environmental Law or common law, (b) which is or becomes
defined as a "hazardous substance," "hazardous material," "hazardous
waste," "pollutant" or "contaminant" under any Environmental Law,
and/or (c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or
becomes regulated by any governmental authority under any Environmental
Law, (d) the presence of which causes or threatens to cause a nuisance
or trespass upon real property or to adjacent properties or poses or
threatens to pose a hazard to the environment, and/or to the health or
safety of persons on or about any real property, and/or (e) which
contains urea-formaldehyde, polychlorinated biphenyls, asbestos or
asbestos containing materials, radon, petroleum or petroleum products.
(g) "Environmental Law or Laws" means any and all federal,
state, local or municipal laws, rules, orders, regulations, statutes,
treaties, ordinances, codes, decrees, or requirements of any
governmental authority regulating, relating to or imposing liability or
standards of conduct concerning environmental protection, health or
safety matters, including all requirements pertaining to reporting,
licensing, permitting, investigation, removal or remediation of
emissions, discharges, releases, or threatened releases of Hazardous
Materials, chemical substances, pollutants or contaminants or relating
to the manufacture, generation, processing, distribution, use,
treatment, storage, disposal, transport, or handling of Hazardous
Materials, chemical substances, pollutants or contaminants, including,
without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Toxic Substance
Control Act ("TSCA"), the Resource Conservation and Recovery Act
("RCRA"), the Clean Air Act ("CAA"), the Clean Water Act ("CWA") and
the Occupational Safety and Health Act of 1970 ("OSHA"), all as may
have been amended.
3.27 REFERRAL SOURCES; INVESTORS. Opticon has not been advised that any
of its officers, referral sources or investors intend to cease doing business
with Opticon which cessation in the aggregate or otherwise could have a Opticon
Material Adverse Effect.
3.28 COMPLIANCE WITH YEAR 2000 REQUIREMENTS. All of Opticon's
Information Systems and Equipment (as defined below) is either Year 2000
Compliant (as defined below), or any reprogramming, remediation, or other
corrective action, including the internal testing of all such Information
Systems and Equipment, will be completed by December 31, 1999, except for any
failure to be Year 2000 Compliant that cannot reasonably be expected to have a
Opticon Material Adverse Effect. "Year 2000 Compliant" means that all
Information Systems and Equipment accurately process date data (including, but
not limited to, calculating, comparing, and sequencing), before, during and
after the year 2000, as well as same and multi-century dates, or between the
years 1999 and 2000, taking into account all leap years, including the fact that
the year 2000 is a leap year and shall in all material respects continue to
function in the same manner as it performs today and shall not otherwise impair
in any material respect the accuracy or functionality of Information Systems and
Equipment. "Information Systems and Equipment" means all computer hardware,
firmware and software, as well as other information processing systems, other
than any equipment containing imbedded microchips, whether directly owned,
licensed, leased, operated or otherwise controlled by Opticon, in which, in
whole or in part, are
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used, operated, relied upon, or integral to, the conduct of the business of
Opticon ; provided that Information Systems and Equipment does not include any
of the foregoing of any third-party customer or vendor which is not owned,
licensed, leased, operated or otherwise controlled by Opticon .
3.29 BROKERS AND FINDERS. Neither Opticon, nor to Opticon's knowledge
any of its officers, directors, employees, or stockholders has employed any
broker, finder or investment bank or incurred any liability for any investment
banking fees, financial advisory fees, brokerage fees or finders' fees in
connection with the transactions contemplated hereby. Opticon is not aware of
any claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby other than
the consulting agreement between Parent and World Capital Funding, LLC.
3.30 OPTICON'S REPRESENTATIONS AND WARRANTIES MODIFIED BY KNOWLEDGE OF
PARENT. To the extent that any representation or warranty of Opticon is, to the
actual knowledge of Parent, acquired prior to the date thereof, untrue or
incorrect, then (a) neither of Parent nor Merger Subsidiary shall have any
rights by reason of such untruth or inaccuracy, and (b) any such representation
or warranty by Opticon shall be deemed to be amended to the extent necessary to
render it consistent with such actual knowledge of Parent. Furthermore, if the
Closing occurs, then to the extent that any representation or warranty of
Opticon made herein, or in any other document or instrument, to the actual
knowledge of Parent, acquired at any time on or after the date hereof and prior
to the Closing, is untrue or incorrect, then (x) neither Parent nor Merger
Subsidiary shall have any rights thereunder by reason of such untruth or
inaccuracy, and (y) such representation or warranty by Opticon shall be deemed
to be amended to the extent necessary to render it consistent with such actual
knowledge of Parent.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE MERGER SUBSIDIARY
Parent and the Merger Subsidiary represent and warrant to Opticon that
the statements contained in Article 4 are true and correct in all material
respects. As used in this Article 4 and elsewhere in this Agreement, the phrase
"to Parent's or the Merger Subsidiary's knowledge" or "to Parent's or the Merger
Subsidiary's actual knowledge" shall mean to the knowledge of the officer of
Parent or the Merger Subsidiary who has the principal responsibility for the
matter being stated.
4.1 ORGANIZATION AND GOOD STANDING. Each of Parent and the Merger
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization.
4.2 FOREIGN QUALIFICATION. Parent and the Merger Subsidiary are duly
qualified or licensed to do business and are in good standing as a foreign
corporation in every jurisdiction
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where the failure so to qualify would have a material adverse effect (a "Parent
Material Adverse Effect") on (a) the business, operation, assets or financial
condition of Parent and the Merger Subsidiary or (b) the validity or
enforceability of, or the ability of Parent to perform its obligations under,
this Agreement.
4.3 CORPORATE POWER AND AUTHORITY. Parent and the Merger Subsidiary
have the corporate power and authority and all material licenses and permits to
own, lease and operate their respective properties and assets and to carry on
their respective businesses as currently being conducted. Parent has furnished
Opticon with true and correct copies of the Certificate of Incorporation and
Bylaws of each of Parent and Merger Subsidiary.
4.4 AUTHORIZATION. Parent and the Merger Subsidiary have the corporate
power and authority to execute and deliver this Agreement and to perform their
obligations under this Agreement and to consummate the Merger. The execution,
delivery and performance by Parent and the Merger Subsidiary of this Agreement
has been duly authorized by all necessary corporate action. Subject to such
approval of government agencies and other government boards having regulatory
authority over Parent and the Merger Subsidiary as may be required by statute or
regulation, this Agreement is the legal, valid and binding obligation of Parent
and the Merger Subsidiary enforceable in accordance with its terms, subject to
the Enforceability Exceptions.
4.5 ABSENCE OF RESTRICTIONS AND CONFLICTS. The execution, delivery and
performance of this Agreement and the consummation of the Merger and the
fulfillment of and compliance with the terms and conditions of this Agreement do
not and will not, with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default under, result in the
loss of any material benefit under, or permit the acceleration of any obligation
under, (i) any term or provision of the Certificate of Incorporation or Bylaws
of Parent or the Merger Subsidiary, (ii) any "Parent Material Contract" (as
defined in Section 4.12), (iii) any judgment, decree or order of any court or
governmental authority or agency to which Parent or the Merger Subsidiary is a
party or by which Parent or any of the Merger Subsidiary or any of their
respective properties is bound, or (iv) any statute, law, regulation or rule
applicable to Parent or the Merger Subsidiary other than such violations,
conflicts, breaches or defaults as would not have a Parent Material Adverse
Effect. Except for the filing of the Certificate of Merger with the Secretary of
State of Delaware and the Secretary of State of Iowa, compliance with the
Securities Act, the Exchange Act and applicable state securities laws, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental agency or public or regulatory unit, agency, body
or authority with respect to Parent or the Merger Subsidiary is required in
connection with the execution, delivery or performance of this Agreement by
Parent or the Merger Subsidiary or the consummation of the transactions
contemplated hereby.
4.6 CAPITALIZATION OF PARENT.
(a) The authorized capital stock of Parent consists of
25,000,000 shares of Parent Common Stock, $.0001 par value. Schedule
4.6 lists the number of shares of Parent Common Stock outstanding,
which, in any event, will be no more than 6,000,000 shares prior to
Closing.
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(b) All of the issued and outstanding shares of Parent Common
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights.
(c) The shares of Parent Common Stock to be issued in the
Merger will be duly authorized and validly issued and will be fully
paid, nonassessable shares of Parent Common Stock free of preemptive
rights.
(d) To Parent's knowledge, there are no voting trusts,
stockholder agreements or other voting arrangements between or among
the stockholders of Parent.
(e) Except as set forth in subsection (a) above, there is no
outstanding subscription, contract, convertible or exchangeable
security, option, warrant, call or other right obligating Parent or its
subsidiaries to issue, sell, exchange, or otherwise dispose of, or to
purchase, redeem or otherwise acquire, shares of, or securities
convertible into or exchangeable for, capital stock of Parent.
4.7 CAPITALIZATION OF MERGER SUBSIDIARY.
(a) The authorized capital stock of Merger Subsidiary consists
of 1,000,000 shares of Merger Subsidiary Preferred Stock, $.0001 par
value, none of which are issued and outstanding, and 25,000,000 shares
of Merger Subsidiary Common Stock, $.0001 par value, 100 shares of
which are issued and outstanding and legally and beneficially owned by
Parent, free and clear of any lien, claim, charge, option, encumbrance
or agreement (other than this Agreement) with respect thereto.
(b) The shares of Merger Subsidiary Common Stock are duly
authorized and validly issued and will be fully paid, nonassessable
shares of Merger Subsidiary Common Stock free of preemptive rights.
(c) Except as set forth in this Agreement, there is no
outstanding subscription, contract, convertible or exchangeable
security, option, warrant, call or other right obligating Merger
Subsidiary to issue, sell, exchange, or otherwise dispose of, or to
purchase, redeem or otherwise acquire, shares of, or securities
convertible into or exchangeable for, capital stock of Merger
Subsidiary.
4.8 PARENT SEC REPORTS. Parent has made available to Opticon (i)
Parent's Annual Reports on Form 10-KSB, including all exhibits filed thereto and
items incorporated therein by reference, (ii) Parent's Quarterly Reports on Form
10-QSB, including all exhibits thereto and items incorporated therein by
reference, (iii) proxy statements relating to Parent's meetings of stockholders
and (iv) all other reports or registration statements (as amended or
supplemented prior to the date hereof), filed by Parent with the Securities and
Exchange Commission ("SEC") since January 1, 1996, including all exhibits
thereto and items incorporated therein by reference (items (i) through (iv)
being referred to as the "Parent SEC Reports"). As of their respective dates,
Parent SEC Reports did not contain any untrue statement of a material fact or
omit to state
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a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Since January 1, 1996, Parent has filed all material forms (and
necessary amendments), reports and documents with the SEC required to be filed
by it pursuant to the federal securities laws and the SEC rules and regulations
thereunder, each of which complied as to form, at the time such form, report or
document was filed, in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and the applicable rules and regulations
thereunder.
4.9 FINANCIAL STATEMENTS AND RECORDS OF PARENT. Parent has made or will
make available to Opticon true, correct and complete copies of the following
financial statements (the "Parent Financial Statements"):
(a) the balance sheets of Parent as of December 31, 1997 and
1998, and the statements of income, stockholders' equity and cash flows
for the fiscal years then ended, including the notes thereto, in each
case examined by and accompanied by the report of Davis & Co., CPAs,
P.C.; and
(b) the unaudited consolidated balance sheet of Parent as of
June 30, 1999 (the "Parent Balance Sheet"), with any notes thereto, and
the related unaudited statement of income for the fiscal quarter ending
June, 1999 (collectively, the "Parent Quarterly Statements").
The Parent Financial Statements present fairly, in all material
respects, the financial position of Parent as of the dates thereof and
the results of operations and changes in financial position thereof for
the periods then ended, in each case in conformity with generally
accepted accounting principles, consistently applied, except as noted
therein. Since June 30, 1999, there has been no change in accounting
principles applicable to, or methods of accounting utilized by, Parent,
except as noted in the Parent Financial Statements. The books and
records of Parent have been and are being maintained in accordance with
good business practice, reflect only valid transactions, are complete
and correct in all material respects, and present fairly in all
material respects the basis for the financial position and results of
operations of Parent set forth in the Parent Financial Statements.
4.10 ABSENCE OF CERTAIN CHANGES. Since June 30, 1999, neither Parent
nor the Merger Subsidiary has, except as otherwise set forth in the Parent SEC
Reports or on Schedule 4.10:
(a) suffered any adverse change in the business, operation,
assets, or financial condition except for such changes that would not
have a Parent Material Adverse Effect;
(b) suffered any material damage or destruction to or loss of
the assets of Parent or any of the Merger Subsidiary, whether or not
covered by insurance, which property or assets are material to the
operations or business of Parent and its subsidiaries taken as a whole;
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(c) settled, forgiven, compromised, canceled, released, waived
or permitted to lapse any material rights or claims other than in the
ordinary course of business;
(d) entered into or terminated any Material Contract or agreed
or made any changes in any Material Contract, other than renewals or
extensions thereof and leases, agreements, transactions and commitments
entered into or terminated in the ordinary course of business;
(e) entered into any transaction, other than at arms-length in
the ordinary course of business, between Parent or Merger Subsidiary
and any, director, officer, or any affiliate of any such officer,
director or ;
(f) made any material change in the accounting policy,
procedure or practice employed with respect to Parent;
(g) sold any of the assets of Parent or Merger Subsidiary
(tangible or intangible);
(h) paid or incurred any capital expenditures, other than
capital expenditures incurred in the ordinary course of business which
does not exceed $10,000 (any single item or group of related items);
(i) written up, written down or written off the book value of
any material amount of assets other than in the ordinary course of
business;
(j) declared, paid or set aside for payment any dividend or
distribution with respect to Parent's capital stock;
(k) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of
Parent's or the Merger subsidiary's capital stock or securities or any
rights to acquire such capital stock or securities, or agreed to
changes in the terms and conditions of any such rights outstanding as
of the date of this Agreement;
(l) increased the compensation of or paid any bonuses to any
employees or contributed to any employee benefit plan, other than in
accordance with established policies, practices or requirements and as
provided in Section 6.2 hereof;
(m) entered into any employment, consulting or compensation
agreement with any person or group, except for agreements in connection
with the other transactions contemplated by this Agreement including
The World Capital Funding consulting agreement;
(n) entered into any collective bargaining agreement with any
person or group;
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(o) entered into, adopted or amended any employee benefit
plan; or
(p) entered into any agreement to do any of the foregoing.
4.11 NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of Parent and its consolidated subsidiaries of any nature, whether
absolute, accrued, contingent, or otherwise, other than:
(a) liabilities and obligations that are reflected, accrued or
reserved against on the Parent Balance Sheet or referred to in the
footnotes to the Parent Balance Sheet, or incurred in the ordinary
course of business and consistent with past practices since March 31,
1999; or
(b) liabilities and obligations which in the aggregate would
not result in a Parent Material Adverse Effect.
4.12 TAX RETURNS; TAXES. Each of Parent and the Merger Subsidiary has
filed all federal, state, county, local, and foreign tax returns, including
information returns, required to be filed by it, and paid all taxes owed by it,
including those with respect to income, withholding, social security,
unemployment, workers' compensation, franchise, ad valorem, premium, excise and
sales taxes, and no taxes shown on such returns to be owed by it or assessments
received by it are delinquent. Federal income tax returns of Parent for the
fiscal year ended December 31, 1995, and for all fiscal years prior thereto, are
for the purposes of routine audit by the Internal Revenue Service closed because
of the statute of limitations, and no claims for additional taxes for such
fiscal years are pending. Neither Parent nor the Merger Subsidiary is a party to
any pending action or proceeding, nor, to Parent's knowledge, is any such action
or proceeding threatened by any governmental authority, for the assessment or
collection of taxes, interest, penalties, assessments or deficiencies and no
issue has been raised by any federal, state, local or foreign taxing authority
in connection with any audit or examination of the tax returns, business or
properties of Parent and the Merger Subsidiary which has not been settled,
resolved and fully satisfied. Except for amounts not yet due and payable, each
of Parent and the Merger Subsidiary has paid all taxes owed or which it is
required to withhold from amounts owing to employees, creditors or other third
parties. The balance sheet as of December 31, 1998, referred to in Section 4.8,
includes adequate provision for all accrued but unpaid federal, state, county,
local and foreign taxes, interests, penalties, assessments or deficiencies of
Parent with respect to all periods through the date thereof.
4.13 MATERIAL CONTRACTS. Parent has furnished or made available to
Opticon accurate and complete copies of the Parent Material Contracts (as
defined herein) applicable to Parent or the Merger Subsidiary. There is not
under the Parent Material Contracts any existing breach, default or event of
default by Parent or the Merger Subsidiary nor event that with notice or lapse
of time or both would constitute a breach, default or event of default by Parent
or the Merger Subsidiary other than breaches, defaults or events of default
which would not have a Parent Material Adverse Effect nor does Parent know of,
and Parent has not received notice of, or made a claim with respect to, any
breach or default by any other party thereto which would, severally or in the
aggregate, have a Parent Material Adverse Effect. As used herein, the term
"Parent
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Material Contracts" shall mean all contracts and agreements filed, or required
to be filed, as exhibits to Parent's Annual Report on Form 10-KSB for the year
ended or incorporated by reference therein as an exhibit to Parent's Annual
Report on Form 10-KSB for the year ending December 31, 1998.
4.14 LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed in the
Parent SEC Reports, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry against Parent or the Merger Subsidiary to which their businesses or
assets are subject which would, severally or in the aggregate, reasonably be
expected to result in a Parent Material Adverse Effect nor have any such
proceedings been threatened or contemplated. Neither Parent nor the Parent
Subsidiary is subject to any judgment, decree, injunction, rule or order of any
court, or, to the knowledge of Parent, any governmental restriction applicable
to Parent or the Parent Subsidiary which is reasonably likely to have a Parent
Material Adverse Effect.
4.15 COMPLIANCE WITH LAWS. Parent and the Merger Subsidiary each have
all material authorizations, approvals, licenses and orders to carry on their
respective businesses as they are now being conducted, to own or hold under
lease the properties or assets they own or hold under lease and to perform all
of their obligations under the agreements to which they are a party, except for
instances which would not have a Parent Material Adverse Effect. Parent and the
Merger Subsidiary have been and are, to the knowledge of Parent, in compliance
with all applicable laws (including those referenced in the Parent SEC Reports),
regulations and administrative orders of any country, state or municipality or
any subdivision of any thereof to which their respective businesses and their
employment of labor or their use or occupancy of properties or any part hereof
are subject, the violation of which would have a Parent Material Adverse Effect.
4.16 EMPLOYMENT AGREEMENTS; LABOR RELATIONS.
(a) Schedule 4.16 sets forth a complete and accurate list of
all material employee benefit or compensation plans, agreements and
arrangements to which Parent is a party and which are not disclosed in
the Parent Information, including without limitation (i) all severance,
employment, consulting or similar contracts, (ii) all material
agreements and contracts with "change of control" provisions or similar
provisions and (iii) all indemnification agreements or arrangements
with directors or officers.
(b) Parent is in compliance in all material respects with all
laws (including Federal and state laws) respecting employment and
employment practices, terms and conditions of employment, wages and
hours, and is not engaged in any unfair labor or unlawful employment
practice.
(c) No work stoppage involving Parent is pending or, to
Parent's knowledge, threatened. Parent is not involved in, affected by
or, to Parent's knowledge, threatened with, any labor dispute,
arbitration, lawsuit or administrative proceeding which could have a
Parent Material Adverse Effect. No employees of Parent are represented
by any labor union or any collective bargaining agreement otherwise in
effect with respect to
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such employees.
4.17 PARENT EMPLOYEE BENEFIT PLANS. Parent has no employee benefit
plans subject to ERISA.
4.18 INTELLECTUAL PROPERTY. Parent and the Merger Subsidiary own or
have valid, binding and enforceable rights to use all material patents,
trademarks, trade names, service marks, service names, copyrights, applications
therefor and licenses or other rights in respect thereof ("Parent Intellectual
Property") used or held for use in connection with the business of Parent or the
Merger Subsidiary, without any known conflict with the rights of others, except
for such conflicts as do not have a Parent Material Adverse Effect. Neither
Parent nor the Merger Subsidiary has received any notice from any other person
pertaining to or challenging the right of Parent or the Merger Subsidiary to use
any Parent Intellectual Property or any trade secrets, proprietary information,
inventions, know-how, processes and procedures owned or used or licensed to
Parent or the Merger Subsidiary, except with respect to rights the loss of
which, individually or in the aggregate, would not have a Parent Material
Adverse Effect.
4.19 PROPERTIES AND RELATED MATTERS. Neither Parent nor the Merger
Subsidiary owns or leases any real property.
4.20 BROKERS AND FINDERS. With the exception of the consulting
agreement between Parent and World Capital Funding, LLC., neither Parent, nor to
Parent's knowledge any of its officers, directors and employees has employed any
broker, finder or investment bank or incurred any liability for any investment
banking fees, financial advisory fees, brokerage fees or finders' fees in
connection with the transactions contemplated hereby. Parent is not aware of any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
4.21 YEAR 2000 COMPLIANCE. To Parent's knowledge, all of its
Information Systems and Equipment (as defined below) is either Year 2000
Compliant (as defined below), or any reprogramming, remediation, or other
corrective action, including the internal testing of all such Information
Systems and Equipment, will be completed by December 31, 1999, except for any
failure to be Year 2000 Compliant that cannot reasonably be expected to have an
Parent Material Adverse Effect. "Year 2000 Compliant" means that all Information
Systems and Equipment accurately process date data (including, but not limited
to, calculating, comparing, and sequencing), before, during and after the year
2000, as well as same and multi-century dates, or between the years 1999 and
2000, taking into account all leap years, including the fact that the year 2000
is a leap year and shall in all material respects continue to function in the
same manner as it performs today and shall not otherwise impair in any material
respect the accuracy or functionality of Information Systems and Equipment.
"Information Systems and Equipment" means all computer hardware, firmware and
software, as well as other information processing systems, other than any
equipment containing imbedded microchips, whether directly owned, licensed,
leased, operated or otherwise controlled by Parent, in which, in whole or in
part, are used, operated, relied upon, or integral to, the conduct of the
business of Parent; provided that Information Systems and Equipment does not
include any of the foregoing of any third-party
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customer or vendor which is not owned, licensed, leased, operated or otherwise
controlled by Parent.
4.22 INTERIM OPERATIONS OF MERGER SUBSIDIARY. Merger Subsidiary was
formed solely for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has conducted its
operations only as contemplated hereby.
4.23 PARENT AND MERGER SUBSIDIARY'S REPRESENTATIONS AND WARRANTIES
MODIFIED BY KNOWLEDGE OF Opticon. To the extent that any representation or
warranty of Parent or Merger Subsidiary is, to the actual knowledge of Opticon,
acquired prior to the date thereof, untrue or incorrect, then (a) Opticon shall
not have any rights by reason of such untruth or inaccuracy, and (b) any such
representation or warranty by Parent or Merger Subsidiary shall be deemed to be
amended to the extent necessary to render it consistent with such actual
knowledge of Opticon. Furthermore, if the Closing occurs, then to the extent
that any representation or warranty of Parent or Merger Subsidiary made herein,
or in any other document or instrument, to the actual knowledge of Opticon,
acquired at any time on or after the date hereof and prior to the Closing, is
untrue or incorrect, then (x) Opticon shall not have any rights thereunder by
reason of such untruth or inaccuracy, and (y) such representation or warranty by
Parent or Merger Subsidiary shall be deemed to be amended to the extent
necessary to render it consistent with such actual knowledge of Opticon.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
5.1 CONDUCT OF BUSINESS BY OPTICON. From the date hereof to the
Effective Date, Opticon will, except as required in connection with the Merger
and the other transactions contemplated by this Agreement and except as
otherwise disclosed in the Opticon Information or consented to in writing by
Parent:
(a) not engage in any new line of business or enter into any
Material Contract, transaction or activity or make any material
commitment except those in the ordinary and regular course of business
and not otherwise prohibited under this Section 5.1;
(b) maintain its corporate existence in good standing and
neither change nor amend its Certificate of Incorporation or Bylaws;
(c) maintain proper business and accounting records in
accordance with generally accepted principles;
(d) maintain its property in good repair and condition,
ordinary wear and tear accepted;
(e) maintain in all material respects presently existing
insurance coverage;
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(f) use its best efforts to preserve its business organization
intact, to keep the services of its present principal employees and to
preserve its good will and the good will of its suppliers, customers
and others having business relationships with it;
(g) use its best efforts to obtain any approvals or consents
required to maintain existing leases and other contracts in effect
following the Merger;
(h) comply in all material respects with all laws,
regulations, ordinances, codes, orders, licenses and permits applicable
to the properties and the operations of Opticon and correct or remedy
any material violation of any law, regulation upon identification
thereof at Parent's request;
(i) create, incur, assume or guarantee any indebtedness for
borrowed money other than indebtedness incurred in the ordinary course
of business;
(j) make any loan to or investment in, or acquire any
securities or assets of any other person or entity;
(k) sell any of its assets;
(l) increase the compensation of any officers, directors or
executive employees, except pursuant to existing compensation plans or
practices;
(m) not issue or sell shares of capital stock of Opticon or
issue, sell or grant options, warrants or rights to purchase or
subscribe to, or enter into any arrangement or contract with respect to
the issuance or sale of any of the capital stock of Opticon or rights
or obligations convertible into or exchangeable for any shares of the
capital stock of Opticon and not make any changes (by split-up,
combination, reorganization or otherwise) in the capital structure of
Opticon;
(n) not declare, pay or set aside for payment any dividend or
other distribution in respect of the capital stock or other equity
securities of Opticon and not redeem, purchase or otherwise acquire any
shares of the capital stock or other securities of Opticon or rights or
obligations convertible into or exchangeable for any shares of the
capital stock or other securities of Opticon or obligations convertible
into such, or any options, warrants or other rights to purchase or
subscribe to any of the foregoing;
(o) not acquire or enter into any agreement to acquire, by
merger, consolidation or purchase of stock or assets, any business or
entity;
(p) perform all of its obligations under all Material
Contracts (except those being contested in good faith) and not enter
into, assume or amend any contract or commitment that would be a
Material Contract; and
(q) prepare and file all federal, state, local and foreign
returns for taxes and
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other tax reports, filings and amendments thereto required to be filed
by it, and allow Parent, at its request, to review all such returns,
reports, filings and amendments at Opticon's offices prior to the
filing thereof, which review shall not interfere with the timely filing
of such returns.
In connection with the continued operation of the business of Opticon
between the date of this Agreement and the Effective Date, Opticon shall confer
in good faith and on a regular and frequent basis with one or more
representatives of Parent designated in writing to report operational matters of
materiality and the general status of ongoing operations. Opticon acknowledges
that Parent does not and will not waive any rights it may have under this
Agreement as a result of such consultations nor shall Parent be responsible for
any decisions made by Opticon's officers and directors with respect to matters
which are the subject of such consultation.
5.2 CONDUCT OF BUSINESS BY PARENT. From the date hereof to the
Effective Date, Parent will, and will cause the Merger Subsidiary to, except as
required in connection with the Merger and the other transactions contemplated
by this Agreement and except as otherwise disclosed in the Parent Information
hereto or consented to in writing by Opticon:
(a not engage in any new line of business or enter into any
Material Contract, transaction or activity or make any material
commitment except those in the ordinary and regular course of business
and not otherwise prohibited under this Section 5.2;
(b maintain its corporate existence in good standing and
neither change nor amend its Certificate of Incorporation or Bylaws;
(c maintain proper business and accounting records in
accordance with generally accepted principles;
(d maintain its property in good repair and condition,
ordinary wear and tear accepted;
(e maintain in all material respects presently existing
insurance coverage;
(f use its best efforts to preserve its business organization
in tact, to keep the services of its present principal employees and to
preserve its good will and the good will of its suppliers, customers
and others having business relationships with it;
(g use its best efforts to obtain any approvals or consents
required to maintain existing leases and other contracts in effect
following the Merger;
(h comply in all material respects with all laws, regulations,
ordinances, codes, orders, licenses and permits applicable to the
properties and the operations of Parent and each Merger Subsidiary and
correct remedy any material violation of any law, regulation upon
identification thereof at Opticon' request;
(i except as set forth in Schedule 5.2(i), not authorize or
incur any
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indebtedness for borrowed money;
(j make any loan to or investment in, or acquire any
securities or assets of any other person or entity;
(k sell any of its assets;
(l increase the compensation of any officers, directors or
executive employees, except pursuant to existing compensation plans or
practices that have been disclosed to Opticon;
(m not make any changes (by split-up, combination,
reorganization or otherwise) in the capital structure of Parent, or the
Merger Subsidiary;
(n except as set forth on Schedule 5.2(n), not issue or sell
shares of capital stock of Parent or issue, sell or grant options,
warrants or rights to purchase or subscribe to, or enter into any
arrangement or contract with respect to the issuance or sale of any of
the capital stock of Parent or Merger Subsidiary or rights or
obligations convertible into or exchangeable for any shares of the
capital stock of Parent or Merger Subsidiary;
(o not declare, pay or set aside for payment any dividend or
other distribution in respect of the capital stock or other equity
securities of Parent and not redeem, purchase or otherwise acquire any
shares of the capital stock or other securities of Parent or the Merger
Subsidiary, or rights or obligations convertible into or exchangeable
for any shares of the capital stock or other securities of Parent, the
Merger Subsidiary or obligations convertible into such, or any options,
warrants or other rights to purchase or subscribe to any of the
foregoing;
(p not acquire or enter into any agreement to acquire, by
merger, consolidation or purchase of stock or assets, any business or
entity;
(q not make or incur (other than in the ordinary course of
business) any capital expenditures;
(r perform all of its obligations under all Material Contracts
(except those being contested in good faith) and not enter into, assume
or amend any contract or commitment that would be a Material Contract;
and
(s prepare and file all federal, state, local and foreign
returns for taxes and other tax reports, filings and amendments thereto
required to be filed by it, and allow Opticon, at its request, to
review all such returns, reports, filings and amendments at Parent's
office prior to the filing thereof, which review shall not interfere
with the timely filing of such returns.
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5.3 INSPECTION AND ACCESS TO INFORMATION.
(a Between the date of this Agreement and the Effective Date,
Opticon will provide to the Merger Subsidiary and Parent and their
accountants, counsel and other authorized representatives reasonable
access, during normal business hours to its premises, and will cause
its officers to furnish to Parent and the Merger Subsidiary and their
authorized representatives such financial, technical and operating data
and other information pertaining to its business, as the Merger
Subsidiary and Parent shall from time to time reasonably request. No
such examination by Parent or its representatives either before or
after the date of this Agreement shall in any way effect, diminish or
terminate any of the representations, warranties or covenants of
Opticon herein expressed.
(b Between the date of this Agreement and the Effective Date,
Parent will, and will cause the Merger Subsidiary to, provide to
Opticon and its accountants, counsel and other authorized
representatives reasonable access, during normal business hours to its
premises, and will cause its officers to furnish to Opticon and its
authorized representatives such financial, technical and operating data
and other information pertaining to its business, as Opticon shall from
time to time reasonably request. No such examination by Opticon or its
representatives either before or after the date of this Agreement shall
in any way effect, diminish or terminate any of the representations,
warranties or covenants of Parent and the Merger Subsidiary herein
expressed.
(c Each of the parties hereto and their respective
representatives shall maintain the confidentiality of all information
(other than information which is generally available to the public)
concerning the other parties hereto acquired pursuant to the
transactions contemplated hereby in the event that the Merger is not
consummated. Each of the parties hereto and their representatives shall
not use such information so obtained to the detriment or competitive
disadvantage of the other party hereto. All files, records, documents,
information, data and similar items relating to the confidential
information of Opticon, whether prepared by Parent or otherwise coming
into Parent's possession, shall remain the exclusive property of
Opticon and shall be promptly delivered to Opticon upon termination of
this Agreement. All files, records, documents, information, data and
similar items relating to the confidential information of Parent,
whether prepared by Opticon or otherwise coming into Opticon's
possession, shall remain the exclusive property of Parent and shall be
promptly delivered to Parent upon termination of this Agreement.
5.4 PARENT EXCHANGE ACT REPORTS. Opticon acknowledges that Parent will
be required to report its acquisition of Opticon promptly following the
Effective Date and include information regarding Opticon in any Proxy Statement
for a Parent special meeting of shareholders which may be required to approve
certain corporate actions required to complete the transactions contemplated by
this Agreement. Opticon agrees to provide as promptly as practicable to Parent
such information concerning its business and financial statements and affairs
as, in the reasonable judgment of Parent, may be required or appropriate for
inclusion in the required report, or in any amendments or supplements thereto,
and to cause its counsel and
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auditors to cooperate with Parent's counsel and auditors in the preparation of
such report. Opticon represents and warrants to Parent that the foregoing
information will (i) not contain any untrue statement of material fact, or omit
to state any material fact required to be stated therein as necessary, in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading and (ii) comply in all material respects with the
provisions of the Securities Act and Exchange Act, as applicable, and the rules
and regulations thereunder.
5.5 REASONABLE EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the
other provisions of this Agreement, the parties hereby shall each use their
reasonable efforts to perform their obligations herein and to take, or cause to
be taken or do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the Merger and the other transactions contemplated herein to be carried
out promptly in accordance with the terms hereof. The parties agree to use their
reasonable best efforts to consummate the transactions contemplated hereby by
December 31, 1999. The parties shall cooperate fully with each other and their
respective officers, directors, employees, agents, counsel, accountants and
other designees in connection with any steps required to be taken as a part of
their respective obligations under this Agreement, including without limitation:
(a If any claim, action, suit, investigation or other
proceeding by any governmental body or other person is commenced which
questions the validity or legality of the Merger or any of the other
transactions contemplated hereby or seeks damages in connection
therewith, the parties agree to cooperate and use all reasonable
efforts to defend against such claim, action, suit, investigation or
other proceeding and, if an injunction or other order is issued in any
such action, suit or other proceeding, to use all reasonable efforts to
have such injunction or other order lifted, and to cooperate reasonably
regarding any other impediment to the consummation of the transactions
contemplated by this Agreement.
(b Each party shall give prompt written notice to the other of
(i) the occurrence, or failure to occur, of any event which occurrence
or failure would be likely to cause any representation or warranty of
Opticon, Parent or the Merger Subsidiary as the case may be, contained
in this Agreement to be untrue or inaccurate in any material respect at
any time from the date hereof to the Effective Date or that will or may
result in the failure to satisfy the conditions specified in Article 6
or 7 or would constitute either an Opticon Material Adverse Effect or
Parent Material Adverse Effect, and (ii) any failure of Opticon or
Parent, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it
hereunder.
5.6 PUBLIC ANNOUNCEMENTS. The timing and content of all announcements
regarding any aspect of this Agreement or the Merger to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance (unless Parent or Opticon is advised by counsel that any such
announcement or other disclosure not mutually agreed upon in advance is required
to be made by law and then only after making a reasonable attempt to comply with
the provisions of this Section).
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5.7 NO SOLICITATIONS. (a) From the date hereof until the Effective Date
or until this Agreement is terminated or abandoned as provided in this
Agreement, Opticon shall not directly or indirectly (i) solicit or initiate
discussion with or (ii) enter into negotiations or agreements with, or furnish
any information to, any corporation, partnership, person or other entity or
group (other than an affiliate of Parent or its authorized representatives
pursuant to this Agreement) concerning any proposal for a merger, sale of
substantial assets, sale of shares of stock or securities or other takeover or
business combination transaction (the "Acquisition Proposal") involving Opticon,
and Opticon will instruct its officers, directors, advisors and its financial
and legal representatives and consultants not to take any action contrary to the
foregoing provisions of this sentence; provided, however, that Opticon, its
officers, directors, advisors and its financial and legal representatives and
consultants will not be prohibited from taking any action described in (ii)
above to the extent such action is taken by, or upon the authority of, the Board
of Directors of Opticon in the exercise of good faith judgment as to its
fiduciary duties to the shareholders of Opticon, which judgment is based upon
the advice of independent, outside legal counsel that a failure of the Board of
Directors of Opticon to take such action would be likely to constitute a breach
of its fiduciary duties to such shareholders. Opticon will notify Parent
promptly if Opticon becomes aware that any inquiries or proposals are received
by, any information is requested from or any negotiations or discussions are
sought to be initiated with, Opticon with respect to an Acquisition Proposal,
and Opticon shall promptly deliver to Parent any written inquiries or proposals
received by Opticon relating to an Acquisition Proposal.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF OPTICON
Except as may be waived by Opticon, the obligations of Opticon to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction on or before the Closing Date of each of the following
conditions:
6.1 COMPLIANCE. Parent and the Merger Subsidiary shall have, or shall
have caused to be, satisfied or complied with and performed in all material
respects all terms, covenants and conditions of this Agreement to be complied
with or performed by them on or before the Closing Date.
6.2 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by Parent and the Merger Subsidiary in this Agreement shall be
true and correct in all material respects at and as of the Closing Date with the
same force and effect as if such representations and warranties had been made at
and as of the Closing Date, except for changes permitted or contemplated by this
Agreement.
6.3 MATERIAL ADVERSE CHANGES. Subsequent to March 31, 1999, there shall
have occurred no Parent Material Adverse Effect other than any such change that
affects both Parent and Opticon in a substantially similar manner.
6.4 CERTIFICATES. Opticon shall have received a certificate or
certificates, executed
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on behalf of Parent by an executive officer of Parent, to the effect that the
conditions contained in Sections 6.1, 6.2 and 6.3 hereof have been satisfied.
6.5 CONSENTS; LITIGATION. Other than the filing of the Certificates of
Merger as described in Article 1, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods imposed by any governmental entities, and all required
third-party consents, the failure to obtain which would have a Opticon Material
Adverse Effect or an Parent Material Adverse Effect, shall have been obtained.
In addition, no preliminary or permanent injunction or other order shall have
been issued by any court or by any governmental or regulatory agency, body or
authority which prohibits the consummation of the Merger and the transactions
contemplated by this Agreement and which is in effect at the Effective Date.
6.6 DUE DILIGENCE. Opticon shall have completed to its satisfaction a
due diligence investigation, including, but not limited to, a review of the
Parent Financial Statements.
6.7 ACCOUNTING TREATMENT. The transactions contemplated by this
Agreement shall qualify for purchase accounting treatment under generally
accepted accounting principles, and each shall take all necessary action to
ensure such treatment.
6.8 TAX-FREE REORGANIZATION. The shares of Parent Common Stock to be
received by the Opticon stockholders shall be received in connection with a
tax-free reorganization under the Code, and each party shall take all necessary
action to ensure such treatment.
6.9 FINANCING. Parent will have a positive cash balance and will have
no significant liabilities other than those associated with the normal operation
of its business, and Parent will have a positive net worth on a consolidated
basis. In addition, Parent shall have executed an agreement for financing with
one or more investors, in a form and on terms mutually agreeable to the parties,
as described in the Consulting Agreement dated September 21, 1999 between Parent
and World Capital Funding, LLC, and in the Confidential Memorandum dated
September 21, 1999, attached hereto as Schedule 6.9. Such agreement shall be
subject to no material contingency or condition except for the Closing of the
Merger. The financing arranged by Parent will close and be received immediately
following the Closing and shall equal at least $2.25 million, prior to
deductions for fees and expenses involved in the financing.
6.10 STOCKHOLDER APPROVAL; DISSENTING SHARES. This Agreement and the
Merger shall have received the requisite approval of Opticon's stockholders in
accordance with the Iowa Business Corporation Act and the number of shares of
Opticon Stock as to which Dissenter's Rights have been exercised shall not
exceed 5% of the number of outstanding shares of Opticon Stock.
6.11 LEGAL OPINION. At the Closing, Parent shall have furnished Opticon
with an opinion, dated the Closing Date, of counsel to Parent, to the effect
that:
(a) Parent and Merger Subsidiary are each corporations duly
incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation;
33
<PAGE> 38
(b) Parent and Merger Subsidiary each has the corporate power
to carry on its businesses as they are being conducted on the Closing
Date; and
(c) Parent and Merger Subsidiary each has taken all required
corporate action to approve and adopt this Agreement and this Agreement
is a valid and binding obligation of Parent and Merger Subsidiary,
enforceable in accordance with its terms, subject to the Enforceability
Exceptions.
In rendering the foregoing opinion, such counsel may rely on certificates of
officers and other agents of Parent and Merger Subsidiary and public officials
as to matters of fact provided such reliance is expressly noted in the opinion
and the certificates of such officers, agents and public officials relied on are
attached to the opinion.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
AND THE MERGER SUBSIDIARY
Except as may be waived by Parent and the Merger Subsidiary, the
obligations of Parent and the Merger Subsidiary to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each of the following conditions:
7.1 COMPLIANCE. Opticon shall have, or shall have caused to be,
satisfied or complied with and performed in all material respects all terms,
covenants, and conditions of this Agreement to be complied with or performed by
it on or before the Closing Date.
7.2 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by Opticon in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as if such representations and warranties had been made at and as of the Closing
Date, except for changes permitted or contemplated by this Agreement.
7.3 MATERIAL ADVERSE CHANGE. Since June 30, 1999, except as set forth
in this Agreement or on the schedules hereto, there shall have occurred no
Opticon Material Adverse Effect other than any such change that affects both
Parent and Opticon in a substantially similar manner.
7.4 CERTIFICATES. Parent shall have received a certificate or
certificates, executed by the and on behalf of Opticon by an executive officer
of Opticon, to the effect that the conditions in Sections 7.1, 7.2 and 7.3
hereof have been satisfied.
7.5 CONSENTS; LITIGATION. Other than the filing of the Certificate of
Merger as described in Article 1, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods imposed by, any governmental entity, and all required
third-party consents, the failure to obtain which would have an Opticon
34
<PAGE> 39
Material Adverse Effect or a Parent Material Adverse Effect, shall have been
obtained. In addition, no preliminary or permanent injunction or other order
shall have been issued by any court or by any governmental or regulatory agency,
body or authority which prohibits the consummation of the Merger and the
transactions contemplated by this Agreement and which is in effect at the
Effective Date.
7.6 DUE DILIGENCE. Parent shall have completed to its satisfaction a
due diligence investigation, including, but not limited to, a review of the
Opticon Financial Statements.
7.7 ACCOUNTING TREATMENT. The transactions contemplated by this
Agreement shall qualify for purchase accounting treatment under generally
accepted accounting principles, and each shall take all necessary action to
ensure such treatment.
7.8 TAX-FREE REORGANIZATION. The shares of Parent Common Stock to be
delivered to the Opticon stockholders shall be delivered in connection with a
tax-free reorganization under the Code, and each party shall take all necessary
action to ensure such treatment.
7.9 STOCKHOLDER APPROVAL; DISSENTING SHARES. This Agreement and the
Merger shall have received the requisite approval of Opticon's stockholders, in
accordance with the Iowa Business Corporation Act, and the number of shares of
Opticon Stock as to which Dissenters Rights have been properly exercised shall
not exceed 5% of the number of outstanding shares of Opticon Stock.
7.10 LEGAL OPINION. At the Closing, Opticon shall have furnished Parent
and Merger Subsidiary with an opinion, dated the Closing Date, of counsel to
Opticon, to the effect that:
(a) Opticon is a corporation duly incorporated, validly
existing and in good standing under the laws of Iowa;
(b) Opticon has the corporate power to carry on its businesses
as they are being conducted on the Closing Date; and
(c) Opticon has taken all required corporate action to approve
and adopt this Agreement and this Agreement is a valid and binding
obligation of Opticon, enforceable in accordance with its terms,
subject to the Enforceability Exceptions.
In rendering the foregoing opinion, such counsel may rely on
certificates of officers and other agents of Opticon and public officials as to
matters of fact provided such reliance is expressly noted in the opinion and the
certificates of such officers, agents and public officials relied on are
attached to the opinion.
35
<PAGE> 40
ARTICLE 8
MISCELLANEOUS
8.1 TERMINATION. In addition to the provisions regarding termination
set forth elsewhere herein, this Agreement and the transactions contemplated
hereby may be terminated at any time on or before the Closing Date:
(a by mutual consent of Opticon and Parent;
(b by either Parent or Opticon if the transactions
contemplated by this Agreement have not been consummated by December
31, 1999, subject to an automatic 30 day extension if necessary to
accommodate a special meeting of the shareholders of Parent to approve
certain corporate actions necessary to complete the transactions
contemplated by this Agreement, unless such failure of consummation is
due to the failure of the terminating party to perform or observe the
covenants, agreements, and conditions hereof to be performed or
observed by it at or before the Closing Date; or
(c by either Opticon or Parent if the transactions
contemplated hereby violate any nonappealable final order, decree, or
judgment of any court or governmental body or agency having competent
jurisdiction.
8.2 EXPENSES. If the transactions contemplated by this Agreement are
not consummated and termination is sought under the termination provisions
hereof, each party hereto shall pay its own expenses incurred in connection with
this Agreement and the transactions contemplated hereby. If the transactions
contemplated by this Agreement are not consummated because the representations
and warranties of one party are materially false or misleading, then that party
shall be liable for the expenses, including attorneys fees, of the other party.
8.3 ENTIRE AGREEMENT. This Agreement and the exhibits hereto contain
the complete agreement among the parties with respect to the transactions
contemplated hereby and supersede all prior agreements and understandings among
the parties with respect to such transactions. Section and other headings are
for reference purposes only and shall not affect the interpretation or
construction of this Agreement. The parties hereto have not made any
representation or warranty except as expressly set forth in this Agreement or in
any certificate or schedule delivered pursuant hereto. The obligations of any
party under any agreement executed pursuant to this Agreement shall not be
affected by this section.
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each party contained herein or in any exhibit, certificate,
document or instrument delivered pursuant to this Agreement shall not survive
the Closing, with the express exception of the indemnity agreements between
Parent and the Officers and Directors of Parent which shall continue in full
force and effect indefinitely.
8.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts,
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<PAGE> 41
each of which when so executed and delivered shall be deemed an original, and
such counterparts together shall constitute only one original.
8.6 NOTICES. All notices, demands, requests, or other communications
that may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be sent by
facsimile transmission, next-day courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
hand delivery, addressed as follows:
(a If to Opticon:
William J. Post, President and Chief Executive Officer
Opticon Medical, Inc.
7001 Post Road Suite 100
Dublin, Ohio 43016
Telephone: (614) 336-2000
Facsimile: (614) 336-2059
with a copy (which shall not constitute notice) to:
William J. Kelly Jr., Esq.
Porter Wright Morris & Arthur, LLP
41 South High Street
Columbus, Ohio 43215-6194
Telephone: (614) 227-2000
Facsimile: (614) 227-2100
(b If to Parent or the Merger Subsidiary:
Joseph W. Hovorka
Immune Response, Inc.
7315 East Peakview Ave.
Englewood, Colorado 80111
Telephone: 303-796-8940
Facsimile: 303-796-9762
with a copy (which shall not constitute notice) to:
Gerald Raskin, Esq.
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
1400 Glenarm Place, Suite 300
Denver, Colorado 80202
Telephone: 303-571-1400
Facsimile: 303-595-3970
Each party may designate by notice in writing a new address to which
any notice,
37
<PAGE> 42
demand, request, or communication may thereafter be so given, served,
or sent. Each notice, demand, request, or communication that is mailed,
delivered, or transmitted in the manner described above shall be deemed
sufficiently given, served, sent, and received for all purposes at such
time as it is delivered to the addressee (with the return receipt, the
delivery receipt or the affidavit of messenger being deemed conclusive
evidence of such delivery) or at such time as delivery is refused by
the addressee upon presentation.
8.7 SUCCESSORS; ASSIGNMENTS. This Agreement and the rights, interests,
and obligations hereunder shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any of the parties hereto without
the prior written consent of the other.
8.8 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of Colorado.
8.9 WAIVER AND OTHER ACTION. This Agreement may be amended, modified,
or supplemented only by a written instrument executed by the parties against
which enforcement of the amendment, modification or supplement is sought.
8.10 SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance; and in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
8.11 MUTUAL CONTRIBUTION. The parties to this Agreement and their
counsel have mutually contributed to its drafting. Consequently, no provision of
this Agreement shall be construed against any party on the ground that such
party drafted the provision or caused it to be drafted or the provision contains
a covenant of such party.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 43
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Opticon Medical, Inc.
By: /s/ WILLIAM J. POST
-------------------
Name: William J. Post
Title: President and Chief Executive Officer
Immune Response, Inc.
By: /s/ JOSEPH W. HOVORKA
---------------------
Name: Joseph W. Hovorka
Title: President and Chief Executive Officer
Opticon Acquisition Corporation
By: /s/ JOSEPH W. HOVORKA
---------------------
Name: Joseph W. Hovorka
Title: President and Chief Executive Officer
39
<PAGE> 44
LIST OF SCHEDULES
Schedule 2.3 Opticon Convertible Securities
Schedule 3.11 Absence of Certain Changes
Schedule 3.14 Material Contracts
Schedule 3.17 Licenses and Permits
Schedule 3.19 Employment Agreements
Schedule 3.20(b) Intellectual Property Transgressions
Schedule 3.20(c) Patents
Schedule 3.20(d) Intellectual Property Licenses
Schedule 3.22 Property and Related Matters
Schedule 3.24 Material Interests
Schedule 3.25 Opticon Registration Obligations
Schedule 4.10 Absence of Certain Changes
Schedule 4.16 Employment Agreements; Labor Relations
Schedule 5.2(i) Parent Indebtedness
Schedule 5.2(n) Parent Transactions
Schedule 6.9 Consulting Agreement
40
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
IMMUNE RESPONSE, INC.
ARTICLE I
NAME
----
The name of the corporation shall be Immune Response, Inc.
ARTICLE II
DURATION
--------
The period of duration of the Corporation shall be perpetual.
ARTICLE III
(ELIMINATED)
ARTICLE IV
PURPOSE AND POWERS
------------------
The purpose for which this Corporation is organized is to transact any
lawful business or businesses for which corporations may be incorporated
pursuant to the Colorado Business Corporation Act. In furtherance of the
foregoing purpose, this Corporation shall have and may exercise any and all of
the powers now or hereafter conferred upon corporations incorporated pursuant to
the Colorado Business Corporation Act.
ARTICLE V
CAPITAL STOCK
-------------
SECTION 1. CAPITAL STOCK. The aggregate number of shares and the amount
of total authorized capital of the Company shall consist of 26,000,000 shares,
of which 25,000,000 will be $.0001 par value common stock and 1,000,000 will be
$.0001 par value preferred stock.
SECTION 2. PREFERRED STOCK. The Corporation, by resolution of its Board
of Directors, may divide and issue the Preferred Stock in series. Preferred
Stock of each series when issued
<PAGE> 2
shall be designated to distinguish them from the shares of all other series. The
Board of Directors is hereby expressly vested with the authority to divide the
class of Preferred Stock into series and to fix and determine the relative
rights and preferences of the shares of any such series so established to the
full extent permitted by these Articles of Incorporation and the Colorado
Business Corporation Act in respect to the following:
1. The number of shares to constitute such series, and the distinctive
designations thereof;
(a) The rate and preference of dividends, if any, the time of
payment of dividends, whether dividends are cumulative and the
date from which any dividend shall accrue;
(b) Whether shares may be redeemed and, if so, the redemption
price and the terms and conditions of redemption;
(c) The amount payable upon shares in event of involuntary
liquidation;
(d) The amount payable upon shares in event of voluntary
liquidation;
(e) Sinking fund or other provisions, if any, for the redemption
or purchase of shares;
(f) The terms and conditions on which shares may be converted, if
the shares of any series are issued with the privilege of
conversion;
(g) Voting powers, if any; and
(h) Any other relative rights and preferences of shares such
series, including, without limitation, any restriction on an
increase in the number of shares of any series theretofore
authorized and any limitation or restriction of rights or
powers to which shares of any future series shall be subject.
As of the date upon which these Amended Articles of Incorporation
become effective, each three shares of authorized $.0001 par common stock,
whether or not issued and outstanding, shall be converted into one share of
$.0001 par common stock. Fractional shares resulting from the Reverse Stock
Split will be rounded to the closest whole share of Common Stock. Following this
reverse stock split the number of shares of $.0001 par common stock which the
Company shall be authorized to issue shall be 25,000,000.
The holders of Common Stock shall have and possess all rights as
shareholders of the corporation.
The capital stock, after the amount of the subscription price has been
paid in, shall not be subject to assessment or any other liability to pay the
debts of the corporation.
Any stock of the corporation may be issued for money, property,
services rendered, labor done, cash advances for the corporation, for any other
assets of value in accordance with the action of the Board of Directors, or
other consideration permitted under the Colorado Business
<PAGE> 3
Corporation Act. The judgment of the Board of Directors as to value received in
return for the issuance of shares shall be conclusive and said shares, when
issued, shall be fully paid and nonassessable.
SECTION 3. SERIES A PREFERRED STOCK. The Board has designated 3,000
shares of Preferred Stock as Series A 6% Convertible Preferred Stock (the
"SERIES A PREFERRED"), which shall have the following designations, rights and
preferences:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. The terms defined in this Article whenever
used in this Certificate of Designation have the following respective meanings:
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in
Section 6.1(e).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.
(c) "BUSINESS DAY" means a day other than Saturday, Sunday or
any day on which banks located in the State of New York are authorized or
obligated to close.
(d) "CAPITAL SHARES" means the Common Shares and any other
shares of any other class or series of common stock, whether now or hereafter
authorized and however designated, which have the right to participate in the
distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Corporation.
(e) "COMMON SHARES" or "COMMON STOCK" means shares of common
stock, $.0001 par value, of the Corporation.
(f) "COMMON STOCK ISSUED AT CONVERSION" when used with
reference to the securities issuable upon conversion of the Series A Preferred
Stock, means all Common Shares now or hereafter Outstanding and securities of
any other class or series into which the Series A Preferred Stock hereafter
shall have been changed or substituted, whether now or hereafter created and
however designated.
(g) "CONVERSION DATE" means any day on which all or any
portion of shares of the Series A Preferred Stock is converted in accordance
with the provisions hereof.
<PAGE> 4
(h) "CONVERSION NOTICE" has the meaning set forth in Section
6.2.
(i) "CONVERSION PRICE" means on any date of determination the
applicable price for the conversion of shares of Series A Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(j) "CONVERSION RATIO" means on any date of determination the
applicable percentage of the Market Price for conversion of shares of Series A
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
(k) "CORPORATION" means Immune Response, Inc., a Colorado
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
assets, or otherwise.
(l1) "CURRENT MARKET PRICE" means on any date of determination
the closing bid price of a Common Share on such day as reported by The National
Association of Securities Dealers electronic bulletin board ("OTC/BB").
(m) "DIVIDEND PAYMENT DUE DATE" has the meaning set forth in
Section 4(a)(ii).
(n) "HOLDER" means The Shaar Fund Ltd., any successor thereto,
or any Person to whom the Series A Preferred Stock is subsequently transferred
in accordance with the provisions hereof.
(o) "LIQUIDATION PREFERENCE" has the meaning set forth in
Section 5(c).
(p) "MARKET DISRUPTION EVENT" means any event that results in
a material suspension or limitation of trading of Common Shares on OTC/BB.
(q) "MARKET PRICE" per Common Share means the average of the
closing bid prices of the Common Shares as reported by the OTC/BB for the
Valuation Period.
(r) "OUTSTANDING" when used with reference to Common Shares or
Capital Shares (collectively, "Shares"), means, on any date of determination,
all issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; PROVIDED, HOWEVER, that any such Shares directly or
indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes
hereof.
(s) "PERSON" means an individual, a corporation, partnership,
an association, a limited liability company, unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
<PAGE> 5
(t) "REGISTRATION RIGHTS AGREEMENT" means that certain
Registration Rights Agreement dated a date even herewith between the Corporation
and The Shaar Fund Ltd.
(u) "SEC" means the United States Securities and Exchange
Commission.
(v) "SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in effect
at the time.
(w) "SECURITIES PURCHASE AGREEMENT" means that certain
Securities Purchase Agreement dated a date even herewith between the Corporation
and The Shaar Fund Ltd.
(x) "SERIES A PREFERRED STOCK" means the Series A 6%
Convertible Preferred Stock of the Corporation, or such other convertible
Preferred Stock exchanged therefor, as provided in Section 2.1.
(y) "STATED VALUE" has the meaning set forth in Article 2.
(z) "SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(aa) "TRADING DAY" means any day on which purchases and sales
of securities authorized for quotation on the OTC/BB are reported thereon and on
which no Market Disruption Event has occurred.
(bb) "VALUATION EVENT" has the meaning set forth in Section
6.1.
(cc) "VALUATION PERIOD" means the five (5) consecutive Trading
Day period immediately preceding the Conversion Date.
All references to "cash" or "$" herein means currency of the
United States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
SECTION 2.1
The designation of this series, which consists of 3,000 shares
of Preferred Stock, is Series A 6% Convertible Preferred Stock (the "SERIES A
PREFERRED STOCK") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "STATED VALUE").
2
<PAGE> 6
ARTICLE 3
RANK
SECTION 3.1
The Series A Preferred Stock shall rank (i) prior to the
Common Stock; (ii) prior to any class or series of capital stock of the
Corporation hereafter created other than "PARI PASSU SECURITIES" (collectively,
with the Common Stock, "JUNIOR SECURITIES"); and (iii) pari passu with any class
or series of capital stock of the Corporation hereafter created specifically
ranking on parity with the Series A Preferred Stock ("PARI PASSU SECURITIES").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive, and the Board
of Directors shall be required to declare, out of funds legally available for
the payment of dividends, dividends at the rate of 6% per annum (computed on the
basis of a 360-day year) (the "DIVIDEND RATE") on the Stated Value of each share
of Series A Preferred Stock on and as of the Dividend Payment Due Date.
Dividends on the Series A Preferred Stock shall be cumulative from the date of
issue, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable at the
Corporation's option, in Common Stock or cash on a pro rata basis, in equal
quarterly amounts on each March 31, June 30, September 30 and December 31 of
each year the Series A Preferred is outstanding (each, a "DIVIDEND PAYMENT DUE
DATE"), commencing June 30, 2000, to holders of record of shares of the Series A
Preferred as they appear on the stock records of the Corporation not more than
60 nor less than 10 days preceding the payment dates thereof, as shall be fixed
by the Board of Directors. For purposes hereof, "Dividend Period" means the
quarterly period commencing on and including the day after the immediately
preceding Dividend Payment Due Date and ending on and including the immediately
subsequent Dividend Payment Due Date. Accrued and unpaid dividends for any past
Dividend Period may be declared and paid at any time, without reference to any
Dividend Payment Due Date, to holders of record on such date, not more than 15
days preceding the payment date thereof, as may be fixed by the Board of
Directors.
(iii) At the option of the Corporation, the dividend
shall be paid in cash or through the issuance of duly and validly authorized and
issued, fully paid and nonassessable, freely tradeable shares of the Common
Stock valued at the Market Price. The Common Stock to be issued in lieu of cash
payments shall be registered for resale in the Registration Statement (as
defined in the Registration Rights Agreement) to be filed by the Corporation to
register the Common Stock issuable upon conversion of the shares of Series A
Preferred Stock and exercise of the Warrants as set forth in the Registration
Rights Agreement.
3
<PAGE> 7
(b) The Holder shall not be entitled to any dividends in
excess of the cumulative dividends, as herein provided, on the Series A
Preferred Stock. Except as provided in this Article 4, no interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on the Series A Preferred Stock that may be in arrears.
(c) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Pari Passu Securities for
any period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series A Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of the dividend on such class or
series of Pari Passu Securities. When dividends are not paid in full or a sum
sufficient for such payment is not set apart, as aforesaid, all dividends
declared upon shares of the Series A Preferred Stock and all dividends declared
upon any other class or series of Pari Passu Securities shall be declared
ratably in proportion to the respective amounts of dividends accumulated and
unpaid on the Series A Preferred Stock and accumulated and unpaid on such Pari
Passu Securities.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "JUNIOR SECURITIES
DISTRIBUTION") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid on all outstanding shares of the Series A
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series A
Preferred Stock and all past dividend periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series A Preferred and the current dividend period with respect to the Pari
Passu Securities.
4
<PAGE> 8
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"LIQUIDATION EVENT"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series A Preferred Stock, subject
to Article 5, shall have received the Liquidation Preference with respect to
each share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series A Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series A
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
(b) At the option of each Holder, the sale, conveyance or
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series of related
transactions (or excluding circumstances pursuant to the Securities Purchase
Agreement or transfers to a subsidiary controlled by the Corporation) in which
more than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person or Persons where the Corporation is not the survivor shall
either: (i) be deemed to be a liquidation, dissolution or winding up of the
Corporation pursuant to which the Corporation shall be required to distribute,
upon consummation of and as a condition to, such transaction an amount equal to
one hundred percent (100%) of the Liquidation Preference with respect to each
outstanding share of Series A Preferred Stock in accordance with and subject to
the terms of this Article 5 or (ii) be treated pursuant to Article 5(c)(iii)
hereof; PROVIDED, that all holders of Series A Preferred Stock shall be deemed
to elect the option set forth in clause (i) hereof if at least a majority in
interest of such holders elect such option.
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(c) For purposes hereof, the "LIQUIDATION PREFERENCE" with
respect to a share of the Series A Preferred Stock shall mean an amount equal to
the sum of (i) the Stated Value thereof, plus (ii) the aggregate of all accrued
and unpaid dividends on such share of Series A Preferred Stock until the
Dividend Payment Due Date; PROVIDED that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(iii) above shall be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up, rather than the
Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1 CONVERSION; CONVERSION PRICE. At the option of the Holder,
the shares of Preferred Stock may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), at any time, and from time to time, at a Conversion Price per share of
Common Stock equal to the lesser of: (a) $4.50 and (b) 65% of the Market Price;
provided, however, that:
(a) notwithstanding anything herein to the contrary, the
Holder shall not have the right, and the Company shall not have the obligation,
to convert all or any portion of the Series A Preferred Stock (and the Company
shall not have the right to pay dividends on the Series A Preferred Stock in
shares of common stock) if and to the extent that the issuance to the Holder of
shares of common stock upon such conversion (or payment of dividends) would
result in the Holder being deemed the "beneficial owner" of 5% or more of the
then outstanding shares of Common Stock within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder; and
(b) unless the Corporation shall have obtained the approval of
its voting stockholders to such issuance in accordance with the rules of the
OTC/BB or such other stock market with which the Corporation shall be required
to comply, or unless such rules do not require shareholder approval, the
Corporation shall not issue shares of Common Stock (i) upon conversion of any
shares of Series A Preferred Stock or (ii) as a dividend on the Series A
Preferred Stock, if such issuance of Common Stock, when added to the number of
shares of Common Stock previously issued by the Corporation (i) upon conversion
of shares of the Series A Preferred Stock, (ii) upon exercise of the Warrants
issued pursuant to the terms of the Securities Purchase Agreement and (iii) in
payment of dividends on the Series A Preferred Stock, would be in excess of
19.99% of the number of shares of the Corporation's Common Stock which were
issued and outstanding on the Conversion Date (the "MAXIMUM ISSUANCE AMOUNT").
In the event that a properly executed Conversion Notice is received by the
Corporation which would require the Corporation to issue shares of Common Stock
equal to or in excess of the Maximum Issuance Amount, the Corporation shall
honor such conversion request by (i) converting the number of shares of Series A
Preferred Stock stated in the Conversion Notice not in excess of the Maximum
Issuance Amount and (ii) at the Company's option (A) redeeming the number of
shares of Series A Preferred Stock stated in the Conversion Notice equal to or
in excess of the Maximum Issuance Amount in cash at a price equal to one hundred
and twenty percent (120%) of the Stated Value of the shares of Series A
Preferred Stock
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<PAGE> 10
to be so redeemed, together with the fair market value of all accrued and unpaid
dividends thereon, or (B) obtaining such stockholder approval within 45 days of
the relevant Conversion Notice. If such stockholder approval is not so obtained
within such 45 day period, the Company shall redeem the number of shares named
in the relevant Conversion Notice in excess of the Maximum Issuance Amount as
described in clause (ii)(A) above. In the event that the Corporation shall elect
to pay a dividend in shares of Common Stock which would require the Corporation
to issue shares of Common Stock equal to or in excess of the Maximum Issuance
Amount, the Corporation shall pay (i) a dividend in shares of Common Stock equal
to one less than an amount which would result in the Corporation issuing shares
equal to the Maximum Issuance Amount and (ii) the balance of the dividend in
cash.
(c) The number of shares of Common Stock due upon conversion
of Series A Preferred Stock shall be (i) the number of shares of Series A
Preferred Stock to be converted, multiplied by (ii) the Stated Value and divided
by (iii) the applicable Conversion Price.
(d) Within two (2) Business Days of the occurrence of a
Valuation Event, the Corporation shall send notice (the "VALUATION EVENT
NOTICE") of such occurrence to the Holder. Notwithstanding anything to the
contrary contained herein, if a Valuation Event occurs during any Valuation
Period, a new Valuation Period shall begin on the Trading Day immediately
following the occurrence of such Valuation Event and end on the Conversion Date;
PROVIDED that, if a Valuation Event occurs on the fifth day of any Valuation
Period, then the Conversion Price shall be the Current Market Price of the
Common Shares on such day; and PROVIDED, FURTHER, that the Holder may, in its
discretion, postpone such Conversion Date to a Trading Day which is no more than
five (5) Trading Days after the occurrence of the latest Valuation Event by
delivering a notification to the Corporation within two (2) Business Days of the
receipt of the Valuation Event Notice. In the event that the Holder deems the
Valuation Period to be other than the five (5) Trading Days immediately prior to
the Conversion Date, the Holder shall give written notice of such fact to the
Corporation in the related Conversion Notice at the time of conversion.
(e) For purposes of this Section 6.1, a "VALUATION EVENT"
shall mean an event in which the Corporation at any time during a Valuation
Period takes any of the following actions:
(i) subdivides or combines its Capital Shares;
(ii) makes any distribution of its Capital Shares;
(iii) issues any additional Capital Shares (the
"ADDITIONAL CAPITAL SHARES"), otherwise than as provided in the foregoing
Sections 6.1(a) and 6.1(b) above, at a price per share less, or for other
consideration lower, than the Current Market Price in effect immediately prior
to such issuances, or without consideration, except for issuances under employee
benefit plans consistent with those presently in effect and issuances under
presently outstanding warrants, options or convertible securities;
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<PAGE> 11
(iv) issues any warrants, options or other rights to
subscribe for or purchase any Additional Capital Shares and the price per share
for which Additional Capital Shares may at any time thereafter be issuable
pursuant to such warrants, options or other rights shall be less than the
Current Market Price in effect immediately prior to such issuance;
(v) issues any securities convertible into or
exchangeable or exercisable for Capital Shares and the consideration per share
for which Additional Capital Shares may at any time thereafter be issuable
pursuant to the terms of such convertible, exchangeable or exercisable
securities shall be less than the Current Market Price in effect immediately
prior to such issuance;
(vi) makes a distribution of its assets or evidences
of indebtedness to the holders of its Capital Shares as a dividend in
liquidation or by way of return of capital or other than as a dividend payable
out of earnings or surplus legally available for the payment of dividends under
applicable law or any distribution to such holders made in respect of the sale
of all or substantially all of the Corporation's assets (other than under the
circumstances provided for in the foregoing Sections 6.1(e)(i) through
6.1(e)(v)); or
(vii) takes any action affecting the number of
Outstanding Capital Shares, other than an action described in any of the
foregoing Sections 6.1(a) through 6.1(f) hereof, inclusive, which in the opinion
of the Corporation's Board of Directors, determined in good faith, would have a
material adverse effect upon the rights of the Holder at the time of a
conversion of the Preferred Stock.
SECTION 6.2 EXERCISE OF CONVERSION PRIVILEGE. (a) Conversion of the
Series A Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Annex I (the "CONVERSION NOTICE") to the Corporation. Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Series A Preferred Stock and issue the
Common Stock Issued at Conversion effective as of the Conversion Date. The
Conversion Notice also shall state the name or names (with addresses) of the
persons who are to become the holders of the Common Stock issued at Conversion
in connection with such conversion. The Holder shall deliver the shares of
Series A Preferred Stock to the Corporation by express courier within 30 days
following the date on which the telecopied Conversion Notice has been
transmitted to the Corporation. Upon surrender for conversion, the Series A
Preferred Stock shall be accompanied by a proper assignment thereof to the
Corporation or be endorsed in blank. As promptly as practicable after the
receipt of the Conversion Notice as aforesaid, but in any event not more than
five Business Days after the Corporation's receipt of such Conversion Notice,
the Corporation shall (i) issue the Common Stock issued at Conversion in
accordance with the provisions of this Article 6, and (ii) cause to be mailed
for delivery by overnight courier to the Holder (X) a certificate or
certificate(s) representing the number of Common Shares to which the Holder is
entitled by virtue of such conversion, (Y) cash, as provided in Section 6.3, in
respect of any fraction of a Share issuable upon such conversion and (Z) cash or
shares in the amount of accrued and unpaid related dividends as of the
Conversion Date. Such conversion shall be deemed to have been effected at the
time at which the Conversion Notice indicates so long as the
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<PAGE> 12
Series A Preferred Stock shall have been surrendered as aforesaid at such time,
and at such time the rights of the Holder of the Series A Preferred Stock, as
such, shall cease and the Person and Persons in whose name or names the Common
Stock Issued at Conversion shall be issuable shall be deemed to have become the
holder or holders of record of the Common Shares represented thereby. The
Conversion Notice shall constitute a contract between the Holder and the
Corporation, whereby the Holder shall be deemed to subscribe for the number of
Common Shares which it will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription (and for any cash adjustment to
which it is entitled pursuant to Section 6.4), to surrender the Series A
Preferred Stock and to release the Corporation from all liability thereon. No
cash payment aggregating less than $1.00 shall be required to be given unless
specifically requested by the Holder.
(b) Subject to Sections 6.1(a) and (b) if, at any time (i) the
Corporation challenges, disputes or denies the right of the Holder hereof to
effect the conversion of the Preferred Stock into Common Shares or otherwise
dishonors or rejects any Conversion Notice delivered in accordance with this
Section 6.2 or (ii) any third party who is not and has never been an Affiliate
of the Holder commences any lawsuit or proceeding or otherwise asserts any claim
before any court or public or governmental authority which seeks to challenge,
deny, enjoin, limit, modify, delay or dispute the right of the Holder hereof to
effect the conversion of the Preferred Stock into Common Shares, then the Holder
shall have the right, by written notice to the Corporation, to require the
Corporation to promptly redeem the Series A Preferred Stock for cash at a
redemption price equal to one hundred twenty percent (120%) of the Stated Value
thereof together with all accrued and unpaid dividends thereon (the "MANDATORY
PURCHASE AMOUNT"). Under any of the circumstances set forth above, the
Corporation shall be responsible for the payment of all reasonable costs and
expenses of the Holder, including reasonable legal fees and expenses, as and
when incurred in disputing any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder).
SECTION 6.3 FRACTIONAL SHARES. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series A Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series A Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.00 shall be required
to be given unless specifically requested by the Holder.
SECTION 6.4 RECLASSIFICATION, CONSOLIDATION, MERGER OR MANDATORY SHARE
EXCHANGE. At any time while the Series A Preferred Stock remains outstanding and
any shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series A
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series A Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision
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<PAGE> 13
or combination of Outstanding Common Shares upon conversion of the Series A
Preferred Stock), or in the case of any sale or transfer to another corporation
of the property of the Corporation as an entirety or substantially as an
entirety, the Corporation, or such successor, resulting or purchasing
corporation, as the case may be, shall, without payment of any additional
consideration therefor, execute a new Series A Preferred Stock providing that
the Holder shall have the right to convert such new Series A Preferred Stock
(upon terms and conditions not less favorable to the Holder than those in effect
pursuant to the Series A Preferred Stock) and to receive upon such exercise, in
lieu of each Common Share theretofore issuable upon conversion of the Series A
Preferred Stock, the kind and amount of shares of stock, other securities, money
or property receivable upon such reclassification, change, consolidation,
merger, mandatory share exchange, sale or transfer by the holder of one Common
Share issuable upon conversion of the Series A Preferred Stock had the Series A
Preferred Stock been converted immediately prior to such reclassification,
change, consolidation, merger, mandatory share exchange or sale or transfer. The
provisions of this Section 6.4 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, mandatory share exchanges
and sales and transfers.
SECTION 6.5 ADJUSTMENTS TO CONVERSION RATIO. For so long as any shares
of the Series A Preferred Stock are outstanding, if the Corporation (i) issues
and sells pursuant to an exemption from registration under the Securities Act
(A) Common Shares at a purchase price on the date of issuance thereof that is
lower than the Conversion Price, (B) warrants or options with an exercise price
representing a percentage of the Current Market Price with an exercise price on
the date of issuance of the warrants or options that is lower than the
Conversion Price, except for employee stock option agreements or stock incentive
agreements of the Corporation, or (C) convertible, exchangeable or exercisable
securities with a right to exchange at lower than the Current Market Price on
the date of issuance or conversion, as applicable, of such convertible,
exchangeable or exercisable securities, except for stock option agreements or
stock incentive agreements; and (ii) grants the right to the purchaser(s)
thereof to demand that the Corporation register under the Securities Act such
Common Shares issued or the Common Shares for which such warrants or options may
be exercised or such convertible, exchangeable or exercisable securities may be
converted, exercised or exchanged, then the Conversion Ratio shall be reduced to
equal the lowest of any such lower rates.
SECTION 6.6 MANDATORY CONVERSION. On the third anniversary of the
filing of this Certificate of Designation (the "MANDATORY CONVERSION DATE"), the
Corporation shall convert all Series A Preferred Stock outstanding at the
Conversion Price. Notwithstanding the previous sentence, in no event shall the
Corporation convert that portion of the Series A Preferred Stock to the extent
that the issuance of Common Shares upon conversion of such Series A Preferred
Stock, when combined with shares of Common Shares received upon other
conversions of Series A Preferred Stock by such Holder and any other holders of
Series A Preferred Stock and Warrants, would exceed 19.99% of the Common Stock
outstanding on the Mandatory Conversion Date, unless the Corporation's
shareholders approve the issuance of an amount of the Corporation's Common Stock
in excess of the 19.99% threshold. Within ten (10) Business Days after the
Mandatory Conversion Date, the Corporation shall redeem all remaining
outstanding shares of Series A Preferred Stock in excess of the 19.99% threshold
at one hundred and twenty percent (120%) of the Stated Value thereof, together
with all accrued and unpaid dividends thereon, in cash, to the date of
redemption.
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ARTICLE 7
VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting
power, except as otherwise provided by the Colorado Business Corporation Act
("CBCA"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each
holder of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such acting is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the CBCA the vote of the holders of
the Series A Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series A
Preferred Stock (except as otherwise may be required under the CBCA) shall
constitute the approval of such action by the class. To the extent that under
the CBCA holders of the Series A Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series A Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series A Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled tonight, which notice would be provided
pursuant to the Corporation's bylaws and the CBCA.
ARTICLE 8
PROTECTIVE PROVISIONS
SECTION 8.1 RESTRICTIONS. So long as shares of Series A Preferred Stock
are outstanding, the Corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by the CBCA) of the holders of at least
a majority of the then outstanding shares of Series A Preferred Stock:
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(a) alter or change the rights, preferences or privileges of
the Series A Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation ("Senior Securities")
or alter or change the rights, preferences or privileges of any Senior
Securities so as to affect adversely the Series A Preferred Stock;
(c) increase the authorized number of shares of Series A
Preferred Stock;
(d) issue or sell to any Person other than the Holder shares
of Series A Preferred Stock; or
(e) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
SECTION 8.2 DISSENTING HOLDER'S CONVERSION RIGHTS. In the event holders
of at least a majority of the then outstanding shares of Series A Preferred
Stock agree to allow the Corporation to alter or change the rights, preferences
or privileges of the shares of Series A Preferred Stock, pursuant to Section
8.1(a) above, so as to affect the Series A Preferred Stock, then the Corporation
will deliver notice of such approved change to the holders of the Series A
Preferred Stock that did not agree to such alteration or change (the "DISSENTING
Holders") and Dissenting Holders shall have the right for a period of thirty
(30) days to convert pursuant to the terms of this Certificate of Designation as
they exist prior to such alteration or change or continue to hold their shares
of Series A Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 LOSS, THEFT, DESTRUCTION OF PREFERRED STOCK. Upon receipt
of evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series A Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series A Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series A Preferred Stock, new shares of Series A Preferred
Stock of like tenor. The Series A Preferred Stock shall be held and owned upon
the express condition that the provisions of this Section 9.1 are exclusive with
respect to the replacement of mutilated, destroyed, lost or stolen shares of
Series A Preferred Stock and shall preclude any and all other rights and
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement of negotiable instruments or other
securities without the surrender thereof.
SECTION 9.2 WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the
Person in whose name the Series A Preferred Stock shall be registered upon the
registry books of the
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Corporation to be, and may treat it as, the absolute owner of the Series A
Preferred Stock for the purpose of receiving payment of dividends on the Series
A Preferred Stock, for the conversion of the Series A Preferred Stock and for
all other purposes, and the Corporation shall not be affected by any notice to
the contrary. All such payments and such conversion shall be valid and effectual
to satisfy and discharge the liability upon the Series A Preferred Stock to the
extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 NOTICE OF CERTAIN EVENTS. In the case of the occurrence of
any event described in Sections 6.1, 6.6 or 6.7 of this Certificate of
Designation, the Corporation shall cause to be mailed to the Holder of the
Series A Preferred Stock at its last address as it appears in the Corporation's
security registry, at least twenty (20) days prior to the applicable record,
effective or expiration date hereinafter specified (or, if such twenty (20) days
notice is not possible, at the earliest possible date prior to any such record,
effective or expiration date), a notice stating (x) the date on which a record
is to be taken for the purpose of such dividend, distribution, issuance or
granting of rights, options or warrants, or if a record is not to be taken, the
date as of which the holders of record of Series A Preferred Stock to be
entitled to such dividend, distribution, issuance or granting of rights, options
or warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of Series A Preferred Stock will be entitled to exchange their
shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale transfer, dissolution, liquidation
or winding-up.
SECTION 9.4 REGISTER. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series A Preferred Stock. Upon any transfer of the Series A Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series A Preferred Stock register.
The Corporation may deem the person in whose name the Series A
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series A Preferred Stock
for the purpose of receiving payment of dividends on the Series A Preferred
Stock, for the conversion of the Series A Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversions shall be valid and effective to
satisfy and discharge the liability upon the Series A Preferred Stock to the
extent of the sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 WITHHOLDING. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
A Preferred Stock.
SECTION 9.6 HEADINGS. The headings of the Articles and Sections of this
Certificate of Designation are inserted for convenience only and do not
constitute a part of this Certificate of Designation."
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ARTICLE VI
CUMULATIVE VOTING
-----------------
The Shareholders shall not be entitled to cumulative voting.
ARTICLE VII
PREEMPTIVE RIGHTS
-----------------
No holder of any stock of the Corporation shall be entitled, as a
matter of right, to purchase, subscribe for or otherwise acquire any new or
additional shares of stock of the Corporation of any class, or any options or
warrants to purchase, subscribe for or otherwise acquire any such new or
additional shares, or any shares, bonds, notes, debentures or other securities
convertible into or carrying options or warrants to purchase, subscribe for or
otherwise acquire any such new or additional shares.
ARTICLE VIII
SHARE TRANSFER RESTRICTIONS
---------------------------
This Corporation shall have the right to impose restrictions upon the
transfer of any of its authorized shares or any interest therein. The Board of
Directors is hereby authorized on behalf of this Corporation to exercise this
Corporation's right to so impose such restrictions.
ARTICLE IX
AMENDMENT OF ARTICLES OF INCORPORATION
--------------------------------------
The board of director of the Corporation reserves the right to adopt
the amendments to these Articles of Incorporation permitted by Section 7-110-102
of the Colorado Business Corporation Act, The Corporation reserves the right,
after recommendation by the Board of Directors and subject to the affirmative
approval of a majority of the outstanding shares (if each voting group as
required by Sections 7-107-206 and 7-107-207 of the Colorado Business
Corporation Act, to amend, alter, change, or repeal any provision contained
herein, and any other provisions authorized by the laws of the State of
Colorado, in the manner now or hereafter prescribed by law; and all rights,
preferences, and privileges of any nature conferred upon shareholders,
directors, or any other person by and pursuant to these Articles of
Incorporation in its present form or us hereafter amended.
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ARTICLE X
BOARD OF DIRECTORS
------------------
The number of Directors shall be fixed in accordance with the Bylaws.
ARTICLE XI
AMENDMENT OF BYLAWS
-------------------
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 Bylaws of the Corporation.
ARTICLE XII
ELECTION OF DIRECTORS
---------------------
Election of Directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE XIII
INDEMNIFICATION OF DIRECTORS
OFFICERS, EMPLOYEES, FIDUCIARIES AND AGENTS
-------------------------------------------
To the fullest extent provided by applicable state law, including, but
not limited to, the Colorado Business Corporation Act, each director, officer,
employee, fiduciary or agent of the Corporation (and his heirs, executors and
administrators) shall be indemnified by the Corporation against expenses
reasonably incurred by or imposed upon him in connection with or arising out of
any action, suit or proceeding in which he may be involved or to which he may be
made a party by reason of his being or having been a director, officer,
employee, fiduciary or agent of the Corporation, or at its request of any other
corporation of which it is a shareholder or creditor and from which he is not
entitled to be indemnified (whether or not he continues to be a director,
officer, employee, fiduciary or agent at the time of imposing or incurring such
expenses). The foregoing right of indemnification shall not be exclusive of
other rights to which he may be entitled under applicable state law.
ARTICLE XIV
LIMITATIONS OF LIABILITY
------------------------
A director of the Corporation shall not be personally liable to the
Corporation or its Shareholders for monetary damages for breach of fiduciary
duty as a director; except that this provision shall not eliminate or limit the
liability of a director to the Corporation or its Shareholders for monetary
damages otherwise existing for (i) any breach of the director's duty of
15
<PAGE> 19
loyalty to the Corporation or its Shareholders; (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) acts specified in Section 7-108-403 of the Colorado Business
Corporation Act; or (iv) any transaction from which the director directly or
indirectly derived any improper personal benefit. If the Colorado Business
Corporation Act is hereafter amended to eliminate or limit further the liability
of a director, then, in addition to the elimination and limitation of liability
provided by the preceding sentence, the liability of each director shall be
eliminated or limited to the fullest extent permitted by the Colorado Business
Corporation Act as so amended. Any repeal or modification of this Article XIII
by the Shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation under this Article XIII, as in
effect immediately prior to the repeal or modification, with respect to any
liability that would have accrued, but for this Article XIII, prior to the
repeal or modification.
On behalf of IMMUNE RESPONSE, INC., the undersigned, by their
signatures below, do hereby confirm, under penalties of perjury, that the
foregoing Amended and Restated Articles of Incorporation of IMMUNE RESPONSE,
INC. constitute the act and deed of IMMUNE RESPONSE, INC. and the facts stated
herein are true.
IMMUNE RESPONSE, INC.
By /s/ Joseph W. Hovorka
------------------------------------------
Joseph W. Hovorka, President
[SEAL]
By /s/ Thomas B. Olson
---------------------------------
Thomas B. Olson, Secretary
16
<PAGE> 1
EXHIBIT 10.1
LEASE AGREEMENT
BETWEEN
PHARMACIA & UPJOHN COMPANY
SUCCESSOR BY MERGER
TO ADRIA LABORATORIES, INC.,
LANDLORD
-AND-
OPTICON MEDICAL, INC.
TENANT
DATED AS OF
AUGUST 20, 1998
<PAGE> 2
INDEX TO LEASE AGREEMENT
------------------------
<TABLE>
<CAPTION>
<S> <C>
1. PREMISES............................................................................................... 1
2. TERM................................................................................................... 2
3. RENT................................................................................................... 2
(A) ANNUAL RENT................................................................................... 2
(B) ADDITIONAL RENT............................................................................... 3
4. SECURITY DEPOSIT....................................................................................... 7
5. HEAT, VENTILATING AND AIR CONDITIONING................................................................. 8
6. ELECTRICITY............................................................................................ 8
7. ELEVATOR SERVICE....................................................................................... 9
8. JANITOR SERVICE......................................................................................... 9
9. REPAIRS................................................................................................. 9
10. WATER....................................................................................................9
11. WINDOW TREATMENTS.......................................................................................10
12. SERVICE AT UNUSUAL TIME................................................................................ 10
13. INTERRUPTION OF SERVICE................................................................................ 10
14. OPERATION OF BUILDING: RIGHTS RESERVED TO LANDLORD.................................................... 10
15.A OPERATION OF BUILDING: TENANT'S OBLIGATIONS........................................................... 11
15.B OPERATION OF BUILDING: LANDLORD'S OBLIGATIONS......................................................... 12
16. TENANT'S OBLIGATIONS ON TERMINATION OF THIS
AGREEMENT...............................................................................................13
17. SIGNS AND ADVERTISEMENTS............................................................................... 13
18. MECHANICS LIENS........................................................................................ 14
19. INDEMNIFICATION........................................................................................ 14
20. ASSIGNMENT, SUBLETTING OR RECAPTURE.................................................................... 14
21. CASUALTY............................................................................................... 15
22. WAIVER OF CLAIMS AND SUBROGATION....................................................................... 16
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
23. USE OF DEMISED PREMISES................................................................................ 16
24. DEFAULT................................................................................................ 17
25. BANKRUPTCY OR INSOLVENCY............................................................................... 18
26. TERMINATION OF LEASES.................................................................................. 18
27. ABANDONMENT OF DEMISED PREMISES........................................................................ 18
28. REMOVAL OF PROPERTY FROM DEMISED PREMISES.............................................................. 19
29. COSTS OF ENFORCEMENT................................................................................... 20
30. REMEDIES CUMULATIVE.................................................................................... 20
31. NOTICES................................................................................................ 20
32. HOLDING OVER, ATTORNMENT, AND LANDLORD'S TITLE......................................................... 20
33. CONDEMNATION........................................................................................... 21
34. FLOOR LOAD, NOISE AND VIBRATIONS....................................................................... 22
35. CARE OF PREMISES....................................................................................... 23
36. ELECTRICAL REQUIREMENTS................................................................................ 23
37. QUIET ENJOYMENT........................................................................................ 23
38. LANDLORD'S RIGHT TO REMEDY DEFAULT..................................................................... 24
39. LIMITATION ON TENANT'S RIGHT TO TERMINATE ........................ 24
40. ESTOPPEL CERTIFICATE................................................................................... 24
41. LIABILITY INSURANCE POLICY............................................................................. 25
42. CASUALTY INSURANCE..................................................................................... 25
43. BROKERAGE.............................................................................................. 25
44. MISCELLANEOUS TAXES.................................................................................... 26
45. CONDITION OF PREMISES.................................................................................. 26
46. TENANT DEFINED......................................................................................... 26
47. REPRESENTATIONS OF LANDLORD 27
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
48. SUBHEADINGS............................................................................................ 27
49. ADDITIONAL TERMS....................................................................................... 27
50. HAZARDOUS SUBSTANCE.....................................................................................27
51. LAW OF OHIO TO GOVERN.................................................................................. 28
52. SHORT FORM LEASE....................................................................................... 28
</TABLE>
<PAGE> 5
LEASE AGREEMENT
---------------
The parties hereto, Pharmacia & Upjohn Company, successor by
merger to Adria Laboratories, Inc., a Delaware corporation ("Landlord"), and
Opticon Medical, Inc., an Iowa corporation (hereinafter referred to as "Tenant")
as of this 20th day of August, 1998 hereby agree to lease the premises described
on the following terms:
1. PREMISES
--------
Landlord, subject to the terms and conditions hereof, leases
to Tenant the premises (hereinafter referred to as the "Demised Premises") known
and described as the northeast portion of the First Floor of the North Building
of Dublin Commerce Center, 7001 Post Road, Dublin, Union County, Ohio 43017,
containing approximately 4,100 usable square feet and approximately 4,345
rentable square feet (to be verified during preliminary space planning in
accordance with standards defined by the Building Owners and Managers
Association), together with the common use of four (4) parking spaces per one
thousand (1,000) square feet leased, and the non-exclusive right to use the
common areas. Common areas include, without limitation, the lobby, elevators,
stairwells, sidewalks, access driveways or drives and parking lots. The Demised
Premises are more particularly described in the Demised Premises Floor Plan
attached hereto as Exhibit "1." Hereinafter the North Building, together with
the real estate parcel upon which it sits shall be known as the "Building."
Tenant shall have an on-going Right of First Offer for the
remaining space on the First Floor of the North building, and the attached
single-story building during the term of this Lease, including any renewals.
That is, if Landlord has not leased the described space, Tenant may make an
offer for all or part of the described space, upon terms to be negotiated and
agreed upon by the parties, if there is such agreement.
All the outside walls of the Demised Premises, any terraces or
roofs adjacent to the Demised Premises, and any space within the walls, floor or
ceiling of the Demised Premises used for shafts, stacks, pipes, conduits, ducts,
the use thereof, as well as access thereto through the Demised Premises for the
purposes of operation, maintenance, and repair, are expressly reserved to
Landlord. Any damage to the Demised Premises occasioned by such operation,
maintenance and repair shall be repaired by Landlord at its sole cost and
expense.
The terms "rentable square feet" and "rentable space" are
synonymous and are determined by measuring office space from the glass line on
the outside walls of the building to the inside wall within the office or any
corridor or common area. Rentable area set forth above includes a maximum of
Twelve percent (12.0%) common area factor. The parties agree that at the
commencement of the Lease the common area factor is Six percent (6%) but that it
can increase to a maximum of Twelve percent (12%). Further, that an increase
over Six percent (6%) will be documented by B.O.M.A. standards to Tenant, and
Tenant shall have the right to inspect all relevant documents and reports.
<PAGE> 6
Landlord states that the name of the Building at this time is
Dublin Commerce Center, that is street address is 7001 Post Road, Dublin, Ohio
43017, and that the Demised Premises are Suite No. 100.
2. TERM
----
(a) The term of this Lease Agreement shall be for a period of
three (3) years commencing on the fifteenth day of September, 1998, and expiring
on the fourteenth day of September, 2001 (unless sooner terminated as provided
herein).
(b) Tenant's right to occupy the Demised Premises shall
commence July 24, 1998 or whenever this Lease is executed, whichever is sooner.
(c) The Demised Premises are delivered in "AS-IS" condition.
Any and all improvements are the responsibility of the Tenant. Tenant may make
improvements and alterations at Tenant's expense, with all plans and
specifications approved by Landlord. Landlord's approval shall not be
unreasonably withheld.
(d) Tenant shall have one (1) renewal option for a period of
three (3) years. The rental rate for the renewal period(s) shall be the then
current-market rate for space in the Demised Premises' submarket, at the time
the renewal notice is given. Tenant shall provide Landlord with at least six
months but not more than twelve (12) months prior written notice of its exercise
of Tenant's renewal option(s). If the parties hereto cannot agree on the rental
rate (not the expense factor) within thirty (30) days after the exercise of the
option by Tenant, this lease will terminate at the end of the primary term.
3. RENT
----
(A) ANNUAL RENT. Tenant agrees to pay to Landlord for the
Demised Premises an annual rental of:
<TABLE>
<CAPTION>
===============================================================================================
YEAR ANNUAL NET RENT PER NET RENT NET RENT PER
SQ. FT. PER YEAR MONTH
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
September 15, 1998 - September 14, 1999 $7.80 $33,891.00 $2,824.25
- -----------------------------------------------------------------------------------------------
September 15, 1999 -September 14, 2000 $8.00 $34,760.00 $2,896.67
- -----------------------------------------------------------------------------------------------
September 15, 2000 - September 14, 2001 $8.20 $35,629.00 $2,969.08
- -----------------------------------------------------------------------------------------------
</TABLE>
together with annual Operating Expenses (defined below) of $5.95 per square foot
(currently, $5.95 times 4,345 = $25,852.75 annually, or $2,154.40 monthly), in
advance, in equal monthly installments (initially $4,978.65) on the fifteenth
day of each calendar month beginning September 15, 1998, without any setoff or
counterclaim whatsoever. These amounts shall hereinafter be called
2
<PAGE> 7
"Base Rent."
(B) ADDITIONAL RENT. As used in this Lease Agreement, the term
"Operating Year" shall mean a twelve month period beginning on January 1 and
ending on December 31 of the same calendar year.
If in any Operating Year which falls in whole or in part
within the term of this Lease Agreement (or renewal periods, if any) the
Operating Expenses as hereinafter defined per rentable square foot of the
Building should exceed $5.95 per rentable square foot of area therein, Tenant
shall pay additional rent for that Operating Year or for that part of the
Operating Year falling within the term of this Lease Agreement. Operating
Expenses per rentable square foot shall be determined by dividing Operating
Expenses by the total rentable area of the Building as set forth in Exhibit 1
hereto. The excess of Operating Expenses rentable per square foot over $5.95
shall be defined as the Operating Expense Differential. Additional rent payable
by Tenant shall be the Operating Expense Differential times the number of
rentable square feet leased under this Lease Agreement as set forth in Paragraph
1 of this Lease Agreement. Provided, however, Tenant's operating expenses will
be capped at a five percent (5%) increase annually based upon the 1998 base year
of $5.95 per square foot during the initial and any renewal term.
It is provided however, that additional rent for any Operating
Year which does not fall entirely within the term of this Lease Agreement shall
be the amount of additional rent computed for that entire Operating Year
multiplied by the fraction created by dividing the number of days in the
Operating Year which fall within the term of this Lease Agreement by 365.
Also provided, however, that if the expenses are less than
$5.95 per square foot, Landlord will credit that amount against future rental
payments if any, or if not, Landlord will pay to Tenant the adjustment in cash,
within thirty (30) days.
At the commencement of this Lease Agreement and at or prior to
the commencement of any Operating Year during the term hereof, Landlord may
deliver to Tenant a written estimate of any additional rent (such expense being
hereinafter referred to as "Estimated Operating Expense Differential") which may
be due hereunder during the year in which this Lease Agreement commences or for
any such succeeding year as the case may be, whereupon the monthly rental for
such full or partial Operating Year shall be increased by 1/12th of the amount
of the Estimated Operating Expense Differential for the particular year.
Statements showing the actual total of Operating Expenses of
the Building and Tenant's proportionate share thereof (hereinafter referred to
as "Statement of Actual Adjustment") shall be delivered by Landlord to Tenant
within a reasonable period of time after the end of any Operating Year in which
Estimated Operating Expenses Differential was paid by Tenant or due Landlord
under the provisions hereof. Within thirty (30) days after the delivery by
Landlord to Tenant of such Statement of Actual Adjustment, Tenant shall pay to
Landlord the amount by which the actual adjustment exceeds the amount paid by
Tenant as Estimated Operating Differential during said previous Operating Year,
subject in any event to a five (5%) percent increase cap or Landlord shall
credit Tenant the amount by which the Estimated Operating Expense Differential
exceeded the Statement of Actual Adjustment.
3
<PAGE> 8
i) "Operating Expense" is defined as the expense incurred by a
reasonable and prudent operator of a first class office building in Columbus,
Ohio and shall include all costs of operation, maintenance and repair of the
Building.
"Operating Expense" shall include, but not be limited to, the
following expenses of Landlord with respect to the Building: all real estate
taxes and assessments, general or special, ordinary or extraordinary, payroll
taxes, federal and state unemployment taxes and social security taxes prorated
for the amount of time employees accrually worked on the Building; insurance,
including but not limited to boiler, water damage, fire and extended coverage,
casualty, liability, workmen's compensation; water and sewer charges; cost of
wage and salaries of operating personnel including welfare, retirement,
vacations and other compensation and fringe benefits prorated for amount of time
employees accrually worked on the Building; management fees; auditor's fees;
legal fees; materials and supplies, including charges for telephone, telegraph,
postage, stationery supplies and other materials and expenses required for
routine operation of the Building operation office; repairs to and maintenance
of routine operation of the Building, including cost of materials, supplies,
tools and equipment used in connection therewith, costs incurred in connection
with the operation, inspection and servicing, including outside maintenance and
janitorial service contracts, and of security personnel provided for Building
and Landlord's area only and not the Demised Premises, of elevator, electrical,
plumbing, heating, air conditioning and mechanical equipment and the cost of
materials, supplies (including lamps, bulbs, starters and ballasts used in
Demised Premises), tools and equipment used in connection therewith; cost of
services (including electricity, steam, gas, water and other utilities) for the
operation and maintenance of the Building, and all such other expenses and costs
necessary or desirable to be incurred for the purpose of operating and
maintaining the Building in good and workmanlike condition, but excluding
Landlord's cost of electricity and other services to the extent that such
services and electricity are sold to and separately paid for by Tenants, costs
incurred by Landlord for Tenants' alterations and depreciation and costs of
capital replacements and improvements; provided, however, that Operating
Expenses shall also include the annual amortization (over the anticipated useful
life) of the cost of a capital improvement, plus any interest or financing
charges thereon, falling within any of the following categories: (a) a
labor-saving or energy-saving device or improvement which eliminates any other
component of Operating Expenses or which reduces any such Operating Expense from
the costs that would have been incurred had such device or improvement not been
installed, but only to the extent Operating Expenses are decreased; (b) an
installation or improvement required by reason of any law, ordinance or
regulation, which requirement did not exist on the date of this Lease Agreement
and is generally applicable to similar office buildings; (c) an installation or
improvement which directly enhances safety of Tenants in the Building generally.
"Real Estate Taxes" as used herein shall be all taxes,
including state equalization factors, if any, and assessments, special or
otherwise, exclusive of penalties or discounts, levied upon or with respect to
the Building, including the Demised Premises, imposed by any federal, state or
local government agency, including any use, occupancy, excise or other like
taxes (other than general income taxes on rent or other income from the Building
computed in the case of a graduated tax, as if Landlord's rent and other income
from the Building was Landlord's sole taxable income).
4
<PAGE> 9
Real Estate Taxes shall include the expense of contesting the
amount of validity of any such taxes, charges or assessments, such expense to be
applicable to the period of the items contested. Real Estate Taxes shall not,
however, include income, franchise, capital stock, estate or inheritance taxes.
For purposes of this Lease Agreement, Real Estate Taxes for any year shall be
those taxes the last timely payment date for which occurs on or before the last
day of the year, regardless of when accrued. In case of special taxes or
assessments payable in installments, only the amount of the installment(s) the
last timely payment day for which occurs on or after the first day and on or
before the last day of such year shall be included in Real Estate Taxes for that
year.
Landlord shall retain the sole right to participate in any
proceedings to establish or contest the amount of Real Estate Taxes. If by
reason of complaint against valuation, protest of tax rates or otherwise, Real
Estate Taxes for any calendar year are affected in such a way as would result in
a rent increase or decrease hereunder, the Real Estate Taxes for resulting
increased or decreased rent, less the expense incurred in effecting any
reduction, shall be paid simultaneously with or applied as a credit against the
rent next becoming due.
ii) In the event of a clerical error or the discovery of new
facts by Landlord or Landlord's accountants, which causes the Statement of
Actual Adjustment for any period to increase or decrease, upon notice by
Landlord to Tenant of the new, revised Statement of Actual Adjustment for such
Operating Year, the new, revised adjusted additional operating costs shall apply
and any deficiency or overpayment, as the case may be, shall be paid by Tenant
or paid to or taken as a credit by Tenant.
iii) If Tenant shall question in writing any such notice of
Statement of Actual Adjustment (or revised notice thereof), and the question is
not amicably settled between Landlord and Tenant within thirty (30) days after
said notice of Statement of Actual Adjustment (or revised notice thereof) has
been given, Landlord shall, during the sixty (60) days next following the
expiration of the first mentioned thirty (30) day period, employ an independent
certified public accountant reasonably satisfactory to Tenant to audit the Real
Estate Taxes and/or the Operating Expenses and said notice of Statement of
Actual Adjustment (or revised notice thereof). The determination of such
accountant shall be final, conclusive and binding upon Landlord and Tenant. The
amounts of individual items constituting the Operating Expenses is confidential;
and while Landlord shall keep and make available to such accountant and/or
Tenant all records in reasonable detail, and shall permit such accountant and/or
Tenant to examine and audit such of Landlord's records as may reasonably be
required to verify such notice of Statement of Actual Adjustment (or revised
notice thereof) at reasonable times during business hours, Landlord shall not be
required to (and the accountant and/or Tenant shall not be permitted to)
disclose to any person, firm or corporation, any such details provided that
Tenant may disclose to Tenant's attorneys and accountants and if litigation
results (it being the intent of the parties that such accountant shall merely
certify to Landlord and to Tenant the correct amount of Tenant's Statement of
Actual Adjustment). Any change in Statement of Actual Adjustment required by
such accountant's determination shall be made within thirty (30) days after such
determination has been rendered. The expenses involved in such determination
shall be borne by Landlord, unless the results of such audit disclose that
Landlord's notice of Statement of Actual Adjustment was substantially correct no
more than five (5%) percent wrong, in which case Tenant shall reimburse Landlord
for the reasonable costs of such audit, which reimbursement shall be forthwith
due upon demand for same by Landlord and shall be deemed to be additional
operating costs hereunder. If Tenant does not, in writing, question any notice
of Statement of Actual Adjustment within thirty (30) days after such
5
<PAGE> 10
notice has been given, Tenant shall be deemed to have approved and accepted such
Statement of Actual Adjustment.
No decrease in Real Estate Taxes and/or Operating Expenses
shall reduce Tenant's rent below the annual base rental as set forth in
Subparagraph 3(a) hereof.
All costs and expenses which Tenant assumes or agrees to pay
to Landlord pursuant to this Lease Agreement shall be deemed additional rent
and, in the event of non-payment thereof, Landlord shall have all the rights and
remedies herein provided for in case of non-payment of rent.
Notwithstanding any provision in this Section 3(B) to the
contrary, Tenant shall not be responsible to make any additional rent payment
relating to increased Operating Expenses for the period August 20, 1998 through
and including September 14, 1999.
(C) If any installment of Base Rent or Additional Rent or any
other rent provided for in this Lease Agreement, or any part thereof or Rider
thereto, is not paid within the applicable period specified in Paragraph 24 of
this Lease Agreement, Tenant shall pay to Landlord a late charge of five percent
(5%) of the amount of such installment, and, in addition, such unpaid
installment shall bear interest at the rate per month of 1-1/2% from the date
such installment became due and payable to the date of payment thereof by
Tenant; provided, however, that nothing herein contained shall be construed or
implemented in such a manner as to allow Landlord to charge or receive interest
in excess of the maximum legal rate then allowed by law. Such late charge and
interest shall constitute additional rent hereunder due and payable within the
next monthly installment of Base Rent.
(D) All payments of rent or any other moneys owing from Tenant
to Landlord shall be made at the office of Adena Realty Advisors, 57 East Wilson
Bridge Road, Worthington, Ohio 43085, or such other places as may from time to
time be designated by Landlord.
4. SECURITY DEPOSIT
----------------
As security for the performance and observance by Tenant of
all of its obligations under the terms, conditions and covenants of this Lease
Agreement, Tenant has deposited with Landlord the sum of Four Thousand Nine
Hundred Seventy-Eight and 65/100 Dollars ($4,978.65) which sum shall be held by
Landlord as a security deposit during the term of this Lease Agreement. If
Tenant performs and observes all of the terms, conditions and covenants of this
Lease Agreement which are required to be performed and observed by it, Landlord
shall return the security deposit, or balance thereof then held by Landlord,
without interest, to Tenant within thirty (30) days after the Expiration Date or
after Tenant surrenders possession of the Demised Premises, whichever is later.
In the event of a default by Tenant in the payment of rent or the performance or
observance of any of the other terms, conditions, or covenants of this Lease
Agreement after notice and the expiration of all applicable cure periods without
cure, then Landlord may, as its option and without notice, apply all or any part
of the security deposit in payment of such rent or to cure any other such
default; and if Landlord does so, Tenant shall upon request deposit with
Landlord the amount so applied so that Landlord will have on hand at all times
during the term of this Lease Agreement the full amount of the security deposit.
Landlord shall not be required to hold the security deposit as a separate
account, but may commingle it with Landlord's other funds. In the event of a
sale or lease of the land and Building of which the Demised Premises are a part,
Landlord shall have the right to
6
<PAGE> 11
transfer the security deposit to its purchaser or lessee and Landlord shall
thereupon be released by Tenant from all responsibility for the return of such
deposit, which such purchaser or lessee shall covenant and agree to do; and
Tenant agrees to look solely to the new purchaser or lessee for the return of
such deposit. In the event of an assignment of this Lease Agreement by Tenant,
the security deposit shall be deemed to be held by Landlord as a deposit made by
the assignee, and Landlord shall have no further responsibility for the return
of such deposit to the assignor.
5. HEAT, VENTILATING AND AIR CONDITIONING
--------------------------------------
Landlord agrees to furnish heating, ventilating and air
conditioning, to provide a temperature and humidity condition required in
Landlord's judgment for comfortable occupancy of the Demised Premises, and
Tenant shall pay Landlord therefor, without mark-up, as a part of additional
rent set forth in Section 3., Subsection (b) of this Lease. Tenant promises to
use this, and all utility services, prudently. Whenever heat generating machines
or equipment are used in the Demised Premises which may affect the temperature
otherwise maintained by the air conditioning system, Landlord reserves the
right, at its option, to require Tenant to install supplementary air
conditioning equipment in the Demised Premises, and the cost of such
installation shall be paid by Tenant to Landlord within 15 days after being
billed therefor, and the cost of operation and maintenance of said supplementary
equipment shall be paid by Tenant to Landlord on the monthly rent payment dates
at such rates as may be agreed upon but in no event at a rate less than
Landlord's actual cost therefore for labor, steam, electricity and water.
6. ELECTRICITY
-----------
Landlord agrees to provide electrical service in the Building,
and Tenant shall obtain all such service used in the Demised Premises from
Landlord and pay Landlord therefor, without mark-up, as a part of additional
rent set forth in Section 3., Subsection (B) of this Lease. Tenant agrees not to
install or connect any large business machines, X-rays or other heavy electrical
equipment of any type to the electrical distribution system of the Building
without Landlord's prior written consent so as not to overtax said system to the
detriment of the Building or of other Tenants. At Landlord's option, any such
equipment that is overtaxing the system based upon a review and the review of an
electrical engineer selected and paid for by Landlord but reasonably acceptable
to Tenant, or requires greater consumption of electricity than typical for
general office use may be sub-metered and Tenant agrees to pay the cost of
installing such sub-meter, as well as all electricity recorded through such
sub-meter during the term of this Lease. All charges from such sub-meter shall
be invoiced periodically and shall be due and paid in the same manner as base
rent.
7. ELEVATOR SERVICE
----------------
Landlord agrees to provide passenger elevator service in
common with others when the building is open, normally daily from 7:00 a.m. to
6:00 p.m., Saturdays from 8:00 a.m. to 12:00 noon, Sundays and holidays excepted
and to tenants with pass keys at all other times. Landlord agrees to provide
freight elevator service in common with others which service Tenant shall
arrange with the property manager.
7
<PAGE> 12
8. JANITOR SERVICE
---------------
Landlord agrees to provide customary janitorial service five
(5) evenings per week in and about the Demised Premises, Saturdays, Sundays and
holidays excepted. The janitorial service shall be similar to that provided to
tenants in other Class A office buildings located in Dublin, Ohio. Tenant shall
not provide any janitor service without Landlord's written consent, which
consent shall not be unreasonably withheld in which event such janitor service
shall be subject to the Landlord's supervision but at the Tenant's sole cost and
responsibility.
9. REPAIRS
-------
Landlord agrees to make all usual and customary repairs to the
Demised Premises, excluding repairs to any special treatment of walls,
partitions, floors or ceiling made by or at the request of Tenant and excluding
repairs made necessary as a result of misuse or neglect by Tenant. Landlord
agrees to repair and maintain the common area of the building.
10. WATER
-----
Landlord agrees to provide water from City of Columbus mains
for drinking, lavatory and toilet purposes drawn through fixtures installed by
Landlord.
11. WINDOW TREATMENTS
-----------------
Any Tenant's treatment to windows must be approved in writing
by Landlord prior to installation, which approval shall not be unreasonably
withheld but in all cases must conform to building standards.
12. SERVICE AT UNUSUAL TIME
-----------------------
Should Tenant require cleaning service, heating, ventilating,
air conditioning and/or elevator service on days or hours other than those
specified in Paragraph 7 or 8 of this Lease Agreement, Landlord shall, upon
reasonable advance notice by Tenant, furnish such additional service and Tenant
agrees to pay to Landlord, within ten (10) days after being billed therefor, as
additional rent, Landlord's cost of labor, materials and utilities supplied in
providing such additional service, it being agreed that said payment and said
costs shall be excluded from Operating Expense.
13. INTERRUPTION OF SERVICE
-----------------------
The Landlord does not warrant that any of the services above
mentioned will be free from interruptions caused by war, insurrection, civil
commotion, riots, acts of God or the enemy or Government action, repairs,
renewals, improvements, alterations, strikes, lockouts, picketing, whether legal
or illegal, accidents, inability of Landlord to obtain fuel or supplies, or any
other causes or causes beyond the reasonable control of the Landlord. Any such
interruption of service shall never be deemed an eviction or disturbance of the
Tenant's use and possession of the premises or any part thereof, or render the
Landlord liable to the Tenant for damages, or relieve the Tenant from
performance of the Tenant's obligations under this Lease Agreement. Although
Landlord intends to and shall operate a first class office building, the quality
and adequacy of all services furnished shall be determined by Landlord in its
reasonable discretion. The Landlord shall not be
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liable for any loss or damage or expense which Tenant may sustain or incur if
either the quantity or character of electrical service, water service or gas
service is changed or made unavailable to Tenant or unsuitable for its
requirements by reason of the requirements or actions of the public utility
company supplying electric current to the Building or for any reason not
attributable to Landlord.
14. OPERATION OF BUILDING: RIGHTS RESERVED TO LANDLORD
--------------------------------------------------
Landlord reserves the right to do any of the following:
(a) To change the name or street address of the Building
without notice or liability of the Landlord to the Tenant.
(b) To install and maintain a sign or signs on the exterior of
the Building.
(c) To designate all sources furnishing vending equipment,
painting of the premises, sign painting and lettering, ice, drinking water,
towels and toilet supplies used on the premises.
(d) During the last ninety (90) days of the term or any part
thereof, if during that time the Tenant vacates the Demised Premises, to
decorate, remodel, repair, alter or otherwise prepare the premises for
re-occupancy.
(e) To constantly have pass keys to the Demised Premises.
Landlord acknowledges, as more fully hereafter stated, that Tenant will be using
a portion of the Demised Premises for research and development. Tenant,
therefore, will be developing trade secrets and work product in the Demised
Premises. Landlord will use reasonable efforts to ensure that Landlord's
personnel who enter the Demised Premises outside of Tenant's business hours by
use of such pass key shall not divulge to anyone any information which such
personnel may gain during such entry, but that all such information shall be
held in highest confidence. Such personnel shall not photograph or photocopy any
of Tenant's property in the Demised Premises and shall not remove any of such
property from the Demised Premises unless an emergency situation exists.
(f) To grant to anyone the right to conduct any lawful
business or undertaking in the Building consistent with applicable zoning
ordinances.
(g) To exhibit the Demised Premises to others.
(h) To take any and all measures, including inspections,
repairs, alterations, additions and improvements to the Demised Premises or to
the Building, as may be necessary or desirable for the safety, protection or
preservation of the Demised Premises or the Building or the Landlord's
interests, or as may be necessary or desirable. The Landlord may enter upon the
Demised Premises and, upon reasonable notice and during Tenant's business hours,
may exercise any or all of the foregoing rights hereby reserved without being
deemed guilty of an eviction or disturbance of the Tenant's use or possession
and without being liable in any manner to the Tenant. The Landlord will use its
best efforts to prevent any unnecessary inconvenience to Tenant or the Tenant's
business.
This provision shall not limit the rights of the Landlord
under the law in any manner
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and the foregoing shall not be deemed to be exclusive list of the rights of the
Landlord.
15.A OPERATION OF BUILDING: TENANT'S OBLIGATIONS
Tenant agrees to do or perform all of the following:
(a) Observe the rules and regulations hereto annexed as
Exhibit "15," and such further rules and regulations as from time to time may be
put in effect by Landlord for the general safety, comfort and convenience of
Landlord, occupants and tenants of the Building, provided that such rules and
regulations shall not unreasonably interfere with the operation of Tenant's
business. Any failure by Landlord to enforce any rules and regulations against
either Tenant or any other Tenant in the Building shall not constitute a waiver
thereof.
(b) Give Landlord, its agents and employees, its mortgagees
and any other person or persons authorized by Landlord, access to the Demised
Premises at all reasonable times, after reasonable notice and during normal
business hours, without charge or diminution of rent, to enable Landlord and/or
the others herein before mentioned to examine the same and to make such repairs
as Landlord may reasonably deem advisable. Except as expressly provided
otherwise in this Lease Agreement, there shall be no allowance to Tenant or
diminution of rent and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from the making of any
repair in or to any portion of the Building or Demised Premises or in and to the
fixtures, appurtenances and equipment thereof unless caused by the negligence or
willful misconduct of Landlord, its agents, employees, mortgagees or attorneys
authorized by Landlord to enter the Demised Premises.
(c) Keep the Demised Premises in good order and condition,
make all repairs thereto which are not Landlord's obligations pursuant to
Paragraph 9 of this Lease Agreement, and commit no waste on the Demised Premises
or the Building.
(d) Not overload, damage or deface the Demised Premises or do
any act to bring or keep anything thereon which may make void or voidable any
insurance on the Demised Premises or the Building or which may render an
increase or extra premium payable for insurance.
(e) Not make any alteration of or addition to the Demised
Premises without the written approval of Landlord, which approval shall not be
reasonably withheld.
Tenant's obligations under this Paragraph 15 to do or not to
do a specified act shall extend to and include Tenant's obligations to see to it
that Tenant's employees, invitees and agents shall do or shall not do such acts,
as the case may be.
15.B OPERATION OF BUILDING: LANDLORD'S OBLIGATIONS
---------------------------------------------
Landlord agrees to keep the Common Areas of the Building, both
interior and exterior, in a first class condition, similar to that or comparable
to that of others in the Dublin area. Landlord's obligations hereunder shall
include, but shall not be limited to, landscaping, planting, mowing, yard waste
removal and sprinkling; snow and ice removal from the sidewalks, parking lots
and entrances to the Building; paving, repaving and striping the parking lots as
necessary; and providing a reasonable amount of exterior lighting.
10
<PAGE> 15
16. TENANT'S OBLIGATIONS ON TERMINATION OF THIS LEASE
-------------------------------------------------
AGREEMENT
---------
Upon the termination of this Lease Agreement in any manner
whatsoever, Tenant shall remove Tenant's goods and effects and those of any
other persons claiming under Tenant, and quit and deliver up the Demised
Premises to Landlord peaceably and quietly in as good order and condition as the
same are now, or hereafter may be improved by Landlord or Tenant, reasonable use
and wear thereof, casualty loss and repairs which are Landlord's obligations
excepted. Tenant reserves the right to remove any and all installations made by
Tenant at Tenant's expense, including without limitation cupboards, cabinets,
built-in bookshelves, floor coverings and light fixtures, except that Tenant
shall not demolish any walls built by Tenant. Any damage to walls, floors or
ceilings will be repaired by or paid for by Tenant. Goods and effects not
removed by Tenant at the termination of this Lease (or within forty-eight (48)
hours after a termination by reason of Tenant's default) shall be considered
abandoned and Landlord may dispose of the same as it deems expedient, but Tenant
shall promptly upon demand reimburse Landlord for any expenses incurred by
Landlord in connection therewith. All alterations, installments, additions,
improvements and floor covering made and installed for Tenant by Landlord at
Landlord's expenses shall remain Landlord's property, whether movable or not,
and Tenant shall be responsible for the maintenance thereof, normal wear and
tear and casualty loss and repairs which are Landlord's responsibility excepted,
and Tenant shall not remove said property without written consent of Landlord.
17. SIGNS AND ADVERTISEMENTS
------------------------
(a) Tenant agrees that it shall not place signs,
advertisements or notices on the outside or inside walls, windows, doors or roof
of the Building or on the Demised Premises except as approved in writing by
Landlord with respect to the lettering, size, color, style, location and text of
any such sign which approval shall not be unreasonably withheld.
(b) Within six (6) months of the commencement date of this
Lease, Landlord shall, at its expense, install exterior signage identifying the
Building as the "Dublin Commerce Center", which signage shall either be affixed
to the Building or a free-standing monument sign, subject to and conditioned on
Landlord's securing the approval of the City of Dublin thereto.
(c) Landlord shall, at its costs, provide a directory in the
Building's lobby identifying the Tenant and the Demised Premises.
18. MECHANICS LIENS
---------------
Tenant agrees that it will at its own expense, cause to be
discharged or bonded off within sixty (60) days of notice thereof, any
mechanic's lien filed against the Demised Premises or the Building for work
claimed to have been done for, or materials claimed to have been furnished to,
Tenant.
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<PAGE> 16
19. INDEMNIFICATION
---------------
Tenant shall indemnify Landlord against all liabilities,
expenses, and losses incurred by Landlord as a result of (a) failure by the
Tenant to perform any covenant required to be performed by the Tenant hereunder;
(b) any accident, injury, or damage which shall happen in or about the Demised
Premises unless such accident, injury, or damage has been caused by the
negligence or intentional act of the Landlord, Landlord's employees, agents, or
contractors; (c) Tenant's failure to comply with any governmental authority; and
(d) Tenant causing any mechanic's lien, or security agreement, filed against the
leased Premises, any equipment therein, or any materials used in the
construction or alteration of any building or improvement thereon.
20. ASSIGNMENT, SUBLETTING OR RECAPTURE
-----------------------------------
Tenant will not sell, assign, mortgage, or transfer its
interest under this Lease Agreement, sublet the Demised Premises or any part
thereof, or allow any transfer hereof, or any lien upon the Tenant's interest by
operation of law, without the prior written consent of the Landlord which
consent shall not be unreasonably withheld except Tenant shall have the right to
assign the Lease in its entirety or to sublease all or any portion of the
Premises without the permission of the Landlord to (a) any entity resulting from
a merger or consolidation with Tenant; (b) any entity succeeding to the business
and assets of Tenant; and (c) any subsidiary or affiliate of Tenant. Affiliate
shall mean any partnership, corporation, unincorporated association, joint
venture or other entity which is controlled by or is under common control with
Tenant. A sublease or assignment to any entity other than the above described
will require the prior written consent of Landlord as provided herein. Should
Tenant desire to sublet the premises or any part thereof, Tenant shall by
written notice so advise Landlord of its request to sublet on a stated date,
(which shall not be less than ninety (90) days nor more than one hundred twenty
(120) days after date of Tenant's notice) and in such event, Landlord shall have
the right, to be exercised by giving written notice to Tenant within thirty (30)
days after receipt of Tenant's notice, to recapture the space described in
Tenant's notice and such recapture shall, if given, cancel and terminate this
Lease with respect to the space therein described as of the date stated in
Tenant's notice. Tenant's notice shall state the name and address of the
proposed subtenant and a true and complete copy of the proposed sublease shall
be delivered to Landlord with said notice. If Tenant's notice shall cover all of
the space hereby demised, and Landlord shall give the aforesaid recapture notice
with respect thereto, the term of this Lease Agreement shall expire and end on
the date stated in Tenant's notice as fully and completely as if that date had
been herein definitely fixed for the expiration of the term. If, however, this
Lease Agreement be canceled pursuant to the foregoing with respect to less than
the entire premises, the rental and the escalation percentage herein reserved
shall be adjusted on the basis of the number of square feet retained by Tenant
in proportion to the rent and escalation percentage reserved in this Lease
Agreement, and this Lease Agreement as so amended shall continue thereafter in
full force and effect as to the remaining portion of the Demised Premises. In
addition, if this Lease Agreement be canceled pursuant to the foregoing with
respect to less than the entire premises, Tenant shall forthwith reimburse
Landlord for the actual cost to Landlord of making all repairs and alterations,
including partitions and other requirements, necessary to close off the
recaptured space from the remaining portion of the premises. If Landlord upon
receiving Tenant's notice with respect to any such space, shall not exercise its
right to cancel as aforesaid, Landlord shall, by giving written notice to Tenant
within the thirty (30) days after receipt of such notice, either consent to or
decline to consent to such requested sublease or assignment, provided that in
such event Landlord will not unreasonably withhold its consent to Tenant's
subletting the space covered by its notice or
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<PAGE> 17
assigning this Lease.
Any subletting (or assignment) hereunder shall not release or
discharge Tenant of or from any liability, whether past, present or future,
under this Lease Agreement, and Tenant shall continue fully liable thereunder.
The subtenant or subtenants or assignee shall agree to comply with and be bound
by all the terms, covenants, conditions, provisions and agreements of this Lease
Agreement to the extent of the space sublet or assigned, and Tenant shall
deliver to Landlord promptly after execution, an executed copy of each such
sublease or assignment and an agreement of compliance by each such subtenant or
assignee.
Any sale, assignment, mortgage, transfer, or subletting of
this Lease Agreement which is not in compliance with the provisions of this
Paragraph 20 shall be void and of no effect.
The Landlord may assign this Lease Agreement and shall not be
liable for obligations thereafter accruing hereunder; provided that the
Landlord's assignee shall assume the Landlord's obligations hereunder accruing
on or after the date of assumption.
21. CASUALTY
--------
In case of damage to the Demised Premises or the Building by
fire or other casualty, Tenant shall give immediate notice to Landlord, who
shall thereupon cause the damage to be repaired with reasonable speed at the
expense of Landlord subject to delays which may arise by reason of adjustment of
loss under insurance policies and for delays beyond the reasonable control of
Landlord, and to the extent that the Demised Premises are rendered unrentable,
the rent shall proportionately abate, except in the event such damage resulted
from or was contributed to by the act, fault or neglect of Tenant, Tenant's
employees, or invitees or agents, in which event there shall be no abatement of
rent. In the event that such damage to the Demised Premises or the Building
cannot be or is not repaired within 180 days from the date of such casualty,
either the Landlord or Tenant may terminate this Lease by giving the other
written notice of such termination and the rent shall be adjusted to the date of
such damage and the Tenant shall thereupon promptly vacate the Demised Premises.
22. WAIVER OF CLAIMS AND SUBROGATION
--------------------------------
(a) Tenant agrees that Landlord, its building manager and
Landlord's and the building manager's respective officers and employees shall
not be liable to Tenant for any damage to or loss of personal property located
in the Demised Premises or for injuries to persons unless such damage, loss or
injury is the result of negligence of Landlord, its building manager, or its
officers or employees, and Landlord and its building manager and its officer and
employees shall not be liable to Tenant for any such damage, loss, or injury,
whether or not the result of their negligence, to the extent Tenant is
compensated therefore by Tenant's insurance.
(b) Landlord and Tenant release each other, their agents,
employees and invitees from any claims for damage or destruction to the
Premises, or to the contents thereof, belonging to either, or business or rent
interruption, or injury and/or death of any person or persons which is caused by
fire or other peril to the extent that the insured is compensated by insurance,
whether due to negligence of either of them or otherwise, when permitted by the
applicable policies of insurance.
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<PAGE> 18
23. USE OF DEMISED PREMISES
-----------------------
Tenant shall not use or occupy or permit the Demised Premises
to be used or occupied, nor do or permit anything to be done in or on the leased
property:
(a) which will in any way violate any certificate of occupancy
affecting the Demised Premises or the Building;
(b) which will cause or be likely to cause structural damage
to the Building or any part thereof;
(c) which will violate any present or future laws or
regulation of any governmental authority;
(d) which will make void or voidable any insurance then in
force with respect to the Demised Premises;
(e) which shall increase the rate of fire and/or casualty
insurance in the Building over that in effect prior to the execution of this
Lease Agreement;
(f) which through the use of loud speakers, phonographs,
television, or radio broadcasts shall create noise which may be heard outside
the Demised Premises and which could be reasonably considered objectionable by
Landlord and/or other Tenants;
(g) which will interfere with the reception or transmission of
television or radio signals or other transmission in the Building;
(h) which will constitute a public or private nuisance
Landlord acknowledges and agrees that Tenant, in addition to
using the Demised Premises for office use, will also be using a substantial
portion of the Demised Premises for research and development of medical devices.
This research and development may entail use of different equipment than that
used in general office use and may entail Tenant having to handle certain
substances and products in strict accordance with all applicable law. Landlord
covenants and agrees that, anything in this Lease to the contrary
notwithstanding, Tenant's use of the Demised Premises for that purpose and the
use of the additional machinery and equipment shall in no way at any point in
time constitute a default hereunder. Provided, however, that (i) such research
and development activities shall not cause an unusually large number of persons
to enter the Building or the Demised Premises, (ii) such additional machinery
and equipment shall not create noise, odor or vibration levels that are
objectionable to Landlord or other tenants in the Building, and (iii) such
additional machinery and equipment shall not use a level of energy which exceeds
normal office use.
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<PAGE> 19
24. DEFAULT
-------
If the Tenant defaults in the payment of rent, or in payment
of any sum deemed to be additional rent under this Lease Agreement and the
Tenant does not cure such default within ten (10) days after notice thereof
(Landlord not being required to give such notice more than once per year), or if
the Tenant defaults in the prompt and full performance of any other provision of
this Lease Agreement, and if the Tenant does not cure the default within thirty
(30) days after the written demand by Landlord that the default be cured, unless
if the default cannot reasonably be cured within thirty (30) days, Tenant fails
to commence such cure within thirty (30) days and/or fails thereafter to
diligently work to effect such cure, or unless the default involves a hazardous
condition, which shall be cured forthwith upon the Landlord's demand, or if the
leasehold interest of the Tenant be levied upon under execution or be attached
by process of law, or if the Tenant make an assignment for the benefit of
creditors, or if a receiver be appointed for any property of the Tenant and not
discharged within sixty (60) days, or if the Tenant abandons the Demised
Premises, for more than thirty (30) days, then and in any such event the
Landlord may, if the Landlord so elects but not otherwise, either forthwith
terminate this Lease Agreement and the Tenant's right to possession of the
Demised Premises, or without terminating this Lease Agreement, forthwith
terminate the Tenant's right to possession of the Demised Premises.
25. BANKRUPTCY OR INSOLVENCY
------------------------
If any voluntary or involuntary petition or similar pleading
under any section or sections of any bankruptcy act shall be filed by or against
the Tenant, or any voluntary or involuntary proceeding in any court or tribunal
shall be instituted to declare the Tenant insolvent or unable to pay the
Tenant's debts, and in the case of any involuntary petition or preceding, the
petition or proceeding is not dismissed within sixty (60) days from the date it
is filed, the Landlord may elect, but is not required, and with or without the
notice of such election, and with or without entry or other action by the
Landlord, to forthwith terminate this Lease Agreement, and, notwithstanding any
other provision of this Lease Agreement, the Landlord shall forthwith upon such
termination be entitled to recover damages in an amount equal to the then
present value of the rent specified in Paragraph 2 of this Lease Agreement for
the residue of the stated term hereof less the present value of the fair rental
value over the same time.
26. TERMINATION OF LEASES
---------------------
Upon any termination of this Lease, whether by lapse of time
or otherwise, or upon any termination of the Tenant's rights to possession
without termination of the Lease Agreement, the Tenant shall surrender
possession thereof to the Landlord, and the Tenant hereby grants to the Landlord
full and free license to enter into and upon the Demised Premises in such event
with or without process of law and to repossess the Landlord of the Demised
Premises as of the Landlord's former estate and to expel or remove the Tenant
and any others who may be occupying or within the Demised Premises and to remove
any and all property therefrom, using such force as may be necessary, without
being deemed in any manner guilty of trespass, eviction, or forcible entry or
detainer, and without relinquishing the Landlord's rights to rent or any other
right given to the Landlord hereunder or by operation of law.
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<PAGE> 20
27. ABANDONMENT OF DEMISED PREMISES
-------------------------------
If the Tenant abandons the Demised Premises for more than
thirty (30) days or otherwise entitles the Landlord so to elect, and the
Landlord elects to terminate the Tenant's right to possession only, without
terminating the Lease Agreement, the Landlord may, at the Landlord's option
enter into the Demised Premises, remove the Tenant's signs and other evidence of
tenancy, and take and hold possession thereof as provided in Paragraph 26 of
this Lease Agreement, without such entry and possession terminating the Lease
Agreement or releasing the Tenant, in whole or in part, from the Tenant's
obligations to pay the rent hereunder for the full term. Upon and after entry
into possession without termination of the Lease Agreement, the Landlord shall
use its best efforts to re-rent the Demised Premises (or such part thereof as
Landlord deems proper) for the account of the Tenant to any persons, firm or
corporation other than the Tenant for such rent, for such time and upon such
terms as the Landlord in the Landlord's commercially reasonable discretion shall
determine, and the Landlord shall not be required to obtain consent of the
Tenant or to observe any instructions given by the Tenant about such re-renting.
Tenant expressly agrees that, in the event Landlord shall enter into possession
without terminating this Lease Agreement, Landlord need not give preferential
treatment to the leasing of the Demised Premises over leasing any other space in
the building. In any case, the Landlord may make repairs, alterations and
additions in or to the Demised Premises, and redecorate the same to the extent
deemed by the Landlord to be reasonably necessary or desirable, and the Tenant
shall, upon demand, pay the cost thereof, together with the Landlord's expense
of the re-renting. If the consideration collected by the Landlord upon such
re-renting for the Tenant's account is not sufficient to pay monthly the full
amount of the rent reserved in this Lease, together with the cost of repairs,
alterations, additions, redecoration and the Landlord's expenses, the Tenant
shall pay to the Landlord the amount of each monthly deficiency upon demand; and
if the consideration so collected from any such reletting is more than
sufficient to pay the full amount of the rent reserved herein, together with the
costs and expenses of the Landlord, at the end of the stated term of the Lease
Agreement, the Landlord shall refund the surplus to the Tenant.
28. REMOVAL OF PROPERTY FROM DEMISED PREMISES
-----------------------------------------
Any and all property which may be removed from the Demised
Premises by the Landlord pursuant to the authority of this Lease Agreement or of
law, to which the Tenant is or may be entitled, may be handled, removed or
stored by the Landlord at the risk, cost and expense of the Tenant, and the
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof.
The Tenant shall pay to the Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in the Landlord's possession or under the
Landlord's control. Any such property of the Tenant not removed from the Demised
Premises or re-taken from storage by the Tenant within ten (10) days after the
end of the term, however terminated, shall be presumed to have been conveyed by
the Tenant to the Landlord under this Lease Agreement as a bill of sale without
further payment or credit by the Landlord to the Tenant.
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<PAGE> 21
29. COSTS OF ENFORCEMENT
--------------------
The Tenant shall pay all the Landlord's cost, charges and
expenses, including the fees of counsel, agents and others retained by the
Landlord, incurred in enforcing the Tenant's obligations hereunder or incurred
by the Landlord in any litigation, negotiations or transactions in which the
Tenant causes the Landlord, without the Landlord's fault, to become involved or
concerned, plus interest at the highest non-usurious rate which Landlord might
at such date have charged in making an unsecured loan of cash funds to Tenant
(but in no event to exceed the rate of eighteen per cent (18%) per annum) from
the date of payment, which amount shall be deemed to be additional rent due and
payable by the Tenant upon demand by Landlord.
30. REMEDIES CUMULATIVE
-------------------
All rights and remedies of the Landlord herein enumerated
shall be cumulative, and none shall exclude any other right or remedy allowed by
law.
31. NOTICES
-------
All bills, statements, notices or communications which
Landlord may desire or be required to give to Tenant shall be deemed
sufficiently given or rendered if in writing and either delivered to Tenant
personally, or sent by registered or certified mail addressed to Tenant at the
Demised Premises, and the time of rendition thereof or the giving of such notice
or communication shall be deemed to be the time when the same is delivered to
Tenant, left at the Demised Premises or deposited in the mail as herein
provided. Any notice by Tenant to Landlord must be served by delivery to
Landlord personally, or sent registered or certified mail addressed to Landlord
at the address where the last previous rent hereunder was payable, or in the
case of subsequent change upon notice given, to the latest address furnished and
shall be deemed to be the time when the same is delivered to Tenant, left at the
Demised Premises or deposited in the mail as herein provided.
32. HOLDING OVER, ATTORNMENT, AND LANDLORD'S TITLE
----------------------------------------------
(a) Should Tenant continue to occupy the Demised Premises
after the expiration of said term or any renewal or renewals thereof, with the
express or implied consent of Landlord, such tenancy shall be from month to
month and in no event from year to year or for any longer term, and the rent
shall be 150% of the total base rent and additional rent due for the last month
of the lease term.
(b) Unless otherwise agreed to in writing by Landlord and
Tenant, if the Tenant retains possession of the Demised Premises or any part
thereof after the termination of the term, the Tenant shall pay the Landlord
rent at twice the monthly rate in effect immediately prior to the termination of
the term for the time the Tenant remains in possession and, in addition thereto,
Tenant shall pay the Landlord for all damages, incidental, consequential, and
direct, sustained by reason of the Tenant's retention of possession. The
provisions of this Paragraph do not exclude the Landlord's rights of re-entry or
any other right or remedy of Landlord hereunder. No such holding over shall be
deemed to constitute a renewal or extension of the term hereof.
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<PAGE> 22
(c) This Lease Agreement and all rights of Tenant hereunder
are subject and subordinate to all ground or underlying leases and to any
mortgage or mortgages, blanket or otherwise, which do or may hereafter affect
the real property of which the Demised Premises form a part and to any and all
renewals, modifications, consolidations, replacements and extensions thereof. It
is the intention of the parties that this provision be self-operative and that
no further instrument shall be required to effect such subordination of this
Lease Agreement. Tenant shall, however, upon demand at any time or times
execute, acknowledge and deliver to Landlord without expense to Landlord, any
and all instruments that may be necessary or proper to subordinate this Lease
Agreement and all rights to Tenant hereunder to any such leases, mortgage or
mortgages or to conform or evidence said subordination. Tenant covenants and
agrees, in the event any proceedings are brought for the foreclosure of any such
mortgage, to attorn to the purchaser, and to recognize such purchaser as the
lessor under this Lease Agreement. Tenant agrees to execute and deliver at any
time and from time to time, upon the request of Landlord or of any holder of
such mortgage or of such purchaser, any instrument which, in the sole judgment
of such requesting party, may be necessary or appropriate in any such
foreclosure proceeding or otherwise to evidence such attornment. Tenant further
waives the provisions of any statute or rule of law, now or hereafter in effect,
which may give or purport to give Tenant any right or election to terminate or
otherwise adversely affect this Lease Agreement and the obligation of Tenant
hereunder in the event any such foreclosure proceeding is brought, prosecuted
and completed. In the event Landlord mortgages the premises, Landlord will use
reasonable efforts to obtain a non-disturbance agreement to protect Tenant.
Tenant and Landlord further agree, however, that if so
requested by any Mortgagee that this Lease Agreement be made superior to the
mortgage of said mortgagee, that they will execute such documents as may be
required by such mortgagee to effect the superiority of this Lease Agreement to
such mortgage. Landlord represents that the building is not at this time subject
to any mortgage or other lien or encumbrance.
33. CONDEMNATION
------------
If the whole or substantially the whole of the Building or of
the Demised Premises shall be lawfully condemned or taken in any manner for any
public or quasi-public use or purpose, this Lease Agreement and the term and
estate hereby granted shall forthwith cease and terminate as of the date of
taking possession for such use or purpose. If less than the whole or
substantially the whole of the Building or of the Demised Premises shall be so
condemned or taken, then Landlord (whether or not the Demised Premises be
affected) may, at its option, terminate this Lease Agreement and the term and
estate hereby granted as of the date of the taking of possession for such use or
purpose by notifying Tenant in writing of such termination. If more than
twenty-five (25%) percent of the Demised Premises taken, Tenant may at its
option terminate this Lease Agreement. Upon any such taking condemnation and the
continuing in force of this Lease Agreement to any part of the Demised Premises,
the Base Rental shall be diminished by an amount representing the part of the
said rent properly applicable to the portion of the Demised Premises which may
be so condemned or taken and Landlord shall, at its expense, proceed with
reasonable diligence to repair, alter and restore the remaining part of the
Building and the Demised Premises to substantially their former condition to the
extent that the same may be feasible. Landlord shall be entitled to receive the
entire award in any condemnation proceeding, including any award to the value of
any unexpired term of this Lease Agreement, and Tenant shall have no claim
against Landlord or against the proceeds of the condemnation except to the
extent expressly provided in the next
18
<PAGE> 23
succeeding sentence and for the cost of all tenant improvements and relocation
expenses. If the temporary use or occupancy of all or any part of the Demised
Premises shall be condemned or taken for any public or quasi-public use during
the term of this Lease Agreement, this Lease Agreement shall be and remain
unaffected by such condemnation or taking and Tenant shall continue to pay in
full the rent, additional rent and other sums payable hereunder by Tenant and
Tenant shall have the right to appear, claim, prove and receive so much of the
award for such taking as represented compensation for use and occupancy of the
Demised Premises up to and including the date of the expiration of the term of
this Lease Agreement or the date of termination of the temporary taking,
whichever is earlier, and Landlord shall be entitled to appear, claim, prove and
receive the entire balance of the award. The terms of this Section shall survive
termination of this Lease.
34. FLOOR LOAD, NOISE AND VIBRATIONS
--------------------------------
Tenant shall not place a load upon any floor of the Demised
Premises which exceeds the load per square foot which such floor was designed to
carry and which is allowed by law. Landlord certifies that the office floors
will carry seventy (70) pounds per square foot live load which includes
allowance for partition load. Landlord reserves the right to prescribe the
weight and position of all safes and heavy installations which Tenant wishes to
place in the Demised Premises so as properly to distribute the weight thereof.
Business machines and mechanical equipment belonging to Tenant
which cause vibration, noise, electro-magnetism or other similar phenomena that
may be transmitted to the structure of the Building or any space therein to such
a degree as to be objectionable to Landlord or to any tenants in the Building
shall be placed and maintained by Tenant, at Tenant's expense, on vibration
eliminators or other devices sufficient to eliminate noise or electro-magnetism
and other phenomena which are disruptive of the conduct of business of the
Landlord or other tenants.
35. CARE OF PREMISES
----------------
Tenant shall, at its own expense, comply with all laws,
orders, ordinances and regulations of Federal, State, County and Municipal
authorities and with any direction made pursuant to law of any public officer or
officers which shall, with respect to the use of the Demised Premises, or to any
abatement of nuisance, impose any violation, order or duty upon Landlord or
Tenant arising from Tenant's use of the Demised Premises or from conditions
which have been created by or at the instance of Tenant or have been created by
a breach of any of Tenant's covenants or agreements hereunder.
Tenant shall not do or permit to be done any act or thing upon
the Demised Premises which will invalidate or be in conflict with the terms of
the Ohio standard form of fire, boiler, sprinkler, water damage or other
insurance policies covering the Building and the fixtures and property therein;
and Tenant shall, at its own expense, comply with all rules, regulations, and
requirements of the National Board of Fire Underwriters or any state or other
similar body having jurisdiction, and shall not knowingly do or permit anything
to be done in or upon the Demised Premises in a manner which increases the rate
of fire insurance upon the Building or on any property or equipment located
therein. Nothing herein shall mean that Landlord has any obligation to or will
be responsible for insuring any property of Tenant.
19
<PAGE> 24
36. ELECTRICAL REQUIREMENTS
-----------------------
Landlord, at its expense, shall furnish electric current,
fixture, lamps and equipment for lighting of public lobbies, public corridors,
and other public portions of the Building, and shall furnish electric current
for all air conditioning machinery, elevators and other Building equipment.
Tenant shall make no alteration or additions to the electric
equipment, or installments without the prior written consent of Landlord which
consent shall not be unreasonably withheld and work shall be done by Landlord at
Tenant's expense in accordance with plans and specifications of Tenant to be
submitted to and approved by Landlord, which approval shall not be unreasonably
withheld.
37. QUIET ENJOYMENT
---------------
Landlord covenants that upon Tenant's paying the rent and
additional rent provided for in this Lease Agreement and observing and
performing all the terms, covenants and conditions of this Lease Agreement on
its part to be observed and performed, Tenant may peaceably and quietly enjoy
the Demised Premises, subject, nevertheless, to the terms and conditions of this
Lease Agreement.
38. LANDLORD'S RIGHT TO REMEDY DEFAULT
----------------------------------
If Tenant shall default in the observance of performance of
any term or covenant on its part to be observed or performed under or by virtue
of any of the terms and provisions in any paragraph of this Lease Agreement,
Landlord, without being under any obligation to do so and without thereby
waiving such default, may remedy such default for the account of and at the
expense of Tenant, immediately and without notice in case of emergency, or in
any other case, only if Tenant shall fail to remedy such default within the
applicable cure period after Landlord shall have notified Tenant in writing of
such default. If Landlord makes any expenditures or incur any obligations for
the payment of money in connection therewith, such sum paid or obligations
incurred with interest and costs shall be paid to it by Tenant.
39. LIMITATION ON TENANT'S RIGHT TO TERMINATE
-----------------------------------------
In the event of any act or omission by Landlord which would
give Tenant the right to terminate this Lease Agreement or to claim a partial or
total eviction, Tenant will not exercise any such right until: (1) it has given
written notice of such act or omission to the Landlord and the holder of any
first mortgage affecting the Building or the Building and the land upon which it
is erected whose name and address shall have been furnished to Tenant in
writing, by delivering such notice of such act or omission addressed to such
holder of such mortgage at the last address so furnished and to the Landlord;
and (2) a reasonable period for remedying such act or omission shall have
elapsed following such giving of notice, provided the Landlord or any such
holder, with reasonable diligence, shall, following the giving of such notice,
have failed to commence and continue to remedy such act or omission or to cause
the same to be remedied.
20
<PAGE> 25
40. ESTOPPEL CERTIFICATE
--------------------
Tenant agrees that when Tenant takes possession of the Demises
Premises and at any other time, and from time to time, upon not less than
fifteen (15) day's prior notice by Landlord, Tenant will execute, acknowledge
and deliver to Landlord, a statement in writing certifying that this Lease
Agreement is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), and the dates to which the rent, additional rent and other
charges have been paid, and stating whether or not to the best knowledge of the
signer of such certificate, Landlord is in default in performance of any
covenant, agreement, term, provision or condition contained in this Lease
Agreement and, if so, specifying each such default of which the signer may have
knowledge, it being intended that any such statement delivered pursuant hereto
may be relied upon by any prospective purchaser or lessee of the Building or of
the Building and the land upon which it is erected, any mortgagee or prospective
mortgagee thereof, or any prospective assignee of any mortgage thereof. Tenant
also agrees to execute and deliver from time to time such estoppel certificates
as an institutional lender may require with respect to this Lease Agreement. The
form of the Estoppel Certificate is attached as Exhibit "40".
41. LIABILITY INSURANCE POLICY
--------------------------
Tenant agrees to carry at its own expense, throughout the term
of this Lease Agreement, public liability insurance covering the Demised
Premises and Tenant's use of the Demised Premises, together with contractual
liability endorsements covering Tenant's obligations under Paragraph 19 of the
Lease Agreement, in companies and in a form satisfactory to Landlord, with
minimums of $1,000,000.00 on account of bodily injuries and/or death of one
person, and $1,000,000.00 on account of bodily injuries and/or death of more
than one person as a result of any one accident or disaster, and with
$1,000,000.00 coverage for property damage in an accident, and whether said
injury or loss occurs in the premises or in or on the common areas, and to
deposit said policy or policies (or certificates thereof) with Landlord prior to
the date of any use or occupancy of the Demised Premises by Tenant, said
policies shall protect Tenant and Landlord, with the Landlord being a named
insured. Should Tenant fail to carry such public liability insurance, Landlord
may at its option (but shall not be required so to do) cause public liability
insurance as aforesaid to be issued, and in such event Tenant agrees to pay the
premium for such insurance promptly upon Landlord's demand. Such liability
insurance policy or policies shall bear endorsements to the effect that the
insurer agrees to notify Landlord not less than ten (10) days in advance of
modification or cancellation thereof.
42. CASUALTY INSURANCE
------------------
Landlord shall at all times during the term of this Lease
carry, at its own expense, a policy of insurance which insures the Building,
including the Premises, against loss or damage by fire or other casualty
(namely, the perils against which insurance is afforded by the standard fire
insurance policy and extended coverage endorsement); provided, however, that
Landlord shall not be responsible for, and shall not be obligated to insure
against, any loss or damage to any of Tenant's property or any additional
improvements which Tenant may construct on the Premises.
21
<PAGE> 26
43. BROKERAGE
---------
Except as set forth below, Tenant represents and warrants that
it has dealt with no broker, agent or other person in connection with this
transaction and that no broker, agent or other person brought about this
transaction. Each party agrees to mutually indemnify and hold the other party
harmless from and against any claims by any other broker, agent or other person
claiming a commission or other form of compensation by virtue of having dealt
with Tenant with regard to this leasing transaction. The provisions of this
Paragraph shall survive the termination of this Lease Agreement.
Broker/Agent: Landlord's realtor is Adena Realty Advisors.
44. MISCELLANEOUS TAXES
-------------------
Tenant shall pay prior to delinquency all taxes assessed
against or levied upon its occupancy of the Demised Premises, or any taxes
assessed on the rental amounts for the premises by any taxing authority, or upon
the fixtures, furnishing, equipment and all other personal property of Tenant
located in the Demised Premises, if non-payment thereof shall give rise to a
lien on the real estate, and when possible Tenant shall cause said fixtures,
furnishings, equipment and other personal property to be assessed and billed
separately from the real property. In the event any or all of Tenant's fixtures,
furnishings, equipment and other personal property, or upon Tenant's occupancy
of the Demised Premises shall be assessed and taxes with the real property,
Tenant shall pay to Landlord its share of such taxes within ten (10) days after
delivery to Tenant by Landlord of a statement in writing setting forth in the
amount of such taxes applicable to Tenant's fixtures, furnishings, equipment or
personal property.
45. CONDITION OF PREMISES
---------------------
Except as otherwise agreed in writing, Tenant's taking
possession of the Demised Premises shall be Tenant's acknowledgment and
agreement that the Demised Premises were in good order and satisfactory
condition when the Tenant took possession, except as to latent defects. No
promise of the Landlord to alter, remodel, repair or improve the Demised
Premises or the Building and no representation representing the condition of the
Demised Premises or the Building has been made by Landlord to Tenant, other than
as may be contained herein or in a separate agreement signed by Landlord and
Tenant. At the termination of this Lease Agreement, the Tenant shall return the
Demised Premises "broom-clean" and in as good condition as when the Tenant took
possession, ordinary wear and tear, and loss by fire or other insured casualty
excepted, failing which the Landlord may restore the Demised Premises to such
conditions and the Tenant shall pay the cost thereof on demand.
46. TENANT DEFINED
--------------
The word "Tenant," wherever used in this Lease Agreement,
shall be construed to mean Tenants in all cases where there is more than one
Tenant, and the necessary grammatical changes required to make the provisions
hereof apply to corporations, partnerships or individuals, men or women, shall
in all cases be assumed as though in each case fully expressed.
22
<PAGE> 27
47. REPRESENTATIONS OF LANDLORD
---------------------------
Neither Landlord nor any of its agents or employees have made
any representations concerning the condition of the Demised Premises, plans for
further development or any other matter relating to this Lease Agreement which
are not contained in this Lease Agreement. Tenant has not relied on any
statements made by Landlord, its employees or agents, not contained herein in
making this Lease Agreement. All prior understandings, terms and conditions are
deemed merged in this Lease Agreement.
48. SUBHEADINGS
-----------
The subheadings of this Lease Agreement are entirely for
purposes of convenience and are in no way determinative of the meaning of the
text of the various paragraphs or parts herein.
49. ADDITIONAL TERMS
----------------
Any additional terms of this Lease Agreement shall be attached
hereto as Exhibit "49" and signed by the Landlord and Tenant or their authorized
representatives.
50. HAZARDOUS SUBSTANCE
-------------------
(a) Unless Tenant obtains, at its own expense, all
governmental licenses and permits required therefor, Tenant shall not cause or
permit any Hazardous Substance to be used, stored, generated, or disposed of on
or in the Demised Premises by Tenant, Tenant's agents, employees, contractors or
invitees, without first obtaining Landlord's prior written consent, which may be
withheld at Landlord's sole and absolute discretion. Tenant shall, immediately
upon receipt, deliver a copy of all such licenses and permits (together with any
related correspondence) directly to Landlord. If Hazardous Substances are so
used, stored, generated, or disposed of on or in the Demised Premises, or if the
Demised Premises become contaminated by Tenant in any manner for which Tenant is
legally liable, Tenant shall indemnify, defend, protect and hold harmless
Landlord from any and all claims, damages, fines, judgments, penalties, costs,
liabilities, or losses (including, without limitation, a decrease in value of
the Demised Premises, damages because of adverse impact on marketing of the
Demised Premises, and any and all sums paid for settlement of claims,
attorneys', consultants' and experts' fees) arising during or after the term of
this Lease and arising as a result of such contamination by Tenant. This
indemnification includes, without limitation, any and all costs incurred because
of any investigation of the site or any cleanup, removal, or restoration
mandated by a federal, state or local agency or political subdivision. In
addition, if Tenant causes or permits the presence of any Hazardous Substances
on the Demised Premises by Tenant, its agents, employees, contractors or
invitees and this results in contamination, Tenant shall promptly, at its sole
expense, take any and all necessary actions as required by applicable law to
remediate such contamination and shall repair any damage to the Demised Premises
caused by such remediation. The terms and conditions of this Section 50 shall
survive the termination of this Lease.
(b) As used herein, "Hazardous Substance" means any substance
which is toxic, ignitable, reactive, or corrosive and which is regulated by any
local government, the State of Ohio, or the United States government. "Hazardous
Substance" includes any and all material or substances which are defined as
"hazardous waste", "extremely hazardous waste", or a "hazardous substance",
pursuant to state, federal or local government law. "Hazardous Substance"
includes but
23
<PAGE> 28
is not restricted to asbestos, polychlorinated biphenyls ("PCBs") and petroleum.
51. LAW OF OHIO TO GOVERN
---------------------
This Lease Agreement shall be governed by the laws of the
State of Ohio. This Lease Agreement including any orders executed and attached
hereto contains the entire agreement between the parties, and any executory
agreement hereafter made shall be ineffective to charge, modify, discharge or
effect an abandonment of it in whole or in part unless such executory agreement
is in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought. If any provision of this Lease
Agreement shall be declared invalid or unenforceable, the remainder of the Lease
Agreement shall continue in full force and effect.
52. SHORT FORM LEASE
----------------
The parties hereto mutually agree that this Lease Agreement
shall not be recorded, but upon the written request from either one to the
other, a short form of this Lease Agreement in recordable form for filing and
recording in the Office of the Recorder of Franklin County, Ohio which short
form of lease shall be in conformance with Section 5301.251, Ohio Revised Code,
shall be promptly executed, acknowledged and delivered by both parties. Such
short form lease may be recorded by either party.
24
<PAGE> 29
IN WITNESS WHEREOF, the respective parties hereto have executed this
Lease Agreement or caused this Lease Agreement to be executed by their duly
authorized representatives in three (3) counterparts, each of which counterpart
shall constitute an original Lease Agreement, all said counterparts together
consisting one and the same Lease Agreement as of the day, month and year first
above written.
<TABLE>
<CAPTION>
<S> <C>
Signed in the presence of: LANDLORD:
/s/ Jane E. Fette
- -------------------------------- PHARMACIA & UPJOHN COMPANY
Jane E. Fette successor by merger to Adria
- -------------------------------- Laboratories, Inc.
(Print Name)
/s/ Paula A. Wright Burns By: /s/ Theodore P. Pokorski
- -------------------------------- -------------------------------
Paula A. Wright Burns Theodore P. Pokorski
- -------------------------------- Its: Manager, Real Estate
(Print Name)
TENANT:
Signed in the presence of:
/s/ Nancy B. Young OPTICON MEDICAL, INC.
- --------------------------------
Nancy B. Young
- --------------------------------
(Print Name) By: /s/ William Post
-------------------------------
/s/ Marjorie B. Karhoff William Post
- -------------------------------- Its: President and CEO
Marjorie B. Karhoff
- --------------------------------
(Print Name)
</TABLE>
25
<PAGE> 30
LANDLORD'S ACKNOWLEDGMENT
-------------------------
STATE OF MICHIGAN )
Section:
COUNTY OF KALAMAZOO )
Before me, a Notary Public in and for said County and State,
personally appeared the above named Pharmacia & Upjohn Company successor by
merger to Adria Laboratories, by Theodore P. Pokorski, its Real Estate Manager,
who acknowledged that he did sign the foregoing instrument, including Exhibits
1, 15, 40 and 49 and that the same is his free act and deed on behalf of the
company.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official
seal at Kalamazoo, Michigan, this 27th day of August, 1998.
/s/ Jane E. Fette
-------------------------------
NOTARY PUBLIC
My commission expires: 11/16/2000
-----------
<PAGE> 31
TENANT CORPORATE ACKNOWLEDGEMENT
--------------------------------
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
On this 20th day of August, 1998, before me appeared William
Post, to me personally known, who being by me duly sworn, did say that he is the
President and C.E.O. of Opticon Medical, Inc., the corporation that executed the
within and foregoing instrument including Exhibits 1, 15, 40 and 49 and that
said instrument was signed and sealed in behalf of said corporation by authority
of its Board of Directors and said William Post acknowledged said instrument to
be the free act and deed of said corporation.
/s/ Nancy B. Young
--------------------------------
NOTARY PUBLIC
My commission expires:
-----------
<PAGE> 32
EXHIBIT "1"
Floor Plan
----------
EXHIBIT "14"
RULES AND REGULATIONS
---------------------
1. Landlord shall have the right to control and operate the
public portions of the Building and the public facilities, as well as facilities
furnished for the common use of the Tenants, in such manner as it deems best for
the benefit of the Tenants generally. No Tenant shall invite to the premises, or
permit the visit of persons in such numbers or under such conditions as to
interfere with the use and enjoyment of the entrances, corridors, elevators and
facilities of the Building by other Tenants.
2. Landlord may refuse admission to the Building outside of
ordinary business hours to any person not known to the watchman in charge or
having a pass issued by Tenant or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business hours
to register.
3. No awning, advertisements, or other projections over and
around the windows or entrances of the Demised Premises shall be installed by
any Tenant.
4. Freight, furniture, business equipment, merchandise and
bulky matter of any description ordinarily shall be delivered to and removed
from the Demised Premises only in the elevators after previous arrangements have
been made with the property manager and through the entrances, stairs and
corridors, but special arrangements will be made for moving large quantities of
furniture and equipment into or out of the Building. Moving furniture or large
equipment into or out of the building must be scheduled with landlord at least
seven (7) days in advance. Landlord reserves the right to set times for regular
deliveries.
5. All entrance doors in the Demised Premises shall be left
locked when the premises are not in use.
6. Canvassing, soliciting or peddling in the Building is
prohibited and each Tenant shall cooperate to prevent the same.
7. Tenant shall not advertise the business, profession, or
activities of Tenant in any manner which violates the letter or spirit of any
code of ethics adopted by any recognized association or organization pertaining
thereto or use the name of the Building for any purpose other than that of the
business address of Tenant.
<PAGE> 33
8. Tenant shall not attach or permit to be attached additional
locks or similar devices to any door, transom or window of the Demised Premises;
change existing locks or the mechanism thereof; or make or permit to be made any
keys for any door thereof other than those provided by landlord. (If more than
two keys for one lock are desired Landlord will provide them upon payment
therefor by Tenant.)
9. Sidewalks, doorways, vestibules, halls, stairways, and
other similar areas shall not be obstructed by tenants or used by any tenant for
purposes other than ingress and egress to and from their respective leased
premises and for going from one to another part of the Building, except to the
extent necessary during construction of any Tenant improvements or as Tenant may
find temporarily necessary to perform its repair and maintenance obligations as
required by this Lease.
10. Plumbing, fixtures and appliances shall be used only for
the purposes for which designed, and no sweepings, rubbish, or rags shall be
thrown or deposited therein. Damage resulting to any such fixtures or appliances
from misuse by a tenant or its agents, employees or invitees, shall be paid by
such tenant.
11. Landlord shall provide and maintain an alphabetical
directory for all tenants in the main lobby of the Building.
12. To ensure orderly operation of the Building, no ice,
mineral or other water, towels, shall be delivered to any leased area except by
persons approved by Landlord.
13. No vending or dispensing machines of any kind may be
maintained in any leased premises without the prior written permission of
Landlord, which permission will not be unreasonably withheld.
14. Tenant agrees that it shall not willfully do or omit to do
any act or thing which shall discriminate or segregate upon the basis of race,
color, creed or national origin in the use and occupancy or in any subleasing or
subletting of the Demised Premises.
15. Landlord reserves the right by written notice to
terminate, rescind, alter or waive any rule or regulation at any time prescribed
for the Building or make additional rules and regulations when, in the
reasonable exercise of Landlord's judgment, it is necessary, desirable or proper
for the best interest of the Building and its Tenants.
<PAGE> 34
EXHIBIT "40"
TENANT ESTOPPEL
---------------
CERTIFICATE
-----------
TO: __________________________
DATE: _______________________
RE:
Lease Commencement Date: ____________________
Between:
and, _______________________________, Tenant
Rentable Area Leased: _______________________
Suite No.: _____________________________
Floor: __________________________
The undersigned, Tenant under the above-referenced lease ("Lease"),
certifies to
_______________________________________________________________________________,
the following:
1. The above-described Lease has not been canceled, modified,
assigned, extended or amended except as follows:________________________________
2. There is no prepaid rent except $___________ and the amount
of security deposit is _____________ $___________________.
3. We took possession of the Premises on _____________ and
commenced (or will commence) to pay Rent on _______________ in the amount of
$________________. Rent was last paid on ________________, ______, and has been
paid through _______________.
4. The Lease terminates on _____________ and we have the
following renewal option(s) ________________________________.
5. All work to be performed for us under the Lease has been
performed as required and has been accepted by us, except _____________________.
6. The Lease is: (a) in full force and effect; (b) free from
default; and (c) we have no claims against the Landlord or offsets against Rent.
7. Except as specifically set forth in said lease the
undersigned has received no Rental inducements, free rent or any other
inducement to enter into the lease except as follows:
__________________________________________________________________________
<PAGE> 35
8. The undersigned has received no notice of prior sale,
transfer or assignment, hypothecation or pledge of the Lease or of the Rent
secured therein other than to you, except,
__________________________________________________________________________
9. That the Premises as let are being used for the purpose as
described in the Lease.
10. The undersigned is not the subject of any bankruptcy
reorganization or insolvency proceedings.
11. The undersigned acknowledges that:
(i) Landlord's interest in the property can be
assigned without affect to the Lease.
(ii) Landlord, you and your successors, agents and
assigns (including but not limited to subsequent purchasers, lenders and title
insurers) will be relying upon each of the statement contained herein.
(iii) That in the event of an assignment the
undersigned will attorn to and recognize the building's owners as Landlord after
receipt of a formal notice and will pay Rents and other amounts due under the
existing Lease term.
If we are a corporation, the undersigned is a duly appointed
officer of the corporation signing this certificate and is the incumbent in the
office indicated under (his)(her) name.
In any event, the undersigned individual(s) (is) (are) duly
authorized to execute this certificate.
Dated this _________ day of _______________, _________
Witnesseth: TENANT:
- ------------------------- -------------------------
<PAGE> 36
STATE OF OHIO
COUNTY OF FRANKLIN, SS:
BEFORE ME, a Notary Public in and for said County and State,
personally appeared the above named _______________________ who acknowledged
before me that the foregoing instrument was signed for the purposes therein
stated and as the free act and deed of the signer thereof.
IN WITNESS WHEREOF, I hereby certify the acknowledgment and
have hereunto subscribed my name and affixed my official seal this ______ day of
_______________, ______.
--------------------------------
Notary Public
<PAGE> 37
EXHIBIT "49"
ADDITIONAL LEASE TERMS
----------------------
[INTENTIONALLY LEFT BLANK]
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO LEASE AGREEMENT BETWEEN
PHARMACIA & UPJOHN COMPANY, SUCCESSOR BY
MERGER TO ADRIA LABORATORIES, INC., "LANDLORD",
AND OPTICON MEDICAL, INC., "TENANT"
SAID LEASE DATED AS OF OCTOBER 27, 1998
The parties hereto, Pharmacia & Upjohn Company, successor by
merger to Adria Laboratories, Inc., a Delaware corporation ("Landlord"), and
Opticon Medical, Inc., an Iowa corporation (hereinafter referred to as "Tenant")
as of this 27th day of October, 1998 hereby agree to the First Amendment of the
captioned lease in the following respects:
1. Premises. The usable square footage is 4,028, and the
Rentable Square Footage is 4,270.
2. Term. The term of the Lease Agreement commenced on the 15th
day of September, 1998 and will expire on the 30th day of September, 2001.
3. Rent. The Rent Commencement Date is October 1, 1998
continuing through September 30, 2001. Therefore the rent is:
<TABLE>
<CAPTION>
================================================================================================
YEAR ANNUAL NET RENT PER NET RENT NET RENT PER
SQ. FT. PER YEAR MONTH
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
October 1, 1998 - September 30, 1999 $7.80 $33,306.00 $2,775.50
- ------------------------------------------------------------------------------------------------
October 1, 1999 -September 30, 2000 $8.00 $34,160.00 $2,846.67
- ------------------------------------------------------------------------------------------------
October 1, 2000 - September 30, 2001 $8.20 $35,014.00 $2,917.83
================================================================================================
</TABLE>
together with estimated annual Operating Expenses (defined herein) of $5.95 per
square foot (currently, the estimated $5.95 times 4,270 = $25,406.50 annually,
or $2,117.21 monthly), in advance, in equal monthly installments (initially
$4,892.71) on the first day of each calendar month beginning October 1, 1998,
without any setoff or counterclaim whatsoever. These amounts shall hereinafter
be called "Base Rent."
4. Every other provision of the Lease Agreement not
specifically changed in this First Amendment is hereby reaffirmed in all
respects by both parties.
IN WITNESS WHEREOF, the respective parties hereto have
executed this First Amendment to Lease Agreement or caused this First Amendment
to Lease Agreement to be executed by their duly authorized representatives in
three (3) counterparts, each of which counterpart shall constitute an original
First Amendment to Lease Agreement, all said counterparts together consisting
one and the same First Amendment to Lease Agreement as of the day, month and
year first above written.
<PAGE> 2
Signed in the presence of: LANDLORD:
/s/ Jane E. Fette
- ---------------------------- PHARMACIA & UPJOHN COMPANY
Jane E. Fette successor by merger to Adria
- ---------------------------- Laboratories, Inc.
(Print Name)
By: /s/ Theodore P. Pokorski
/s/ Paula Wright Burns -------------------------------
- ---------------------------- Theodore P. Pokorski
Paula Wright Burns Its: Manager, Real Estate
- ----------------------------
(Print Name)
TENANT:
Signed in the presence of:
OPTICON MEDICAL, INC.
/s/ Kimberly A. Nice
- ----------------------------
Kimberly A. Nice
- ----------------------------
(Print Name) By: /s/ William Post
-------------------------------
/s/ Richard F. Underman William Post
- ---------------------------- Its: President and CEO
Richard F Underman
- ----------------------------
(Print Name)
LANDLORD'S ACKNOWLEDGMENT
-------------------------
STATE OF MICHIGAN )
Section:
COUNTY OF KALAMAZOO )
Before me, a Notary Public in and for said County and State,
personally appeared the above named Pharmacia & Upjohn Company successor by
merger to Adria Laboratories, by Theodore P. Pokorski, its Real Estate Manager,
who acknowledged that he did sign the foregoing instrument, and that the same is
his free act and deed on behalf of the company.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official
seal at Kalamazoo, Michigan, this 23rd day of November, 1998.
NOTARY PUBLIC /s/ Jane E. Fette
-----------------------
My commission expires: 11/16/2000
--------------
<PAGE> 3
TENANT CORPORATE ACKNOWLEDGEMENT
--------------------------------
STATE OF OHIO )
ss:
COUNTY OF FRANKLIN )
Before me, a Notary Public in and for said County and State,
personally appeared the above named Opticon Medical, Inc., by William Post,
President and C.E.O., who acknowledged that he did sign the foregoing
instrument, and that the same is his free act and deed on behalf of the
corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official
seal at Columbus, Ohio, this 6th day of November, 1998.
NOTARY PUBLIC /s/ Richard F. Underman
-------------------------
My commission expires: 1-23-2000
----------------
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the Agreement ) is entered into as of March
10, 1997, by and between Opticon Medical Inc., an Iowa corporation (the
"Company"), and William J. Post, individual resident of the State of Ohio
("Executive").
WHEREAS, the Company wishes to employ Executive to render services for
the Company on the terms and conditions set forth in this Agreement, and
Executive wishes to be retained and employed by the Company on such terms and
conditions.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Executive set forth below, the Company and
Executive agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive
accepts such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this Agreement.
2. TERM. Unless terminated at an earlier date in accordance with
Section 9 of this Agreement, the term of Executive's employment hereunder shall
be for a period of two (2) years, commencing on the date of this Agreement.
Thereafter, the term of this Agreement shall be automatically extended for
successive one (1) year periods unless either party objects to such extension by
written notice to the other party at least thirty (30) days prior to the end of
the initial term or any extension term.
3. POSITION AND DUTIES.
3.01 SERVICE WITH COMPANY. During the term of this Agreement,
Executive agrees to perform such reasonable employment duties as the Board of
Directors of the Company shall assign to him from time to time. Executive shall
have the title of President and Chief Executive Officer. Executive also agrees
to serve, for any period for which he is elected, as an officer or director of
the Company; provided, however, that Executive shall not be entitled to any
additional compensation for serving as an officer or director. As a director of
the Company, if so elected, in accordance with the Company's Articles of
Incorporation, Executive shall not be personally liable to the Company or its
shareholders for damages for breach of fiduciary duty as a director, except for
liability (i) for breach of a director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions not in good faith which involve
intentional misconduct of knowing violations of the law, (iii) for a transaction
from which the Executive derived improper personal benefit or (iv) under Section
490.833 of the Iowa Business Corporation Act.
3.02 PERFORMANCE OF DUTIES. Executive agrees to serve the
Company faithfully and to the best of his ability and to devote his full time,
attention and efforts to the business and affairs of the Company during the term
of this Agreement. Executive represents to the Company that he is under no
contractual commitments inconsistent with his obligations set forth in this
<PAGE> 2
Agreement, and that during the term of this Agreement, he will not render or
perform services for any other corporation, firm, entity or person which are
inconsistent with the provisions of this Agreement, except with the prior
written consent of the Board of Directors of the Company.
4. COMPENSATION.
------------
4.01 BASE SALARY. As base compensation for all services to be
rendered by Executive under this Agreement during the first twelve (12) months
of the term of this Agreement, the Company shall pay to Executive a base salary
of $13,333 per month, which salary shall be paid on a bi-weekly basis in
accordance with the Company's normal payroll procedures and policies. The salary
payable to Executive during each subsequent year during the term of this
Agreement shall be established by the Company's Board of Directors following an
annual performance review, but in no event shall the salary for any subsequent
year be less than the salary in effect for the prior year.
4.02 INCENTIVE COMPENSATION. In addition to the base salary
described in Section 4.01, for the first twelve (12) months of the term of this
Agreement, Executive shall be eligible for a cash bonus of $60,000, payable in
two equal installments on September 10, 1997 and March 10, 1998, respectively,
on the condition that Executive successfully achieves certain milestones for the
progress and development of the Company and its products as determined by the
sole discretion of the Board of Directors of the Company. These milestones shall
be determined by the mutual agreement of Executive and the Board of Directors
within the first hundred twenty (120) days of the term of this Agreement. The
bonus payable to Executive during each subsequent twelve (12) month period
during the term of this Agreement shall be determined pursuant to similar
incentive plans established by the Board of Directors, but in no event shall the
bonus for any subsequent year be less than $60,000.
4.03 PARTICIPATION IN BENEFIT PLANS. Executive shall also be
entitled to participate in all employee benefit plans or programs (including
vacation time, and health, life and disability insurance) of the Company to the
extent that his position, title, tenure, salary, age, health and other
qualifications make him eligible to participate. The Company does not guarantee
the adoption or continuance of any of this Agreement, and Executive's
participation in any such plan or program shall be subject to the provisions,
rules and regulations applicable thereto.
4.04 EXPENSES. The Company will pay or reimburse Executive for
all reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the presentment of
appropriate vouchers in accordance with the Company's normal policies for
expense verification.
4.05 ISSUANCE OF STOCK OPTION. Concurrently with the execution
of this Agreement, the Company shall issue to Executive an option to purchase up
to 250,000 shares of the Company's common stock pursuant to the Company's
Incentive Stock Option Plan. Such option shall be subject to the vesting
schedule and terms and conditions set forth in the form of stock option
agreement attached to this Agreement as an exhibit.
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<PAGE> 3
4.06 RELOCATION EXPENSES. Executive shall be entitled to a net
payment of $80,000 which shall be adjusted to reflect the Federal and applicable
state income tax consequences of such payment to Executive as the Company and
Executive shall agree from the Company to cover all expenses relating to
Executive's relocation to the Minneapolis, Minnesota area and the sale of his
current home in Ohio, which lump sum payment shall be made when Executive
completes his relocation; provided, however, in the event the closing of the
sale of Executive's current home occurs prior to Executive's relocation, the
Company shall advance and pay to Executive one-half of the relocation payment or
$40,000, and the remaining $40,000 payment plus tax adjustments will be made
upon Executive's relocation. Executive agrees that in the event that Executive's
employment with the Company is terminated for "cause" (as defined in Section
9.02) or Executive elects to terminate this Agreement prior to his relocation,
Executive shall repay the $40,000 advance, if made, to the Company.
5. CONFIDENTIAL INFORMATION. Except as permitted or directed by the
Company's Board of Directors, during the term of this Agreement or at any time
thereafter, Executive shall not divulge, furnish or make accessible to anyone or
use in any way (other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information of the Company
which Executive has acquired or become acquainted with or will acquire or become
acquainted with prior to the termination of the period of his employment by the
Company, whether developed by Executive or by others, concerning any trade
secrets, confidential or secret designs, processes, formulae, plans, devices or
material (whether or not patented or patentable) directly or indirectly useful
in any aspect of the business of the Company, any customer or supplier lists of
the Company, any confidential or secret development or research work of the
Company, or any other confidential information or secret aspects of the business
of the Company. Executive acknowledges that the above-described knowledge or
information constitutes a unique and valuable asset of the Company and
represents a substantial investment of time and expense by the Company, and that
any disclosure or other use of such knowledge or information other than for the
sole benefit of the Company would be wrongful and would cause irreparable harm
to the Company. Both during and after the term of this Agreement, Executive will
refrain from any acts or omissions that would reduce the value of such knowledge
or information to the Company. The foregoing obligations of confidentiality,
however, shall not apply to any knowledge or information which is now published
or which subsequently becomes generally publicly known in the form in which it
was obtained from the Company, other than as a direct or indirect result of the
breach of this Agreement by Executive.
6. VENTURES. If, during the term of this Agreement, Executive is
engaged in or associated with the planning or implementing of any project,
program or venture involving the Company and a third party or parties, all
rights in such project, program or venture shall belong to the Company. Except
as formally approved by the Company's Board of Directors, Executive shall not be
entitled to any interest in such project, program or venture or to any
commission, finder's fee or other compensation in connection therewith other
than the salary to be paid to Executive as provided in this Agreement.
3
<PAGE> 4
7. NONCOMPETITION COVENANT.
7.01 AGREEMENT NOT TO COMPETE. Executive agrees that, during
the period of his employment by the Company and for a period of two (2) years
after the termination of such employment (whether such termination is with or
without "cause," or whether such termination is occasioned by Executive or the
Company), he shall not, directly or indirectly, engage in competition with the
Company in any manner or capacity (e.g., as an advisor, principal, agent,
partner, officer, director, stockholder, employee, member of any association, or
otherwise) in any phase of the business which the Company is conducting during
the term of this Agreement, including the design, development, manufacture,
distribution, marketing, leasing or selling of urological products or services
being sold by the Company.
7.02 GEOGRAPHIC EXTENT OF COVENANT. The obligations of
Executive under Section 7.01 shall apply to any geographic area in which the
Company:
(a) has engaged in business during the term of this
Agreement through production, promotional, sales or marketing activity, or
otherwise, or
(b) has otherwise established its goodwill, business
reputation, or any customer or supplier relations.
7.03 LIMITATION ON COVENANT. Ownership by Executive, as a
passive investment, of less than five percent (5%) of the outstanding shares of
capital stock of any corporation listed on a national securities exchange or
publicly traded in the over-the-counter market shall not constitute a breach of
this Section 7.
7.04 INDIRECT COMPETITION. Executive further agrees that,
during the term of this Agreement, he will not, directly or indirectly, assist
or encourage any other person in carrying out, directly or indirectly, any
activity that would be prohibited by the above provisions of this Section 7 if
such activity were carried out by Executive, either directly or indirectly; and
in particular Executive agrees that he will not, directly or indirectly, induce
any employee of the Company to carry out, directly or indirectly, any such
activity.
8. PATENT AND RELATED MATTERS.
8.01 DISCLOSURE AND ASSIGNMENT. Executive will promptly
disclose in writing to the Company complete information concerning each and
every invention, discovery, improvement, device, design, apparatus, practice,
process, method or product, whether patentable or not, made, developed,
perfected, devised, conceived or first reduced to practice by Executive, either
solely or in collaboration with others, during the term of this Agreement, or
within six months thereafter, whether or not during regular working hours,
relating either directly or indirectly to the business, products, practices or
techniques of the Company (hereinafter referred to as "Developments").
Executive, to the extent that he has the legal right to do so, hereby
acknowledges that any and all of said Developments are the property of the
Company and hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of such
Developments.
4
<PAGE> 5
8.02 FUTURE DEVELOPMENTS. As to any future Developments made
by Executive which relate to the business, products or practices of the Company
and which are first conceived or reduced to practice during the term of this
Agreement, or within six months thereafter, but which are claimed for any reason
to belong to an entity or person other than the Company, Executive will promptly
disclose the same in writing to the Company and shall not disclose the same to
others if the Company, within twenty (20) days thereafter, shall claim ownership
of such Developments under the terms of this Agreement. If the Company makes
such claim, Executive agrees that, insofar as the rights (if any) of Executive
are involved, it will be settled by arbitration in accordance with the rules
then obtaining of the American Arbitration Association. The locale of the
arbitration shall be Minneapolis, Minnesota (or other locale convenient to the
Company's principal executive offices). If the Company makes no such claim,
Executive hereby acknowledges that the Company has made no promise to receive
and hold in confidence any such information disclosed by Executive.
8.03 LIMITATION ON SECTIONS 8.01 AND 8.02. The provisions of
Sections 8.01 and 8.02 shall not apply to any Development meeting the following
conditions:
(a) such Development was developed entirely on
Executive's' own time; and
(b) such Development was made without the use of any
Company equipment, supplies, facility or trade secret information; and
(c) such Development does not relate (i) directly to
the business of the Company, or (ii) to the Company's actual or demonstratably
anticipated research or development; and
(d) such Development does not result from any work
performed by Executive for the Company.
8.04 ASSISTANCE OF EXECUTIVE. Upon request and without further
compensation therefor, but at no expense to Executive, and whether during the
term of this Agreement or thereafter, Executive will do all lawful acts,
including, but not limited to, the execution of papers and lawful oaths and the
giving of testimony, that in the opinion of the Company, its successors and
assigns, may be necessary or desirable in obtaining, sustaining, reissuing,
extending and enforcing United States and foreign patents, including, but not
limited to, design patents, on any and all of such Developments, and for
perfecting, affirming and recording the Company's complete ownership and title
thereto, and to cooperate otherwise in all proceedings and matters relating
thereto.
8.05 RECORDS. Executive will keep complete, accurate and
authentic accounts, notes, data and records of all Developments in the manner
and form requested by the Company. Such accounts, notes, data and records shall
be the property of the Company, and, upon its
5
<PAGE> 6
request, Executive will promptly surrender same to it or, if not previously
surrendered upon its request or otherwise, Executive will surrender the same,
and all copies thereof, to the Company upon the conclusion of his employment.
8.06 OBLIGATIONS, RESTRICTIONS AND LIMITATIONS. Executive
understands that the Company may enter into agreements or arrangements with
agencies of the United States Government, and that the Company may be subject to
laws and regulations which impose obligations, restrictions and limitations on
it with respect to inventions and patents which may be acquired by it or which
may be conceived or developed by employees, consultants or other agents
rendering services to it. Executive agrees that he shall be bound by all such
obligations, restrictions and limitations applicable to any such invention
conceived or developed by him during the term of this Agreement and shall take
any and all further action which may be required to discharge such obligations
and to comply with such restrictions and limitations.
9. TERMINATION.
9.01 GROUNDS FOR TERMINATION. This Agreement shall terminate
prior to the expiration of the initial term set forth in Section 2 or any
extension thereof in the event that at any time during such initial term or any
extension thereof:
(a) Executive dies, or
(b) Executive becomes disabled (as defined below), or
(c) The Board of Directors of the Company elects to
terminate this Agreement for "'cause" and notifies Executive in writing of such
election, or
(d) The Board of Directors of the Company elects to
terminate this Agreement without "cause" and notifies Executive in writing of
such election, or
(e) Executive elects to terminate this Agreement and
notifies the Company in writing of such election.
If this Agreement is terminated pursuant to subsection (a), (b) or (c)
of this Section 9.01, such termination shall be effective immediately. If this
Agreement is terminated pursuant to subsection (d) or (e) of this Section 9.01,
such termination shall be effective thirty (30) days after delivery of the
notice of termination.
9.02 "CAUSE" DEFINED.
(a) Executive has breached the provision of Section
5, 7 or 8 of this Agreement in any material respect, or
(b) Executive has engaged in willful and material
misconduct, including willful and material failure to perform Executive's duties
as an officer or employee of the Company and has failed to "cure" such default
within thirty (30) days after receipt of written notice of default from the
Company, or
6
<PAGE> 7
(c) Executive has committed fraud, misappropriation
or embezzlement in connection with the Company's business, or
(d) Executive has been convicted or has pleaded nolo
contendere to criminal misconduct (except for parking violations and occasional
minor traffic violations), or
(e) Executive's use of narcotics, liquor or illicit
drug has a detrimental effect on the performance of his employment
responsibilities, as determined by the Company's Board of Directors.
In the event that the Company terminates Executive's employment for
"cause" pursuant to subsection 9.01(c) and Executive objects in writing to the
Board's determination that there was proper "cause" for such termination within
twenty (20) days after Executive is notified of such termination, the matter
shall be resolved by arbitration in accordance with the provisions of Section
10.01. If Executive fails to object to any such determination of "cause" in
writing within such twenty (20) day period, he shall be deemed to have waived
his right to object to that determination. If such arbitration determines that
there was not proper "cause" for termination, such termination shall be deemed
to be a termination pursuant to subsection 9.01 (d) and Executive's sole remedy
shall be to receive the wage continuation benefits contemplated by Section 9.06.
9.03 EFFECT OF TERMINATION. Notwithstanding any termination of
this Agreement, Executive, in consideration of his employment hereunder to the
date of such termination, shall remain bound by the provisions of this Agreement
which specifically relate to periods, activities or obligations upon or
subsequent to the termination of Executive's employment.
9.04 "DISABILITY" DEFINED. As used in this Agreement Executive
shall be deemed "disabled" if Executive suffers or incurs any disease, injury or
other physical or mental impairment or disorder which constitutes a long-term
disability under the disability income insurance policy then being provided by
the Company for Executive.
9.05 SURRENDER OF RECORDS AND PROPERTY. Upon termination of
his employment with the Company, Executive shall deliver promptly to the Company
all records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in his possession or
under his control.
9.06 WAGE CONTINUATION. If Executive's employment by the
Company is terminated by the Company pursuant to subsections 9.01(a), 9.01(b) or
9.01(d) or Section 2, the Company shall continue to pay to Executive or his
estate his then current base salary (less any payments received by Executive
from any disability income insurance policy provided to him by
7
<PAGE> 8
the Company) and shall continue to provide health, life and disability insurance
benefits for Executive (except when Executive's employment is terminated
pursuant to subsection 9.01(a)) through the earlier of (a) the date that
Executive has obtained other full-time employment, or (b) twelve (12) months
from the date of termination of employment. If this Agreement is terminated
pursuant to subsection 9.01(c) or 9.01(e) or by the Executive pursuant to
Section 2, Executive's right to base salary and benefits shall immediately
terminate, except as may otherwise be required by applicable law.
10. SETTLEMENT OF DISPUTES.
10.01 ARBITRATION. Except as provided in Section 10.02, any
claims or disputes of any nature between the Company and Executive arising from
or related to the performance, breach, termination, expiration, application, or
meaning of this Agreement or any matter relating to Executive's employment and
the termination of that employment by the Company shall be resolved exclusively
by arbitration in Minneapolis, Minnesota, in accordance with the applicable
rules then obtaining of the American Arbitration Association. The fees of the
arbitrator(s) and other costs incurred by Executive and the Company in
connection with such arbitration shall be paid by the party who is unsuccessful
in such arbitration.
The decision of the arbitrator(s) shall be final and binding upon both
parties. Judgment of the award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof. In the event of submission of any dispute
to arbitration, each party shall, not later than thirty (30) days prior to the
date set for hearing, provide to the other party and to the arbitrator(s) a copy
of all exhibits upon which the party intends to rely at the hearing and a list
of all persons each party intends to call at the hearing.
10.02 RESOLUTION OF CERTAIN CLAIMS - INJUNCTIVE RELIEF.
Section 10.01 shall have no application to claims by the Company asserting a
violation of Section 5, 7, 8 or 9.05 or seeking to enforce, by injunction or
otherwise, the terms of Section 5, 7, 8 or 9.05. Such claims may be maintained
by the Company in a lawsuit subject to the terms of Section 10.03. Executive
agrees that, in addition to, but not to the exclusion of any other available
remedy, the Company shall have the right to enforce the provisions of Sections
5, 7, 8 and 9.05 by applying for and obtaining temporary and permanent
restraining orders or injunctions from a court of competent jurisdiction without
the necessity of filing a bond therefor, and the Company shall be entitled to
recover from the Employee its reasonable attorneys' fees and costs in enforcing
the provisions of Sections 5,7, 8 and 9.05.
10.03 VENUE. Any action at law, suit in equity, or judicial
proceeding arising directly, indirectly, or otherwise in connection with, out
of, related to or from this Agreement or any provision hereof, shall be
litigated only in the courts of the state of Minnesota, County of Hennepin.
Executive waives any right the Executive may have to transfer or change the
venue of any litigation brought against Executive by the Company.
10.04 SEVERABILITY. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. In
8
<PAGE> 9
furtherance and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only that duration, extent
or activities which may validly and enforceably be covered. Executive
acknowledges the uncertainty of the law in this respect and expressly stipulates
that this Agreement be given the construction which renders its provisions valid
and enforceable to the maximum extent (not exceeding its express terms) possible
under applicable law.
11. MISCELLANEOUS.
11.01 GOVERNING LAW. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the state of Minnesota.
11.02 PRIOR AGREEMENTS. This Agreement contains the entire
agreement of the parties relating to the employment of Executive by the Company
and the ancillary matters discussed herein and supersedes all prior agreements
and understandings with respect to such matters, and the parties hereto have
made no agreements, representations or warranties relating to such employment or
ancillary matters which are not set forth herein.
11.03 WITHHOLDING TAXES. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
11.04 AMENDMENTS. No amendment or modification of this
Agreement shall be deemed effective unless made in writing and signed by the
both Executive and the Company.
11.05 NO WAIVER. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or, condition for the future or as to any act
other than that specifically waived.
11.06 ASSIGNMENT. This Agreement shall not be assignable, in
whole or in part, by either party without the written consent of the other
party, except that the Company may, without the consent of Executive, assign its
rights and obligations under this Agreement to any corporation, firm or other
business entity with or into which the Company may merge or consolidate, or to
which the Company may sell or transfer all or substantially all of its assets,
or of which 50% or more of the equity investment and of the voting control is
owned, directly or indirectly, by, or is under common ownership with, the
Company. After any such assignment by the Company, the Company shall be
discharged from all further liability hereunder and such assignee shall
thereafter be deemed to be the Company for the purposes of all provisions of
this Agreement including this Section 11.
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<PAGE> 10
11.07 COUNTERPARTS. This Agreement may be simultaneously
executed in any number of counterparts, and such counterparts executed and
delivered, each as an original, shall constitute but one and the same
instrument.
11.08 CAPTIONS AND HEADINGS. The captions and paragraph
headings used in this Agreement are for convenience of reference only, and shall
not affect the construction or interpretation of this Agreement or any of the
provisions hereof.
IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date set forth in the first paragraph.
OPTICON MEDICAL INC
By /s/ Walter L. Sembrowich
-----------------------------------
Walter L. Sembrowich, Ph.D.,
Chairman of the Board
WILLIAM J. POST
/s/ William J. Post
-----------------------------------
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<PAGE> 1
EXHIBIT 10.4
AMENDMENT TO
EMPLOYMENT AGREEMENT
--------------------
This Amendment to Employment Agreement is hereby entered into by and
between Opticon Medical, Inc., an Iowa corporation (the "Company") and William
J. Post, an individual resident of the State of Ohio (the "Executive") as of the
12th day of February, 1998.
Whereas, the Company and Executive are parties to an Employment
Agreement, dated as of March 10, 1997, by and between the Company and the
Executive (the "Employment Agreement"), which the parties now desire to amend;
Whereas, pursuant to Section 4.02 of the Employment Agreement,
Executive is eligible for a cash bonus of $60,000 payable in two equal
installments on September 10, 1997 and March 10, 1998 upon the achievement of
milestones set by the Company's Board of Directors;
Whereas, the Company acknowledges that the milestones underlying such
bonus have been met and that the Executive has earned the bonus in accordance
with the Employment Agreement;
Whereas, the Company was unable to pay Executive the first installment
of the bonus on September 10, 1997 because of the Company's limited financial
resources, and it is unlikely that the Company will be able to pay Executive the
second bonus installment on March 10, 1998;
Whereas, Executive and the Company desire to amend the Employment
Agreement to provide that interest shall accrue on the unpaid bonus payments and
to provide for the conversion of the unpaid bonus payments and interest accrued
thereon into equity in the Company;
NOW THEREFORE, in consideration of the mutual promises contained
herein, Company and the Executive agree to amend the Employment Agreement as
follows:
1. The Employment Agreement is hereby amended by the addition of the
following sentence at the end of Section 4.02:
The bonus payments due and payable to Executive on September
10, 1997 and March 10, 1998 shall not be paid to Executive
until January 31, 1999, and shall accrue interest at the
annual rate of ten (10) percent from the respective due date
of each bonus payment until January 31, 1999, the date the
bonus payments and all accrued interest thereon shall be due
and payable.
2. The Employment Agreement is hereby amended by the addition of the
following as Section 4.07:
<PAGE> 2
4.07 CONVERSION OF BONUS. Notwithstanding any other provision
in this Agreement to the contrary, upon the Company's sale
during calendar year 1998 of at least $2,000,000 aggregate of
its Common Stock, Convertible Preferred Stock, Series A, or a
new series of preferred stock established by the Company (the
"1998 Offering"), the amount of unpaid bonus payments and
accrued interest to date thereon shall be converted into
Common Stock of the Company. The unpaid bonus amount and
accrued interest shall be converted into the number of shares
of bonus amount and accrued interest being converted into the
number of shares of the Company's Common Stock equal to the
unpaid bonus payments and accrued interest being converted,
less the amount required to be withheld by the Company for
federal and state taxes, divided by the lesser of (i) the per
share price paid for the securities in the 1998 Offering or
(ii) $1.50 (the "Conversion Price"); provided, however if the
1998 Offering is an offering of the Company's Convertible
Preferred Stock, Series A, or a new series of preferred stock
established by the Company and the per share price paid in
such offering is $1.50 or less, then the unpaid bonus amount
and accrued interest thereon, less the amount required to be
withheld by the Company for federal and state taxes, shall be
converted into the preferred stock offered in the 1998
Offering in lieu of the Company's Common Stock. In addition,
concurrently with the conversion of the unpaid bonus payments
and accrued interest into stock of the Company, the Company
shall issue a warrant to Executive exercisable for ten (10)
years from the date of issue for that number of shares of
Common Stock of the Company equal to the number of shares of
Company stock, either common or preferred, into which the
unpaid bonus amount and accrued interest is converted pursuant
to this section. The exercise price for the warrant shares
shall be equal to the Conversion Price. The warrant shall be
in substantially the same form as the Series 1998 Warrants to
be issued by the Company pursuant to the terms of the Series
1998 Convertible Debentures issued by the Company, which form
is attached hereto as an exhibit.
3. All other provisions of the Employment Agreement shall remain in
full force and effect and shall not be modified by this Amendment.
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IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment as of the date first written above.
OPTICON MEDICAL INC.
By /s/ Walter L. Sembrowich
---------------------------------
Walter L. Sembrowich,
Chairman of the Board
WILLIAM J. POST
/s/ William J. Post
--------------------------------
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the
9th day of September, 1997 by and between Opticon Medical Inc., an Iowa
corporation (the "Company"), and John LaMarche, individual resident of the state
of Iowa ("Executive").
WHEREAS, the Company wishes to employ Executive to render services for
the Company on the terms and conditions set forth in this Agreement, and
Executive wishes to be retained and employed by the Company on such terms and
conditions.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Executive set forth below, the Company and
Executive agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive
accepts such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this Agreement.
2. TERM. Unless terminated at an earlier date in accordance with
Section 9 of this Agreement, the term of Executive's employment hereunder shall
commence on the date of this Agreement and end on December 31, 1997. Thereafter,
the term of this Agreement shall be automatically extended for successive one
(1) year periods unless either party objects to such extension by written notice
to the other party at least thirty (30) days prior to the end of the initial
term or any extension term.
3. POSITION AND DUTIES.
3.01 SERVICE WITH COMPANY. During the term of this Agreement,
Executive agrees to perform such reasonable employment duties as the Chief
Executive Officer of the Company shall assign to him from time to time.
Executive also agrees to serve, for any period for which he is elected, as an
officer or director of the Company; provided, however, that Executive shall not
be entitled to any additional compensation for serving as an officer or
director. As a director of the Company, if so elected, in accordance with the
Company's Articles of Incorporation, Executive shall not be personally liable to
the Company or its shareholders for damages for breach of his fiduciary duty as
a director, except for liability (i) for breach of his director's duty of
loyalty to the Company or its shareholders, (ii) for acts or omissions not in
good faith which involve intentional misconduct or knowing violations of the
law, (iii) for a transaction from which Executive derived improper personal
benefit or (iv) under Section 490.833 of the Iowa Business Corporation Act.
3.02 PERFORMANCE OF DUTIES. Executive agrees to serve the
Company faithfully and to the best of his ability and to devote his full time,
attention and efforts to the business and affairs of the Company during the term
of this Agreement. Executive represents to the Company that he is under no
contractual commitments inconsistent with his obligations set forth in this
Agreement, and that during the term of this Agreement, he will not render or
perform services
<PAGE> 2
for any other corporation, firm, entity or person which are inconsistent with
the provisions of this Agreement, except with the prior written consent of the
Board of Directors of the Company.
4. COMPENSATION.
4.01 BASE SALARY. As base compensation for all services to be
rendered by Executive under this Agreement during the initial term of this
Agreement, the Company shall pay to Executive an annual base salary of $100,000
which salary shall be paid in accordance with the Company's normal payroll
procedures and policies. The salary payable to Executive during each subsequent
one-year term of this Agreement shall be established by the Company's Board of
Directors following an annual performance review, but in no event shall the
salary for any subsequent year be less than the salary in effect for the prior
year.
4.02 INCENTIVE COMPENSATION. In addition to the base salary
described in Section 4.01, Executive shall be eligible to participate in any
incentive compensation plans which may be established by the Board of Directors
of the Company from time to time.
4.03 PARTICIPATION IN BENEFIT PLANS. Executive shall also be
entitled to participate in all employee benefit plans or programs (including
vacation time) of the Company to the extent that his position, title, tenure,
salary, age, health and other qualifications make him eligible to participate.
The Company does not guarantee the adoption or continuance of any particular
employee benefit plan or program during the term of this Agreement, and
Executive's participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto.
4.04 EXPENSES. The Company will pay or reimburse Executive for
all reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the presentment of
appropriate vouchers in accordance with the Company's normal policies for
expense verification.
5. Confidential Information. Except as permitted or directed by the
Company's Board of Directors, during the term of this Agreement or at any time
thereafter, Executive shall not divulge, furnish or make accessible to anyone or
use in any way (other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information of the Company
which Executive has acquired or become acquainted with or will acquire or become
acquainted with prior to the termination of the period of his employment by the
Company (including employment by the Company or any affiliated companies prior
to the date of this Agreement), whether developed by Executive or by others,
concerning any trade secrets, confidential or secret designs, processes,
formulae, plans, devices or material (whether or not patented or patentable)
directly or indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential or secret
development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. Executive
acknowledges that the above-described knowledge or information constitutes a
unique and valuable asset of the Company and represents a substantial investment
of time and expense by the Company and its predecessors, and that any disclosure
or other use of such knowledge or information other than for the sole benefit of
the Company would
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<PAGE> 3
be wrongful and would cause irreparable harm to the Company. Both during and
after the term of this Agreement, Executive will refrain from any acts or
omissions that would reduce the value of such knowledge or information to the
Company. The foregoing obligations of confidentiality, however, shall not apply
to any knowledge or information which is now published or which subsequently
becomes generally publicly known in the form in which it was obtained from the
Company, other than as a direct or indirect result of the breach of this
Agreement by Executive.
6. VENTURES. If, during the term of this Agreement, Executive is
engaged in or associated with the planning or implementing of any project,
program or venture involving the Company and a third party or parties, all
rights in such project, program or venture shall belong to the Company. Except
as formally approved by the Company's Board of Directors, Executive shall not be
entitled to any interest in such project, program or venture or to any
commission, finder's fee or other compensation in connection therewith other
than the salary to be paid to Executive as provided in this Agreement.
7. NONCOMPETITION COVENANT.
7.01 AGREEMENT NOT TO COMPETE. Executive agrees that, during
the period of his employment by the Company and for a period of two (2) years
after the termination of such employment (whether such termination is with or
without cause, or whether such termination is occasioned by Executive or the
Company), he shall not, directly or indirectly, engage in competition with the
Company in any manner or capacity (e.g., as an advisor, principal, agent,
partner, officer, director, stockholder, employee, member of any association, or
otherwise) in any phase of the business which the Company is conducting during
the term of this Agreement, including the design, development, manufacture,
distribution, marketing, leasing or selling of urological products or services
being sold by the Company.
7.02 GEOGRAPHIC EXTENT OF COVENANT. The obligations of
Executive under Section 7.01 shall apply to any geographic area in which the
Company:
(a) has engaged in business during the term of this
Agreement through production, promotional, sales or marketing activity, or
otherwise, or
(b) has otherwise established its goodwill,
business reputation, or any customer or supplier relations.
7.03 LIMITATION ON COVENANT. Ownership by Executive, as a
passive investment, of less than five percent (5%) of the outstanding shares of
capital stock of any corporation listed on a national securities exchange or
publicly traded in the over-the-counter market shall not constitute a breach of
this Section 7.
7.04 INDIRECT COMPETITION. Executive further agrees that,
during the term of this Agreement, he will not, directly or indirectly, assist
or encourage any other person in carrying out, directly or indirectly., any
activity that would be prohibited by the above provisions of this Section 7 if
such activity were carried out by Executive, either directly or indirectly; and
in
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<PAGE> 4
particular Executive agrees that he will not, directly or indirectly, induce any
employee of the Company to carry out, directly or indirectly, any such activity.
8. PATENT AND RELATED MATTERS.
8.01 DISCLOSURE AND ASSIGNMENT. Executive will promptly
disclose in writing to the Company complete information concerning each and
every invention, discovery, improvement, device, design, apparatus, practice,
process, method or product, whether patentable or not, made, developed,
perfected, devised, conceived or first reduced to practice by Executive, either
solely or in collaboration with others, during the term of this Agreement, or
within six months thereafter, whether or not during regular working hours,
relating either directly or indirectly to the business, products, practices or
techniques of the Company (hereinafter referred to as "Developments").
Executive, to the extent that he has the legal right to do so, hereby
acknowledges that any and all of said Developments are the property of the
Company and hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of such
Developments.
8.02 FUTURE DEVELOPMENTS. As to any future Developments made
by Executive which relate to the business, products or practices of the Company
and which are first conceived or reduced to practice during the term of this
Agreement, or within six months thereafter, but which are claimed for any reason
to belong to an entity or person other than the Company, Executive will promptly
disclose the same in writing to the Company and shall not disclose the same to
others if the Company, within twenty (20) days thereafter, shall claim ownership
of such Developments under the terms of this Agreement. If the Company makes
such claim, Executive agrees that, insofar as the rights (if any) of Executive
are involved, it will be settled by arbitration in accordance with the rules
then obtaining of the American Arbitration Association. The locale of the
arbitration shall be Minneapolis, Minnesota (or other locale convenient to the
Company's principal executive offices). If the Company makes no such claim,
Executive hereby acknowledges that the Company has made no promise to receive
and hold in confidence any such information disclosed by Executive.
8.03 LIMITATION ON SECTIONS 8.01 AND 8.02. The provisions of
sections 8.01 and 8.02 shall not apply to any Development meeting the following
conditions:
(a) such Development was developed entirely on
Executive's own time; and
(b) such Development was made without the use of any
Company equipment, supplies, facility or trade secret information; and
(c) such Development does not relate (i) directly to
the business of the Company, or (ii) to the Company's actual or demonstratably
anticipated research or development; and
(d) such Development does not result from any work
performed by Executive for the Company.
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<PAGE> 5
8.04 ASSISTANCE OF EXECUTIVE. Upon request and without further
compensation therefor, but at no expense to Executive, and whether during the
term of this Agreement or thereafter, Executive will do all lawful acts,
including, but not limited to, the execution of papers and lawful oaths and the
giving of testimony, that in the opinion of the Company, its successors and
assigns, may be necessary or desirable in obtaining, sustaining, reissuing,
extending and enforcing United States and foreign patents, including, but not
limited to, design patents, on any and all of such Developments, and for
perfecting, affirming and recording the Company's complete ownership and title
thereto, and to cooperate otherwise in all proceedings and matters relating
thereto.
8.05 RECORDS. Executive will keep complete, accurate and
authentic accounts, notes, data and records of all Developments in the manner
and form requested by the Company. Such accounts, notes, data and records shall
be the property of the Company, and, upon its request, Executive will promptly
surrender same to it or, if not previously surrendered upon its request or
otherwise, Executive will surrender the same, and all copies thereof, to the
Company upon the conclusion of his employment.
8.06 OBLIGATIONS, RESTRICTIONS AND LIMITATIONS. Executive
understands that the Company may enter into agreements or arrangements with
agencies of the United States Government, and that the Company may be subject to
laws and regulations which impose obligations, restrictions and limitations on
it with respect to inventions and patents which may be acquired by it or which
may be conceived or developed by employees, consultants or other agents
rendering services to it. Executive agrees that he shall be bound by all such
obligations, restrictions and limitations applicable to any such invention
conceived or developed by him during the term of this Agreement and shall take
any and all further action which may be required to discharge such obligations
and to comply with such restrictions and limitations.
9. TERMINATION.
9.01 GROUNDS FOR TERMINATION. This Agreement shall terminate
prior to the expiration of the initial term set forth in Section 2 or any
extension thereof in the event that at any time during such initial term or any
extension thereof:
(a) Executive dies, or
(b) Executive becomes disabled (as defined below), or
(c) The Board of Directors of the Company elects to
terminate this Agreement for "cause" and notifies Executive in writing of such
election, or
(d) The Board of Directors of the Company elects to
terminate this Agreement without "cause" and notifies Executive in writing of
such election, or
(e) Executive elects to terminate this Agreement and
notifies the Company in writing of such election.
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If this Agreement is terminated pursuant to subsection (a),
(b) or (c) of this Section 9,01, such termination shall be effective
immediately. If this Agreement is terminated pursuant to subsection (d) or (e)
of this Section 9.01, such termination shall be effective thirty (30) days after
delivery of the notice of termination.
9.02 "CAUSE" DEFINED.
(a) Executive has breached the provision of Section
5, 7 or 8 of this Agreement in any material respect, or
(b) Executive has engaged in willful and material
misconduct, including willful and material failure to perform Executive's duties
as an officer or employee of the Company and has failed to "cure" such default
within thirty (30) days after receipt of written notice of default from the
Company, or
(c) Executive has committed fraud, misappropriation
or embezzlement in connection with the Company's business, or
(d) Executive has been convicted or has pleaded nolo
contendere to criminal misconduct (except for parking violations and, occasional
minor traffic violations), or
(e) Executive's use of narcotics, liquor or illicit
drug has a detrimental effect on the performance of his employment
responsibilities, as determined by the Company's Board of Directors.
In the event that the Company terminates Executive's
employment for "cause" pursuant to subsection 9.01(c) and Executive objects in
writing to the Board's determination that there was proper "cause" for such
termination within twenty (20) days after Executive is notified of such
termination, the matter shall be resolved by arbitration in accordance with the
provisions of Section 10.01. If Executive fails to object to any such
determination of "cause" in writing within such twenty (20) day period, he shall
be deemed to have waived his right to object to that determination. If such
arbitration determines that there was not proper "cause" for termination, such
termination shall be deemed to be a termination pursuant to subsection 9.01 (d)
and Executive's sole remedy shall be to receive the wage continuation benefits
contemplated by Section 9.06.
9.03 EFFECT OF TERMINATION. Notwithstanding any termination of
this Agreement, Executive, in consideration of his employment hereunder to the
date of such termination, shall remain bound by the provisions of this Agreement
which specifically relate to periods, activities or obligations upon or
subsequent to the termination of Executive's employment.
9.04 "DISABILITY" DEFINED. As used in this Agreement,
Executive shall be deemed "disabled" if Executive suffers or incurs any disease,
injury or other physical or mental
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impairment or disorder which constitutes a long-term disability under the
disability insurance policy then being provided by the Company for Executive.
9.05 SURRENDER OF RECORDS AND PROPERTY. Upon termination of
his employment with the Company, Executive shall deliver promptly to the Company
all records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in his possession or
under his control.
9.06 WAGE CONTINUATION. If Executive's employment by the
Company is terminated by the Company pursuant to subsections 9.01(b) or 9.01(d),
the Company shall continue to pay to Executive his then current base salary
(less any payments received by Executive from any disability income insurance
policy provided to him by the Company) and shall continue to provide health,
life and disability insurance benefits for Executive through the earlier of (a)
the date that Executive has obtained other full-time employment, or (b) four (4)
months from the date of termination of employment. If this Agreement is
terminated pursuant to subsection 9.01(a), 9.01(c) or 9.01(e), Executive's right
to base salary and benefits shall immediately terminate, except as may otherwise
be required by applicable law.
10. SETTLEMENT OF DISPUTES.
10.01 ARBITRATION. Except as provided in Section 10.02, any
claims or disputes of any nature between the Company and Executive arising from
or related to the performance, breach, termination, expiration, application, or
meaning of this Agreement or any matter relating to Executive's employment and
the termination of that employment by the Company shall be resolved exclusively
by arbitration in Minneapolis, Minnesota in accordance with the applicable rules
then obtaining of the American Arbitration Association. The fees of the
arbitrator(s), and other costs incurred by Executive and the Company in
connection with such arbitration shall be paid by the party who is unsuccessful
in such arbitration.
The decision of the arbitrator(s) shall be final and binding
upon both parties. Judgment of the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. In the event of submission of
any dispute to arbitration, each party shall, not later than thirty ('30) days
prior to the date set for hearing, provide to the other party and to the
arbitrator(s) a copy of all exhibits upon which the party intends to rely at the
hearing and a list of all persons each party intends to call at the hearing.
10.02 RESOLUTION OF CERTAIN CLAIMS - INJUNCTIVE RELIEF.
Section 10.01 shall have no application to claims by the Company asserting a
violation of Section 5, 7, 8 or 9.05 or seeking to enforce, by injunction or
otherwise, the terms of Section 5, 7, 8 or 9.05. Such claims may be maintained
by the Company in a lawsuit subject to the terms of section 10.03. Executive
agrees that, in addition to, but not to the exclusion of any other available
remedy, the Company shall have the right to enforce the provisions of Sections
5, 7, 8 and 9.05 by applying for and
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<PAGE> 8
obtaining temporary and permanent restraining orders or injunctions from a court
of competent jurisdiction without the necessity of filing a bond therefor, and
the Company shall be entitled to recover from the Employee its reasonable
attorneys' fees and costs in enforcing the provisions of Sections 5, 7, 8 and
9.03.
10.03 VENUE. Any action at law, suit in equity, or judicial
proceeding arising directly, indirectly, or otherwise in connection with, out
of, related to or from this Agreement or any provision hereof, shall be
litigated only in the courts of the state of Minnesota, County of Hennepin.
Executive waives any right the Executive may have to transfer or change the
venue of any litigation brought against Executive by the Company.
10.04 SEVERABILITY. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. In furtherance and not
in limitation of the foregoing, should the duration or geographical extent of,
or business activities covered by, any provision of this Agreement be in excess
of that which is valid and enforceable under applicable law, then such provision
shall be construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the uncertainty of
the law in this respect and expressly stipulates that this Agreement be given
the construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.
11. MISCELLANEOUS.
11.01 GOVERNING LAW. This agreement is made under and shall be
governed. by and construed in accordance with the laws of the state of
Minnesota.
11.02 PRIOR AGREEMENTS. This agreement contains the entire
agreement of the parties relating to the employment of Executive by the Company
and the ancillary matters discussed herein and supersedes all prior agreements
and understandings with respect to such matters, and the parties hereto have
made no agreements, representations or warranties relating to such employment or
ancillary matters which are not set forth herein.
11.03 WITHHOLDING TAXES. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
11.04 AMENDMENTS. No amendment or modification of this
Agreement shall be deemed effective unless made in writing and signed by the
both Executive and the Company.
11.05 NO WAIVER. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
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constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
11.06 ASSIGNMENT. This agreement shall not be assignable, in
whole or in part, by either party without the written consent of the other
party, except that the Company may, without the consent of Executive, assign its
rights and obligations under this Agreement to any corporation, firm or other
business entity with or into which the Company may merge or consolidate, or to
which the Company may sell or transfer all or substantially all of its assets,
or of which 50% or more of the equity investment and of the voting control is
owned, directly or indirectly, by, or is under common ownership with, the
Company. After any such assignment by the Company, the Company shall be
discharged from all further liability hereunder and such assignee shall
thereafter be deemed to be the Company for the purposes of all provisions of
this Agreement including this Section 11.
11.07 COUNTERPARTS. This agreement may be simultaneously
executed in any number of counterparts, and such counterparts executed and
delivered, each as an original, shall constitute but one and the same
instrument.
11.08 CAPTIONS AND HEADING. The captions and paragraph
headings used in this Agreement are for convenience of reference only, and shall
not affect the construction or interpretation of this Agreement or any of the
provisions hereof.
IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date set forth in the first paragraph.
OPTICON MEDICAL INC.
By /s/ William J. Post
--------------------------------
William J. Post
Chief Executive Officer
JOHN LAMARCHE
/s/ John LaMarche
-----------------------------------
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EXHIBIT 10.6
AMENDMENT TO
EMPLOYMENT AGREEMENT
--------------------
This Amendment to Employment Agreement is hereby entered into by and
between Opticon Medical, Inc., an Iowa corporation (the "Company") and John
LaMarche, an individual resident of the State of Iowa (the "Executive") as of
the 12th day of February, 1998.
Whereas, the Company and Executive are parties to an Employment
Agreement, dated as of September 9, 1997, by and between the Company and the
Executive (the "Employment Agreement"), which the parties now desire to amend;
Whereas, pursuant to Section 4.01 of the Employment Agreement, the
Company is obligated to pay Executive an annual base salary of $100,000;
Whereas, in light of the Company's limited financial resources, the
Executive has agreed to accept a temporary reduction in his base salary, which
amount shall be deferred for payment and shall accrue interest thereon; and
Whereas, Executive and the Company desire to amend the Employment
Agreement to provide for the accrual of interest on the amount of Executive's
deferred base salary and for the conversion of the amount of deferred salary
payments and interest thereon into equity in the Company;
NOW THEREFORE, in consideration of the mutual promises contained
herein, Company and the Executive agree to amend the Employment Agreement as
follows:
1. The Employment Agreement is hereby amended by the addition of the
following as Section 4.05:
4.05 CONVERSION OF ACCRUED SALARY AND INTEREST. Executive and
the Company agree that beginning with the pay period beginning
January 1, 1998 and ending upon the earlier of (a) January 31,
1999 or (b) the Company's sale during calendar year 1998 of at
least $2,000,000 aggregate of its Common Stock, Convertible
Preferred Stock, Series A, or a new series of preferred stock
established by the Company (the "1998 Offering"), the Company
will defer payment of twenty-seven percent (27%) of
Executive's base salary due to him pursuant to Section 4.01 of
the Employment Agreement, which deferred amount shall be
accrued and shall bear interest at the annual rate of ten
percent (10%) from the respective deferral date of such salary
payment until January 31, 1999, the date all deferred salary
payments and all accrued interest thereon shall be due and
payable. Notwithstanding the foregoing, upon the Company's
sale of at least $2,000,000 aggregate of its stock in the
<PAGE> 2
1998 Offering, the aggregate amount of deferred salary
payments and accrued interest to date thereon shall be
converted into Common Stock of the Company. The deferred
salary amount and accrued interest shall be converted into the
number of shares of the Company's Common Stock equal to the
deferred salary amount and accrued interest being converted,
less the amount required to be withheld by the Company for
federal and state taxes, divided by the lesser of (i) the per
share price paid for the securities in the 1998 Offering or
(ii) $1.50 (the "Conversion Price"); provided, however if the
1998 Offering is an offering of the Company's Convertible
Preferred Stock, Series A, or a new series of preferred stock
established by the Company and the per share price paid in
such offering is $1.50 or less, then the deferred salary
amount and accrued interest thereon, less the amount required
to be withheld by the Company for federal and state taxes,
shall be converted into the preferred stock offered in the
1998 Offering in lieu of the Company's Common Stock. In
addition, concurrently with the conversion of the deferred
salary amount and accrued interest into stock of the Company,
the Company shall issue a warrant to Executive exercisable for
ten (10) years from the date of issue for that number of
shares of Common Stock of the Company equal to the number of
shares of Company stock, either common or preferred, into
which the deferred salary amount and accrued interest is
converted pursuant to this section. The exercise price for the
warrant shares shall be equal to the Conversion Price. The
warrant shall be in substantially the same form as the Series
1998 Warrants to be issued by the Company pursuant to the
terms of the Series 1998 Convertible Debentures issued by the
Company, which form is attached hereto as an exhibit.
2. All other provisions of the Employment Agreement shall remain in
full force and effect and shall not be modified by this Amendment.
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IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment as of the date first written above.
OPTICON MEDICAL INC.
By /s/ Walter L. Sembrowich
-------------------------------
Walter L. Sembrowich,
Chairman of the Board
JOHN LAMARCHE
/s/ John LaMarche
-----------------------------------
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EXHIBIT 10.7
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this Agreement ), made and entered into as
of the 1st day of November, 1997, by and between Opticon Medical Inc., an Iowa
corporation (the "Company"), and Dr. Fouad A. Salama, an individual resident of
Des Moines, Iowa, the inventor and founder of the Company ("Consultant").
WHEREAS, The Company desires to retain Consultant to render consulting
and advisory services for the Company on the terms and conditions set forth in
this Agreement, and Consultant desires to be retained by the Company on such
terms and conditions.
NOW THEREFORE, In consideration of the premises, the respective
covenants and commitments of the Company and Consultant set forth in this
Agreement, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Company and Consultant agree as follows:
1. RETENTION OF CONSULTANT; SERVICES TO BE PERFORMED. The Company
hereby retains Consultant to render such consulting and advisory services as the
Company may request relating to the design, development, manufacture and
distribution of urology, uro-gynecology and urinary continence care products.
Consultant hereby accepts such engagement and agrees to perform such services
for the Company upon the terms and conditions set forth in this Agreement.
During the term of this Agreement, Consultant shall devote such portion of his
business time, attention, skill and energy to the business of the Company as may
be reasonably required to perform the services required by this Agreement, and
shall assume and perform to the best of his ability such reasonable
responsibilities and duties as shall be assigned to Consultant from time to time
by the Company. During the term of this Agreement, Consultant shall report to
the Company's Chief Executive Officer.
2. TERM. The term of this Agreement shall commence as of the date of
this Agreement and shall continue for a continuous period of four (4) years.
3. COMPENSATION. As compensation in full for Consultant's services
hereunder, the Company shall pay to Consultant a consulting fee of One Hundred
Ten Thousand Dollars ($110,000) per year for the first and second year of the
term of this Agreement, and Seventy-five Thousand Dollars ($75,000) per year for
the third and fourth years of the term of this Agreement. The consulting fee
shall be payable to Consultant in twelve (12) monthly payments paid at the end
of each calendar month during the term of this Agreement.
4. EXPENSES. Consultant shall be reimbursed by the Company in
accordance with the policies and procedures that are established from time to
time by the Company for all reasonable and necessary out-of-pocket expenses that
are pre-approved by the Chief Executive Officer of the Company and incurred by
Consultant in performing his duties under this Agreement, including, without
limitation, reasonable travel expenses incurred by Consultant in rendering
<PAGE> 2
services outside of Des Moines, Iowa, long-distance telephone charges, and
expenses related to assigning the Inventions (as defined in Section 5) to the
Company.
5. PATENTS AND RELATED MATTERS.
a. NOTIFICATION AND DISCLOSURE. Consultant shall promptly
notify the Company in writing of the existence and nature of, and shall promptly
and fully disclose to the Company, any and all ideas, designs, practices,
processes, apparatus, improvements, inventions, devices, methods, know-how or
products, whether patentable or unpatentable or protectable by copyright or
other intellectual property law, made, developed, perfected, devised, conceived
or first reduced to practice by Consultant, during the period of Consultant's
consulting arrangement with the Company and/or within one (1) year after
termination of this Agreement, relating either directly or indirectly to the
business, products, practices or techniques of the Company as contemplated at
such time (hereinafter referred to as "Inventions"). As of the date of this
Agreement, the Company deems its field of business to be urology, uro-gynecology
and urinary continence care products and services, including but not limited to
all variations of the Opticon devices currently being developed by the Company.
b. OWNERSHIP AND PATENTING OF INVENTIONS. All such Inventions
shall be the sole and exclusive property of the Company or its nominee, and
during the term of this Agreement and thereafter, whenever requested to do so by
the Company, Consultant shall execute and assign any and all applications,
assignments and other instruments that the Company shall deem necessary or
convenient in order to apply for and obtain Letters Patent of the United States
and/or of any foreign countries for such Inventions and in order to assign and
convey to the Company or its nominee the sole and exclusive right, title and
interest in and to such Inventions. Consultant will render aid and assistance to
the Company in any interference or litigation pertaining to such Inventions, and
all expenses reasonably incurred by Consultant at the request of the Company
shall be borne by the Company. To the extent that any patents, copyrights, or
patent developments are the result of Employee's work and efforts, the Company
agrees to identify Consultant in the patent application as the founder of the
Company, if appropriate, and as either the developer or inventor of the
particular patent device.
c. LIMITATION. The provisions of this Section 5 shall not
apply to any Invention meeting all of the following conditions:
(1) such Invention was developed entirely on
Consultant's own time;
(2) such Invention was made without the use of any of
the equipment, supplies, facility or trade secret
information of the Company;
(3) such Invention does not relate to the fields of
urology, uro-gynecology or urinary continence
care;
(4) such Invention does not relate (i) directly to
the business of the Company, or (ii) to the
Company's actual or demonstrably anticipated
research or product development; and
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<PAGE> 3
(5) such Invention does not result from any work
performed by Consultant for the Company.
6. PROTECTION OF TRADE SECRETS, KNOW-HOW AND/OR OTHER CONFIDENTIAL
INFORMATION OF THE COMPANY.
a. CONFIDENTIAL INFORMATION. Except as permitted or directed
by the Company's Board of Directors, during the term of this Agreement or at any
time thereafter, Consultant shall not divulge, furnish or make accessible to
anyone or use in any way (other than in the ordinary course of the business of
the Company) any confidential or secret knowledge or information of the Company
which Consultant has acquired or become acquainted with or will acquire or
become acquainted with prior to the termination of the period of his engagement
by the Company (including employment by the Company prior to the date of this
Agreement), whether developed by himself or by others, concerning any trade
secrets, confidential or secret designs, processes, formulae, plans, devices or
material (whether or not patented or patentable) directly or indirectly useful
in any aspect of the business of the Company, any customer or supplier lists of
the Company, any confidential or secret development or research work of the
Company, or any other confidential information or secret aspects of the business
of the Company. Consultant acknowledges that the above-described knowledge or
information constitutes a unique and valuable asset of the Company acquired at
great time and expense by the Company and that any disclosure or other use of
such knowledge or information other than for the sole benefit of the Company
would be wrongful and would cause irreparable harm to the Company. Both during
and after the term of this Agreement, Consultant will refrain from any acts or
omissions that would reduce the value of such knowledge or information to the
Company. At the termination of the consulting period under this Agreement,
Consultant shall deliver to the Company all tangible, written, graphical,
machine readable and other materials (including all copies) in his possession or
under his control containing or disclosing Confidential Information. The
foregoing obligations of confidentiality, however, shall not apply to any
knowledge or information which is now published or which subsequently becomes
generally publicly known in the form in which it was obtained from the Company,
other than as a direct or indirect result of the breach of this Agreement by
Consultant.
b. COPYRIGHTABLE MATERIAL. All right, title, and interest in
all copyrightable material which Consultant shall conceive or originate, either
individually or jointly with others, and which arise out of the performance of
this Agreement, will be the property of the Company and are by this Agreement
assigned to the Company along with ownership of any and all copyrights in the
copyrightable material. Consultant agrees to execute all papers and perform all
other acts necessary to assist the Company to obtain and register copyrights on
such materials in any and all countries. Where applicable, works of authorship
created by Consultant for the Company in performing his responsibilities under
this Agreement shall be considered "works made for hire" as defined in the U.S.
Copyright Act.
c. KNOW-HOW AND TRADE SECRETS. All know-how and trade secret
information conceived or originated by Consultant which arises out of the
performance of his obligations or
3
<PAGE> 4
responsibilities under this Agreement or any related material or information
shall be the property of the Company, and all rights therein are by this
Agreement assigned to the Company.
7. TERMINATION. Notwithstanding any contrary provision contained
elsewhere in this Agreement, this Agreement and the rights and obligations of
the Company and Consultant hereunder (other than the rights and obligations of
the parties under Section 5 or 6) shall be terminated upon the occurrence of any
of the following events:
a. Immediately in the event of Consultant's death; or
b. Immediately in the event that Consultant suffers or incurs
any disease, injury or other mental or physical impairment or disorder which
renders Executive unable to render his normal services under this Agreement, for
a period in excess of ninety consecutive (90) days; or
c. Immediately in the event that Consultant is convicted of
any crime (excluding traffic violations or other minor offenses), or engages in
any activities that constitute a material violation of normal standards of
business ethics; or
d. Immediately in the event that Consultant willfully refuses
to comply with or implement reasonable policies and work direction established
by the Company, or upon thirty (30) days prior written notice to Consultant if
Consultant has failed in any material respect to perform his responsibilities
hereunder and such default is not cured within such thirty (30) day period.
In the event this Agreement is terminated pursuant to this Section 7
prior to the expiration of the term hereof, Consultant shall be entitled to
receive his monthly consulting fee through the date of termination, but all
other rights to receive consulting fees shall terminate on such date.
8. NONCOMPETITION AGREEMENT. The Consultant agrees that during the term
of this Agreement and for a period of two (2) years beginning on the termination
of this Agreement, the Consultant shall not directly or indirectly, as an
individual or as a director, officer, employee, consultant, partner, investor or
in any other capacity with any corporation, partnership or other person or
entity, other than the Company, engage in the business of developing,
manufacturing, selling or distributing urology, uro-gynecology or urinary
continence care products. This restriction shall not be deemed to prevent the
Consultant from owning, as a passive investment, less than 5% of the issued and
outstanding shares of any class of securities of an issuer whose securities are
listed on a national securities exchange or publicly traded in an
over-the-counter market.
9. MISCELLANEOUS.
a. ASSIGNMENT. This Agreement and the rights and obligations
of the parties hereunder shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company may, without the consent of Consultant, assign its rights and
obligations under this Agreement to any corporation, firm or other business
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<PAGE> 5
entity with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets, or of which
50% or more of the equity investment and of the voting control is owned,
directly or indirectly, by, or is under common ownership with, the Company.
b. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with the internal laws of the State of Iowa.
c. ENTIRE AGREEMENT. This Agreement evidences the entire
understanding and agreement of the parties hereto relative to the consulting
arrangement between Consultant and the Company and the other matters discussed
herein. This Agreement supersedes any and all other agreements and
understandings, whether written or oral, relative to the matters discussed
herein. This Agreement may only be amended by a written document signed by both
Consultant and the Company.
d. INJUNCTIVE RELIEF. Consultant acknowledges that it would be
difficult or impossible to fully compensate the Company for damages resulting
from any breach by Consultant of the provisions of Sections 5, 6 and 8 of this
Agreement. Accordingly, in the event of any actual or threatened breach of such
provisions, the Company shall (in addition to any other remedies that it may
have) be entitled to temporary and/or permanent injunctive relief to enforce
such provisions, and such relief may be granted without the necessity of proving
actual damages.
e. SEVERABILITY. To the extent any provision of this Agreement
shall be determined to be invalid or unenforceable, such provision shall be
deleted from this Agreement, and the validity and enforceability of the
remainder of such provision and of this Agreement shall be unaffected. In
furtherance of and not in limitation of the foregoing, Consultant expressly
agrees that should the duration of or geographical extent of, or business
activities covered by, any provision of this Agreement be in excess of that
which is valid or enforceable under applicable law, then such provision shall be
construed to cover only that duration, extent or activities that may validly or
enforceably be covered. Consultant acknowledges the uncertainty of the law in
this respect and expressly stipulates that this Agreement shall be construed in
a manner that renders its provisions valid and enforceable to the maximum extent
(not exceeding its express terms) possible under applicable law.
f. STATUS OF CONSULTANT. In rendering services pursuant to
this Agreement, Consultant shall be acting as an independent contractor and not
as an employee or agent of the Company. As an independent contractor, Consultant
shall have no authority, express or implied, to commit or obligate the Company
in any manner whatsoever, except as specifically authorized from time to time in
writing by an authorized representative of the Company, which authorization may
be general or specific. Nothing contained in this Agreement shall be construed
or applied to create a partnership or joint venture. Consultant shall be
responsible for the payment of all federal, state or local taxes payable with
respect to all amounts paid to Consultant under this Agreement; provided,
however, that if the Company is determined to be liable for collection and/or
remittance of any such taxes, Consultant shall immediately reimburse the Company
for all such payments made by the Company.
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<PAGE> 6
g. ARBITRATION. Except as provided in Section 9(d), any claims
or disputes between the Company and Consultant arising from or related to the
performance, breach, termination or meaning of this Agreement shall be resolved
by arbitration in Des Moines, Iowa in accordance with the applicable rules of
the American Arbitration Association. The fees and costs of the arbitrator(s) as
determined by the arbitrator(s) shall be paid by the party who is unsuccessful
in such arbitration. The decision of the arbitrator(s) shall be final and
binding upon both parties. Judgment of the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof.
IN WITNESS WHEREOF, The Company and Consultant have executed this
Agreement as of the date set forth in the first paragraph.
By /s/ William J. Post
-----------------------------------
William J. Post, Chief Executive
Officer and President
/s/ F. A. Salama
---------------------------------------
Dr. Fouad A. Salama
6
<PAGE> 1
EXHIBIT 10.8
EMPLOYEE STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into
as of the 3rd day of June, 1998, between Opticon Medical Inc. (the "Company")
and William J. Post ("Employee").
WITNESSETH
WHEREAS, the Company employs Employee as a key member of the Company's
management; and
WHEREAS, the Company desires to encourage Employee to remain in the
employ of the Company and for the Employee to have a personal interest in the
continued success and progress of the Company; and
WHEREAS, the Company desires to offer certain compensation to Employee
for satisfactory performance of his duties, including the stock option granted
by this Agreement in addition to other compensation that the Company may give to
Employee pursuant to that certain Employment Agreement, dated as of March 10,
1997, by and between the Company and the Employee (the "Employment Agreement");
NOW THEREFORE, in consideration of the foregoing and the covenants
contained herein, the Company and Employee agree as follows:
1. GRANT OF OPTION.
Subject to the terms and conditions set forth in this Agreement, the
Company hereby grants to Employee the right to purchase up to One Hundred Fifty
Thousand (150,000) shares of the Company's common stock (the "Stock") at a price
of $1.50 per share (the "Option"). It is understood and agreed that the option
price is the per share fair market value of such shares on the date of the
option grant. The Company intends that the Option shall be an Incentive Stock
Option governed by the provisions of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). The terms of the Company's Incentive Stock Option
Plan (the "Plan") and the Option shall be interpreted and administered so as to
satisfy the requirements of the Code.
2. EXERCISE OF PURCHASE RIGHTS.
(a) Vesting and Exercisability. The Option shall not be exercisable the
first time during any calendar year by Employee except in accordance with
subsection 422(d) of the Code. Furthermore, except as provided in Section 2(b),
Employee may exercise only the portion of the Option which has vested in
accordance with the schedule hereafter set forth. Vesting of the Option shall
occur as follows:
<PAGE> 2
(i) The Option to purchase Twenty-five Thousand (25,000)
shares of Stock is vested on the date hereof; and
(ii) The Option to purchase Twenty-five Thousand (25,000)
shares of Stock shall vest on the first and second anniversaries
respectively of the date hereof; and
(iii) The Option to purchase Thirty-seven Thousand Five
Hundred (37,500) shares of Stock shall vest on the third anniversary of
the date hereof; and
(iv) The Option to purchase Thirty-seven Thousand Five Hundred
(37,500) shares of Stock shall vest on the fourth anniversary of the
date hereof;
provided, however, that no Option shall vest unless the Employee is, on the date
the Option is scheduled to vest, an employee of the Company.
(b) Acceleration of Exercisability. Notwithstanding the provisions of
Section 2(a), the Option shall vest completely and may be exercised in full upon
(i) Employee's termination of employment with the Company due to the Employee's
death, disability or termination by the Company of Employee's employment without
"cause" (as defined in the Employment Agreement) or (ii) a change of control of
the Company. For purposes of this Agreement, "change of control" shall mean (a)
any merger of the Company with another entity and in which the Company is not
the surviving entity; (b) a consolidation of the Company with another entity;
(c) the sale of all or substantially all of the assets of the Company in a
transaction or series of transactions other than in the normal course of
business; or (d) any purchase or transaction or series of purchases or
transactions after the conclusion of which a person, group of persons or entity
beneficially owns more than twenty percent (20%) of the outstanding securities
of any class of securities of the Company entitled to vote; provided that this
subdivision (d) shall not be applicable in the case of any purchase(s) or
transaction(s) effected by either (1) a person, group of persons or entity who
or which currently controls more than twenty percent (20%) of any class of
outstanding securities of the Company or (2) an employee benefit plan of the
Company.
(c) Method of Exercise. Any portion of the Option which has vested and
is exercisable may be exercised, in whole or in part, by delivery by Employee to
the Company of written notice of such exercise, accompanied by full payment of
(i) the purchase price with respect to that portion of the Option being exercise
and (ii) any amounts required to be withheld pursuant to applicable income tax
laws in connection with such exercise. Until the Company notifies Employee to
the contrary, the form attached to this Agreement as EXHIBIT A shall be used to
exercise the Option. Upon the exercise of the Option and tender of the purchase
price, the Company shall deliver to the Employee a certificate or certificates
representing the number of shares of Stock being purchased by Employee, free and
clear of encumbrances.
The aggregate purchase price for the shares of Stock to be issued upon
exercise of an Option shall be paid (i) in cash, (ii) by certified check, (iii)
by delivery of duly endorsed certificates representing shares of Stock having a
fair market value on the date of exercise aggregating at least the portion of
the purchase price being paid by delivery of such shares, (iv)
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<PAGE> 3
in a combination of cash and Stock, or (v) by such other lawful consideration as
the administrator of the Plan may approve. To the extent necessary to avoid
adverse financial accounting consequences to the Company associated with the use
of Stock to pay the purchase price upon exercise of the Option and except as the
Board of Directors of the Company (the "Board") may otherwise consent, no shares
of Stock acquired under this Agreement or pursuant to any employee benefit plan
or program of the Company may be used to pay any portion of the purchase price
upon exercise of the Option unless those shares shall have been held for a
period of not less than six months prior to the date of exercise. For purposes
of this Agreement, the fair market value of a share of Stock shall be determined
by the Board pursuant to a reasonable method adopted in good faith for such
purpose.
(d) Restriction Upon Shares of Stock Issued Upon Exercise. At the time
of the issuance of any shares of Stock upon exercise of the Option, Employee
will, upon the request of the Company, agree in writing that he is acquiring
such shares for investment only and not with a view to resale, and that he will
not sell, pledge or otherwise dispose of such shares so issued unless and until
(i) the Company is furnished with an opinion of counsel to the effect that
registration of such shares pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), is not required by the Securities Act and the rules and
regulations thereunder and any applicable state securities laws; or (ii) such
registration or notification as is, in the opinion of counsel for the Company,
required for the lawful disposition of such shares has been filed by the Company
and has become effective; provided however, that the Company is not obligated to
file any such registration or notification. Employee further agrees that the
Company may place a legend embodying such restriction on the certificate(s)
evidencing such shares.
(e) Expiration of Option. To the extent that the Option has not been
exercised, this Agreement shall terminate and be of no further force and effect,
and the Option shall expire, on the earlier of (i) three (3) months after
termination of Employee's employment with the Company for any reason except the
death or disability of the Employee or Employee's employment is terminated for
cause, (ii) thirty-six (36) months after termination of Employee's employment
because of the Employee's death or disability, (iii) at the time the Employee's
employment is terminated if such termination is for cause, or (iv) the tenth
(10th) anniversary of the date of the grant of the Option.
3. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
The type and number of shares of Stock subject to the Option and the
purchase price per share shall be adjusted as the Board reasonably deems
appropriate to preserve the value of the Option in the event of a stock
dividend, stock split or reverse stock split, recapitalization, merger,
consolidation, reorganization, cash or property dividend (including without
limitation a dividend payable in shares of stock of any subsidiary of Company),
exchange of shares, repurchase of shares or any other change in corporate
structure of or by Company that in any such event materially affects the
outstanding shares of Stock.
4. NO RIGHTS AS STOCKHOLDER.
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<PAGE> 4
Employee shall have no rights as a stockholder with respect to any
shares of Stock subject to the Option until and unless a certificate or
certificates representing such shares are issued to Employee pursuant to Section
2(c) of this Agreement. Except as provided in Section 3, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
5. EMPLOYMENT.
Neither the granting of the Option evidenced by this Agreement nor any
term or provision of this Agreement shall constitute or be evidence of any
understanding, express or implied, on the part of Company to employ Employee for
any period of time.
6. NONTRANSFERABILITY.
Employee's rights under this Agreement are not transferable by Employee
other than by will or in accordance with the laws of descent and distribution,
and are exercisable, during Employee's lifetime, only by Employee or, during his
disability, by his legal representative, and, after Employee's death, by his
estate, heirs or devisees and their successors and assigns.
7. MISCELLANEOUS.
(a) Headings. The headings in this Agreement are inserted for
convenience only and shall have no significance in the interpretation of this
Agreement.
(b) Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the transactions contemplated under this
Agreement, supersedes all prior arrangements or understandings with respect to
those transactions, written or oral and does not alter the terms of the
Employment Agreement. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter of this Agreement have
been made by either party which are not set forth expressly in this Agreement.
(c) Successors. The terms and conditions of this Agreement shall be
binding and inure to the benefits of the parties to this Agreement and their
respective heirs, personal representative and successors.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Iowa applicable to agreements made and
entirely to be performed within such jurisdiction except to the extent federal
law may be applicable.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
(f) Disposal of Shares. If Employee shall dispose of any of the shares
of Stock acquired upon exercise of the Option within two (2) years from the date
the Option was granted or within one (1) year after the date of exercise of the
Option, then, in order to provide the
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<PAGE> 5
Company with the opportunity to claim the benefit of any income tax deduction,
Employee shall promptly notify the Company of the dates of acquisition and
disposition of such shares, the number of shares so disposed of, and the
consideration, if any, received for such shares.
IN WITNESS WHEREOF, each of the parties to this Agreement has executed
this Agreement as of the day and year first written above.
OPTICON MEDICAL INC. ("Company")
By /s/ Walter Sembrowich
------------------------------------
Walter Sembrowich
Chairman of the Board
/s/ William J. Post
----------------------------------------
William J. Post ("Employee")
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<PAGE> 6
EXHIBIT A
OPTION EXERCISE
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing stock option, hereby
irrevocably elects to exercise the purchase right represented by such option
for, and to purchase thereunder, ______ of the shares of Common Stock of Opticon
Medical Inc., to which such warrant relates and herewith makes payment of
$_________ therefor in cash or by check and requests that the certificates for
such shares be issued in the name of, and be delivered to
_______________________ whose address is set forth below the signature of the
undersigned.
Dated: _____________
__________________________________
[Signature]
__________________________________
__________________________________
[Address]
6
<PAGE> 1
EXHIBIT 10.9
EMPLOYEE STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is made and entered into
as of the 26th day of July, 1996, between Medical Device International, Inc.
(the "Company") and John LaMarche ("Employee").
WITNESSETH
Whereas, the Company employs the Employee as a key member of the
Company's management; and
Whereas, the Company desires to encourage the Employee to remain in the
employ of the Company and for the Employee to have a personal interest in the
continued success and progress of the Company; and
Whereas, the Company desires to offer certain compensation to the
Employee for satisfactory performance of his duties, including the stock options
granted by this Agreement, in addition to other compensation that the Company
may give to the Employee pursuant to a separate employment agreement; and
Whereas, the Company granted Employee the right and option to purchase
up to 7,500 shares of the Company's common stock on August 14, 1995, but a stock
option agreement memorializing such option grant was never executed; and
Whereas, the Company desires to grant additional stock options to
Employee and to document the terms and conditions of all stock options granted
heretobefore and on the date hereof to Employee;
Now therefore, in consideration of the foregoing and the covenants
contained herein, the Company and Employee agree as follows:
1. GRANT OF OPTION.
Subject to the terms and conditions set forth in this Agreement, the
Company hereby grants to the Employee the right to purchase up to fifteen
thousand (15,000) shares of the Company's common stock (the "Stock") at a price
of $5.00 per share, subject to the adjustments as provided in Section 3 hereof.
Together with options for 7,500 shares of Stock with an exercise price of $5.00
per share granted heretobefore to Employee by the Company, the Employee now has
options for a total of 22,500 shares of common stock (the "Option"), the terms
and conditions of which are set forth herein. It is understood and agreed that
the option price is the per share fair market value of such shares on the date
of each of the option grants covered by this Agreement. The Company intends that
the Option shall be an Incentive Stock Option governed by the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended (the
<PAGE> 2
"Code"). The terms of the Company's Incentive Stock Option Plan and the Option
shall be interpreted and administered so as to satisfy the requirements of the
Code.
2. EXERCISE OF PURCHASE RIGHTS.
(a) Vesting and Exercisability. The Option shall not be exercisable the
first time by Employee except in accordance with subsection 422(d) of the Code.
Except as provided in Section 2(b), Employee may exercise only the portion of
the Option which has vested in accordance with the schedule hereafter set forth.
Vesting of the Option shall occur as follows:
(i) The Option to purchase one thousand five hundred (1,500)
shares shall vest on August 14, 1996, the first anniversary of the date of the
grant of the initial option for 7,500 shares;
(ii) The Option to purchase one thousand five hundred (1,500)
shares shall vest upon receipt by the Company of written approval from the
Federal Food and Drug Administration ("FDA") granting the Company's application
under section 510(k) of the FDA Act for authority to market the OPTICON device;
(iii) The Option to purchase one thousand five hundred (1,500)
shares shall vest in 1997, 1998, and 1999 based on the Company achieving the
minimum operating results established by the Administrator for the prior fiscal
year during the first quarter of that fiscal year;
(iv) The Option to purchase five thousand (5,000) shares shall
vest on July 26, 1997;
(v) The Option to purchase five thousand (5,000) shares shall
vest on July 26, 1998; and
(vi) The Option to purchase five thousand (5,000) shares shall
vest on July 26, 1999; provided, however, that no Option shall vest unless the
Employee is, on the date the Option is scheduled to vest, an employee of the
Company.
(b) Acceleration of Exercisability. Notwithstanding the provisions of
Section 2(a), Option shall vest completely and may be exercised in full upon (i)
Employee's termination of employment with the Company due to the Employee's
death, disability or termination by the Company of Employee's employment without
cause (hereinafter referred to as a "Specified Termination") or (ii) a change of
control of the Company that would result in an acceleration of stock options in
accordance with the Incentive Stock Option Plan.
(c) Method of Exercise. Any portion of the Option which has vested and
is exercisable may be exercised, in whole or in part, by delivery by Employee to
the Company of written notice of such exercise, accompanied by full payment of
(i) the purchase price with respect to that portion of the Option being exercise
and (ii) any amounts required to be withheld pursuant to applicable income tax
laws in connection with such exercise. Until the Company
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<PAGE> 3
notifies Employee to the contrary, the form attached to this Agreement as
EXHIBIT A shall be used to exercise the Option. Upon the exercise of the Option,
the Company shall deliver to the Employee a certificate or certificates
representing the number of shares of Stock being purchased by Employee, free and
clear of encumbrances.
The aggregate purchase price for the shares of Stock to be issued upon
exercise of an Option shall be paid (i) in cash, (ii) by certified check, (iii)
by delivery of duly endorsed certificates representing shares of Stock having a
fair market value on the date of exercise aggregating at least the portion of
the purchase price being paid by delivery of such shares, (iv) in a combination
of cash and Stock, or (v) by such other lawful consideration as the
administrator of the Plan may approve. To the extent necessary to avoid adverse
financial accounting consequences to the Company associated with the use of
Stock to pay the purchase price upon exercise of the Option and except as the
Board of Directors of the Company (the "Board") may otherwise consent, no shares
of Stock acquired under this Agreement or pursuant to any employee benefit plan
or program of the Company may be used to pay any portion of the purchase price
upon exercise of the Option unless those shares shall have been held for a
period of not less than six months prior to the date of exercise. For purposes
of this Agreement, the fair market value of a share of Stock shall be determined
by the Board pursuant to a reasonable method adopted in good faith for such
purpose.
(d) Restriction Upon Shares of Stock Issued Upon Exercise. At the time
of the issuance of any shares of Stock upon exercise of the Option, Employee
will, upon the request of the Company, agree in writing, that he is acquiring
such shares for investment only and not with a view to resale, and that he will
not sell, pledge or otherwise dispose of such shares so issued unless and until
(i) the Company is furnished with an opinion of counsel to the effect that
registration of such shares pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), is not required by the Securities Act and the rules and
regulations thereunder and any applicable state securities laws; or (ii) such
registration or notification as is, in the opinion of counsel for the Company,
required for the lawful disposition of such shares has been filed by the Company
and has become effective; provided however, that the Company is not obligated to
file any such registration or notification. Employee further agrees that the
Company may place a legend embodying such restriction on the certificate(s)
evidencing such shares.
(e) Expiration of Option. To the extent that the Option has not been
exercised, this Agreement shall terminate and be of no further force and effect,
and the Option shall expire, on the earlier of (i) three months after
termination of Employee's employment with the Company for any reason except a
Specified Termination, (ii) thirty-six (36) months after termination of
Employee's employment because of a Specified Termination or (iii) the tenth
anniversary of the respective date of the grant of the options, which is August
14, 1995 for 7,500 shares and July 26, 1996 for 15,000 shares.
3. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
The type and number of shares of Stock subject to the Option and the
purchase price per share shall be adjusted as the Board reasonably deems
appropriate to preserve the value of the Option in the event of a stock
dividend, stock split or reverse stock split, recapitalization, merger,
3
<PAGE> 4
consolidation, reorganization, cash or property dividend (including without
limitation a dividend payable in shares of stock of any subsidiary of Company),
exchange of shares, repurchase of shares or any other change in corporate
structure of or by Company that in any such event materially affects the
outstanding shares of Stock.
4. NO RIGHTS AS STOCKHOLDER.
Employee shall have no rights as a stockholder with respect to any
shares of Stock subject to the Option until and unless a certificate or
certificates representing such shares are issued to Employee pursuant to Section
2(c) of this Agreement. Except as provided in Section 3, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
5. EMPLOYMENT.
Neither the granting of the Option evidenced by this Agreement nor any
term or provision of this Agreement shall constitute or be evidence of any
understanding, express or implied, on the part of Company to employ Employee for
any period of time.
6. NONTRANSFERABILITY
Employee's rights under this Agreement are not transferable by Employee
other than by will or in accordance with the laws of descent and distribution,
and are exercisable, during Employee's lifetime, only by Employee or, during his
disability, by his legal representative, and, after Employee's death, by his
estate, heirs or devisees and their successors and assigns.
7. MISCELLANEOUS.
(a) Headings. The headings in this Agreement are inserted for
convenience only and shall have no significance in the interpretation of this
Agreement.
(b) Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the transactions contemplated under this
Agreement other than an employment agreement that may have been executed between
the Company and the Employee. This Agreement supersedes all prior arrangements
or understandings with respect to those transactions, written or oral. No
agreements or representations, oral or otherwise, expressed or implied, with
respect to the subject matter of this Agreement have been made by either party
which are not set forth expressly in this Agreement.
(c) Successors. The terms and conditions of this Agreement shall be
binding and inure to the benefits of the parties to this Agreement and their
respective heirs, personal representative and successors.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Iowa applicable to agreements made and
entirely to be performed within such jurisdiction except to the extent federal
law may be applicable.
4
<PAGE> 5
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
(f) Disposal of Shares. If Employee shall dispose of any of the shares
of Stock acquired upon exercise of the Option within two (2) years from the date
the Option was granted or within one (1) year after the date of exercise of the
Option, then, in order to provide the Company with the opportunity to claim the
benefit of any income tax deduction, Employee shall promptly notify the Company
of the dates of acquisition and disposition of such shares, the number of shares
so disposed of, and the consideration, if any, received for such shares.
IN WITNESS WHEREOF, each of the parties to this Agreement has executed
this Agreement as of the day and year first written above.
MEDICAL DEVICE INTERNATIONAL,
INC. ("Company")
By /s/ F.A. Salama
---------------------------------
F.A. Salama, its President
/s/ John LaMarche
------------------------------------
John LaMarche ("Employee")
5
<PAGE> 6
EXHIBIT A
OPTION EXERCISE
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing stock option, hereby
irrevocably elects to exercise the purchase right represented by such option
for, and to purchase thereunder, ______________ of the shares of Common Stock of
Medical Device International, Inc., to which such warrant relates and herewith
makes payment of $_________ therefor in cash or by check and requests that the
certificates for such shares be issued in the name of, and be delivered to
_________________________ whose address is set forth below the signature of the
undersigned.
Dated:
----------------------------------
[Signature]
----------------------------------
[Address]
6
<PAGE> 1
EXHIBIT 10.10
EMPLOYEE STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is made and entered into
as of the 3rd day of June, 1998, between Opticon Medical Inc. (the "Company")
and John LaMarche ("Employee").
WITNESSETH
Whereas, the Company employs the Employee as a key member of the
Company's management; and
Whereas, the Company desires to encourage the Employee to remain in the
employ of the Company and for the Employee to have a personal interest in the
continued success and progress of the Company; and
Whereas, the Company desires to offer certain compensation to the
Employee for satisfactory performance of his duties, including the stock options
granted by this Agreement, in addition to other compensation that the Company
may give to the Employee pursuant to a separate employment agreement; and
Whereas, the Company previously granted Employee the following stock
options as evidenced by a Stock Option Agreement dated as of July 26, 1996 (the
"1996 Agreement"): (i) 37,500 shares of the Company's common stock granted on
August 14, 1995 ; and (2) 75,000 shares of the Company's common stock granted on
July 26, 1996;
Whereas, the Company desires to amend the stock option grant evidenced
in the 1996 Agreement and the Employee has agreed to such amendment; and
Whereas, the Company desires to grant additional stock options to
Employee and to document the terms and conditions of such stock option grant;
Now therefore, in consideration of the foregoing and the covenants
contained herein, the Company and Employee agree as follows:
1. AMENDMENT OF 1996 AGREEMENT.
The Company and the Employee hereby agree that the 1996 Agreement and
the Employee's stock options thereunder are amended as follows:
a. The option to purchase 82,500 shares of the Company's common stock
are not effected by this Agreement and shall remain in full force and effect in
accordance with the terms' and conditions of the 1996 Agreement, with the
vesting and exercisability thereof as described in Sections 2(a)(i), (iv), (v)
and (vi) of the 1996 Agreement.
<PAGE> 2
b. The option to purchase 30,000 shares of the Company's common stock,
with the vesting and exercisability thereof as described in Section 2(a)(ii) and
(iii) are hereby deemed canceled and replaced in full by the additional stock
options granted under this Agreement.
2. GRANT OF ADDITIONAL OPTION.
Subject to the terms and conditions set forth in this Agreement, the
Company hereby grants to the Employee the right to purchase up to fifty thousand
(50,000) shares of the Company's common stock (the "Stock") at a price of $1.50
per share, subject to the adjustments as provided in Section 4 hereof (the
"Additional Option"). It is understood and agreed that the option price is the
per share fair market value of such shares on the date of each of the option
grants covered by this Agreement. The Company intends that the Additional Option
shall be an Incentive Stock Option governed by the provisions of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). The terms of the
Company's Incentive Stock Option Plan and the Additional Option shall be
interpreted and administered so as to satisfy the requirements of the Code.
3. EXERCISE OF PURCHASE RIGHTS.
(a) Vesting and Exercisability. The Additional Option shall not be
exercisable the first time by Employee except in accordance with subsection
422(d) of the Code. The Additional Option is hereby deemed fully vested as of
the date hereof.
(b) Method of Exercise. Any portion of the Additional Option may be
exercised, in whole or in part, by delivery by Employee to the Company of
written notice of such exercise, accompanied by full payment of (i) the purchase
price with respect to that portion of the Additional Option being exercise and
(ii) any amounts required to be withheld pursuant to applicable income tax laws
in connection with such exercise. Until the Company notifies Employee to the
contrary, the form attached to this Agreement as Exhibit A shall be used to
exercise the Additional Option. Upon the exercise of the Additional Option, the
Company shall deliver to the Employee a certificate or certificates representing
the number of shares of Stock being purchased by Employee, free and clear of
encumbrances.
The aggregate purchase price for the shares of Stock to be issued upon
exercise of the Additional Option shall be paid (i) in cash, (ii) by certified
check, (iii) by delivery of duly endorsed certificated representing shares of
Stock having a fair market value on the date of exercise aggregating at least
the portion of the purchase price being paid by delivery of such shares, (iv) in
a combination of cash and Stock, or (v) by such other lawful consideration as
the administrator of the Plan may approve. To the extent necessary to avoid
adverse financial accounting consequences to the Company associated with the use
of Stock to pay the purchase price upon exercise of the Additional Option and
except as the Board of Directors of the Company (the "Board") may otherwise
consent, no shares of Stock acquired under this Agreement or pursuant to any
employee benefit plan or program of the Company may be used to pay any portion
of the purchase price upon exercise of the Additional Option unless those shares
shall have been held for a period of not less than six months prior to the date
of exercise. For
2
<PAGE> 3
purposes of this Agreement, the fair market value of a share of Stock shall be
determined by the Board pursuant to a reasonable method adopted in good faith
for such purpose.
(c) Restriction Upon Shares of Stock Issued Upon Exercise. At the time
of the issuance of any shares of Stock upon exercise of the Additional Option,
Employee will, upon the request of the Company, agree in writing that he is
acquiring such shares for investment only and not with a view to resale, and
that he will not sell, pledge or otherwise dispose of such shares so issued
unless and until (i) the Company is furnished with an opinion of counsel to the
effect that registration of such shares pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), is not required by the Securities Act and the
rules and regulations thereunder and any applicable state securities laws; or
(ii) such registration or notification as is, in the opinion of counsel for the
Company, required for the lawful disposition of such shares has been filed by
the Company and has become effective; provided however, that the Company is not
obligated to file any such registration or notification. Employee further agrees
that the Company may place a legend embodying such restriction on the
certificate(s) evidencing such shares.
(d) Expiration of Option. To the extent that the Additional Option has
not been exercised, this Agreement shall terminate and be of no further force
and effect, and the Additional Option shall expire, on the earlier of (i) three
months after termination of Employee's employment with the Company for any
reason except the death or disability of the Employee or the Employee's
employment is terminated for cause, (ii) thirty-six (36) months after
termination of Employee's employment because of the Employee's death or
disability, (iii) at the time the Employee's employment is terminated for cause,
or (iii) the tenth anniversary of the date of the grant of the Additional
Option.
4. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
The type and number of shares of Stock subject to the Additional Option
and the purchase price per share shall be adjusted as the Board reasonably deems
appropriate to preserve the value of the Additional Option in the event of a
stock dividend, stock split or reverse stock split, recapitalization, merger,
consolidation, reorganization, cash or property dividend (including without
limitation a dividend payable in shares of stock of any subsidiary of Company),
exchange of shares, repurchase of shares or any other change in corporate
structure of or by Company that in any such event materially affects the
outstanding shares of Stock.
5. NO RIGHTS AS STOCKHOLDER.
Employee shall have no rights as a stockholder with respect to any
shares of Stock subject to the Additional Option until and unless a certificate
or certificates representing such shares are issued to Employee pursuant to
Section 3(b) of this Agreement. Except as provided in Section 4, no adjustment
shall be made for dividends or other rights for which the record date is prior
to the issuance of such certificate or certificates.
3
<PAGE> 4
6. EMPLOYMENT.
Neither the granting of the Additional Option evidenced by this
Agreement nor any term or provision of this Agreement shall constitute or be
evidence of any understanding, express or implied, on the part of Company to
employ Employee for any period of time.
7. NONTRANSFERABILITY.
Employee's rights under this Agreement are not transferable by Employee
other than by will or in accordance with the laws of descent and distribution,
and are exercisable, during Employee's lifetime, only by Employee or, during his
disability, by his legal representative, and, after Employee's death, by his
estate, heirs or devisees and their successors and assigns.
8. MISCELLANEOUS.
(a) Headings. The headings in this Agreement are inserted for
convenience only and shall have no significance in the interpretation of this
Agreement.
(b) Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the transactions contemplated under this
Agreement other than an employment agreement that may have been executed between
the Company and the Employee. This Agreement supersedes all prior arrangements
or understandings with respect to those transactions, written or oral. No
agreements or representations, oral or otherwise, expressed or implied, with
respect to the subject matter of this Agreement have been made by either party
which are not set forth expressly in this Agreement.
(c) Successors. The terms and conditions of this Agreement shall be
binding and inure to the benefits of the parties to this Agreement and their
respective heirs, personal representative and successors.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Iowa applicable to agreements made and
entirely to be performed within such jurisdiction except to the extent federal
law may be applicable.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
(f) Disposal of Shares. If Employee shall dispose of any of the shares
of Stock acquired upon exercise of the Additional Option within two (2) years
from the date the Additional Option was granted or within one (1) year after the
date of exercise of the Additional Option, then, in order to provide the Company
with the opportunity to claim the benefit of any income tax deduction, Employee
shall promptly notify the Company of the dates of acquisition and disposition of
such shares, the number of shares so disposed of, and the consideration, if any,
received for such shares.
4
<PAGE> 5
IN WITNESS WHEREOF, each of the parties to this Agreement has executed
this Agreement as of the day and year first written above.
OPTICON MEDICAL INC. ("Company")
By /s/ Walter Sembrowich
----------------------------------
Walter Sembrowich
Chairman of the Board
/s/ John LaMarche
--------------------------------------
John LaMarche ("Employee")
5
<PAGE> 6
EXHIBIT A
OPTION EXERCISE
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing stock option, hereby irrevocably
elects to exercise the purchase right represented by such option for, and to
purchase thereunder, _______ of the shares of Common Stock of Opticon Medical
Inc., to which such warrant relates and herewith makes payment of $__________
therefor in cash or by check and requests that the certificates for such shares
be issued in the name of, and be delivered to whose address is set forth below
the signature of the undersigned.
Dated: _________________________________
[Signature]
_________________________________
_________________________________
[Address]
6
<PAGE> 1
EXHIBIT 10.11
DIRECTOR'S STOCK OPTION AGREEMENT
This Directors Stock Option Agreement (the "Agreement") is made and entered into
as of the 30th day of May, 1997, between Opticon Medical Inc. (the "Company")
and ___________ ("Director").
WITNESSETH:
Whereas, Director has agreed to serve as a member of the Board of Directors of
the Company; and
Whereas, the Company desires to offer certain compensation to Director for
performance of duties; and
Whereas, the Company desires to encourage Director to remain as a director of
the Company and Director to have a personal interest in the continued success
and progress of the Company;
Whereas, the Company and Director entered into an original Director's Stock
Option Agreement dated as of July 26, 1996, which is superseded and replaced in
its entirety by this Agreement, provided, however that the date of the grant of
the options hereunder shall remain July 26, 1996;
Whereas, the Agreement is being executed to reflect the effect of the 5:1 stock
split of the Company's common stock, effective as of September 9, 1996, on the
number of option shares and price therefor granted to Director.
NOW, THEREFORE, in consideration of the foregoing and the covenants contained
herein, the Company and Director agree as follows:
1. GRANT OF OPTION.
Subject to the terms and conditions set forth in this Agreement, the Company
hereby grants to Director the right and option to purchase up to forty thousand
(40,000) shares of the Company's common stock (the "Stock") at a price of $1.00
per share, subject to the adjustments as provided in Section 3 hereof (the
"Option"). It is understood and agreed that the option price is the per share
fair market value of such shares on the date of this Agreement. This Option is
not intended to be an incentive stock option within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
2. EXERCISE OF OPTION.
(a) Vesting and exercisability. Except as provided in Section 2(b),
Director may exercise only that portion of the Option that has vested in
accordance with the schedule hereafter set forth. Vesting of the Option shall
occur as follows:
<PAGE> 2
(i) The Option for 20,000 shares shall vest on the date of the
1997 annual meeting of the Company's shareholders,
(ii) The Option for 10,000 shares shall vest on the date of
the 1998 annual meeting of the Company's shareholders, and
(iii) The Option for 10,000 shares shall vest on the date of
the 1999 annual meeting of the Company's shareholders;
provided however, that no Option shall vest unless the Director is, on the date
the Option is scheduled to vest, a member of the board of directors of the
Company and had attended at least one-half of the meetings of the board of
directors and any committee of such board of which the Director is a member for
the relevant period.
For purposes of the aforesaid vesting schedule, "relevant period" shall mean the
following:
(x) in the case of (i) above, the period from July 26, 1996 to
the 1997 annual meeting;
(y) in the case of (ii) above, the period from the 1997 annual
meeting to the 1998 annual meeting; and
(z) in the case of (iii) above, the period from the 1998
annual meeting to the 1999 annual meeting.
(b) Acceleration of Exercisability. Notwithstanding the provisions of
Section 2(a) above, the Option shall vest completely and may be exercised in
full upon a change of control of the Company that would result in an
acceleration of stock options in accordance with the Company's Director Stock
Option Plan.
(c) Method of Exercise. Any portion of the Option which has vested and
is exercisable may be exercised, in whole or in part, by delivery by Director to
the Company of written notice of such exercise, accompanied by full payment of
(i) the purchase price with respect to that portion of the Option being exercise
and (ii) any amounts required to be withheld pursuant to applicable income tax
laws in connection with such exercise. Until the Company notifies Director to
the contrary, the form attached to this Agreement as EXHIBIT A shall be used to
exercise the Option. Upon the exercise of the Option, the Company shall deliver
to Director a certificate or certificates representing the number of shares of
Stock being purchased by Director, free and clear of encumbrances. The aggregate
purchase price for the shares of Stock to be issued upon exercise of an Option
shall be paid (i) in cash, (ii) by certified check, or (iii) by such other
lawful consideration as the Administrators of the Plan may approve.
(d) Restriction Upon Shares of Stock Issued Upon Exercise. At the time
of the issuance of any shares of Stock upon exercise of an Option, Director
will, upon the request of the Company, agree in writing that he is acquiring
such shares for investment only and not with a
2
<PAGE> 3
view to resale, and that he will not sell, pledge or otherwise dispose of such
shares for investment only and not with a view to resale, and that he will not
sell, pledge or otherwise dispose of such shares so issued unless an until (i)
the Company is furnished with an opinion of counsel to the effect that
registration of such shares pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), is not required by the Securities Act and the rules and
regulations thereunder and any applicable state securities laws; or (ii) such
registration or notification as is, in the opinion of counsel for the Company,
required for the lawful disposition of such shares has been filed by the Company
and has become effective; provided, however, that the Company is not obligated
to file any such registration or notification. Director further agrees that the
Company may place a legend embodying such restriction on the certificate(s)
evidencing such shares.
(e) Expiration of Option. To the extent that the Option has not been
exercised, this Agreement shall terminate and be of no further force and effect,
and the Option shall expire, on the earlier of (i) three months after the
Director's termination as a member of the board of directors of the Company for
any reason or (ii) the tenth anniversary of the date of grant of the Option.
3. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
The type and number of shares of Stock subject to the Option and the purchase
price per share shall be adjusted as the Administrator reasonably deems
appropriate to preserve the value of the Option in the event of a stock
dividend, stock split or reverse stock split, recapitalization, merger,
consolidation, reorganization, cash or property dividend (including without
limitation a dividend payable in shares of stock of any subsidiary of the
Company), exchange of shares, repurchase of shares or any other change in
corporate structure of or by the Company that in any such event materially
affects the outstanding shares of Stock.
4. NO RIGHTS AS STOCKHOLDER.
Director shall have no rights as a stockholder with respect to any shares of
Stock subject to the Option until and unless a certificate or certificates
representing such shares are issued to Director pursuant to Section 2(c) of this
Agreement. Except as provided in Section 3, no adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.
5. BOARD MEMBERSHIP.
Neither the granting of the Option evidenced by this Agreement nor any term or
provision of this Agreement shall constitute or be evidence of any
understanding, express or implied, on the part of the Company for the Director
to remain as a director of the Company for any period of time.
6. NONTRANSFERABILITY.
Director's rights under this Agreement are not transferable by Director other
than by will or in accordance with the laws of descent and distribution, and are
exercisable, during Director's
3
<PAGE> 4
lifetime, only by Director or, during his disability, by his legal
representative, and, after Director's death, by his estate, heirs or devisees
and their successors and assigns.
7. MISCELLANEOUS.
(a) Headings. The headings in this Agreement are inserted for
convenience only and shall have no significance in the interpretation of this
Agreement.
(b) Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the transactions contemplated under this
Agreement and this Agreement supersedes all prior arrangement or understandings
with respect to the Option, written or oral. No agreements or representations,
oral or otherwise, expressed or implied, with respect to the subject matter of
this Agreement have been made by either party which are not set forth expressly
in this Agreement.
(c) Successors. The terms and conditions of this Agreement shall be
binding and inure to the benefits of the parties to this Agreement and their
respective heirs, personal representative and successors.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Iowa applicable to agreements made and
entirely to be performed within such jurisdiction except to the extent federal
law may be applicable.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties to this Agreement has executed this
Agreement as of the day and year first written above.
OPTICON MEDICAL INC. ("Company")
By
-----------------------------------------
Administrator, Director Stock Option Plan
---------------------------------------------
"Director")
--------------------------
4
<PAGE> 5
EXHIBIT A
---------
OPTION EXERCISE
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing stock option, hereby
irrevocably elects to exercise the purchase right represented by such option
for, and to purchase thereunder, _______________________ of the shares of Common
Stock of Opticon Medical Inc., to which such warrant relates and herewith makes
payment of $____________ therefor in cash or by check and requests that the
certificates for such shares be issued in the name of, and be delivered to
___________________________ whose address is set forth below the signature of
the undersigned.
Dated: ___________________
_______________________________
[Signature]
_______________________________
_______________________________
[Address]
<PAGE> 1
EXHIBIT 10.12
EMPLOYEE STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is made and entered into
as of the 26th day of July, 1996, between Medical Device International, Inc.
(the "Company") and F.A. Salama ("Employee").
WITNESSETH
Whereas, the Company employs the Employee as a key member of the
Company's management; and
Whereas, the Company desires to encourage the Employee to remain in the
employ of the Company and for the Employee to have a personal interest in the
continued success and progress of the Company; and
Whereas, the Company desires to offer certain compensation to the
Employee for satisfactory performance of his duties, including the stock options
granted by this Agreement, in addition to other compensation that the Company
may give to the Employee pursuant to a separate employment agreement; and
Whereas, the Company granted Employee the right and option to purchase
up to 7,500 shares of the Company's common stock on August 14, 1995, but a stock
option agreement memorializing such option grant was never executed; and
Whereas, the Company desires to grant additional stock options to
Employee and to document the terms and conditions of all stock options granted
heretobefore and on the date hereof to Employee;
Now therefore, in consideration of the foregoing and the covenants
contained herein, the Company and Employee agree as follows:
1. GRANT OF OPTION.
Subject to the terms and conditions set forth in this Agreement, the
Company hereby grants to the Employee the right to purchase up to twenty
thousand (20,000) shares of the Company's common stock (the "Stock") at a price
of $5.50 per share, subject to the adjustments as provided in Section 3 hereof.
Together with options for 7,500 shares of Stock with an exercise price of $5.50
per share granted heretobefore to Employee by the Company, the Employee now has
options for a total of 27,500 shares of common stock (the "Option"), the terms
and conditions of which are set forth herein. It is understood and agreed that
the option price is 110% of the per share fair market value of such shares on
the date of each of the option grants covered by this Agreement in accordance
with the Company's Incentive Stock Option Plan and the Employee's current
ownership of more than 10% of the outstanding Stock. The Company intends
<PAGE> 2
that the Option shall be an Incentive Stock Option governed by the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The
terms of the Company's Incentive Stock Option Plan and the Option shall be
interpreted and administered so as to satisfy the requirements of the Code.
2. EXERCISE OF PURCHASE RIGHTS.
(a) Vesting and Exercisability. The Option shall not be exercisable the
first time by Employee except in accordance with subsection 422(d) of the Code.
Except as provided in Section 2(b), Employee may exercise only the portion of
the Option which has vested in accordance with the schedule hereafter set forth.
Vesting of the Option shall occur as follows:
(i) The Option to purchase one thousand five hundred (1,500)
shares shall vest on August 14, 1996, the first anniversary of the date of the
grant of the initial option for 7,500 shares;
(ii) The Option to purchase one thousand five hundred (1,500)
shares shall vest upon receipt by the Company of written approval from the
Federal Food and Drug Administration ("FDA") granting the Company's application
under section 510(k) of the FDA Act for authority to market the OPTICON device;
(iii) The Option to purchase one thousand five hundred (1,500)
shares shall vest in 1997, 1998, and 1999 based on the Company achieving the
minimum operating results established by the Administrator for the prior fiscal
year during the first quarter of that fiscal year;
(iv) The Option to purchase six thousand six hundred
sixty-seven (6,667) shares shall vest on July 26, 1997;
(v) The Option to purchase six thousand six hundred
sixty-seven (6,667) shares shall vest on July 26, 1998; and
(vi) The Option to purchase six thousand six hundred sixty-six
(6,666) shares shall vest on July 26, 1999; provided, however, that no Option
shall vest unless the Employee is, on the date the Option is scheduled to vest,
an employee of the Company.
(b) Acceleration of Exercisability. Notwithstanding the provisions of
Section 2(a), Option shall vest completely and may be exercised in full upon (i)
Employee's termination of employment with the Company due to the Employee's
death, disability or termination by the Company of Employee's employment without
cause (hereinafter referred to as a "Specified Termination") or (ii) a change of
control of the Company that would result in an acceleration of stock options in
accordance with the Incentive Stock Option Plan.
(c) Method of Exercise. Any portion of the Option which has vested and
is exercisable may be exercised, in whole or in part, by delivery by Employee to
the Company of written notice of such exercise, accompanied by full payment of
(i) the purchase price with
2
<PAGE> 3
respect to that portion of the Option being exercise and (ii) any amounts
required to be withheld pursuant to applicable income tax laws in connection
with such exercise. Until the Company notifies Employee to the contrary, the
form attached to this Agreement as EXHIBIT A shall be used to exercise the
Option. Upon the exercise of the Option, the Company shall deliver to the
Employee a certificate or certificates representing the number of shares of
Stock being purchased by Employee, free and clear of encumbrances.
The aggregate purchase price for the shares of Stock to be issued upon
exercise of an Option shall be paid (i) in cash, (ii) by certified check, (iii)
by delivery of duly endorsed certificated representing shares of Stock having a
fair market value on the date of exercise aggregating at least the portion of
the purchase price being paid by delivery of such shares, (iv) in a combination
of cash and Stock, or (v) by such other lawful consideration as the
administrator of the Plan may approve. To the extent necessary to avoid adverse
financial accounting consequences to the Company associated with the use of
Stock to pay the purchase price upon exercise of the Option and except as the
Board of Directors of the Company (the "Board") may otherwise consent, no shares
of Stock acquired under this Agreement or pursuant to any employee benefit plan
or program of the Company may be used to pay any portion of the purchase price
upon exercise of the Option unless those shares shall have been held for a
period of not less than six months prior to the date of exercise. For purposes
of this Agreement, the fair market value of a share of Stock shall be determined
by the Board pursuant to a reasonable method adopted in good faith for such
purpose.
(d) Restriction Upon Shares of Stock Issued Upon Exercise. At the time
of the issuance of any shares of Stock upon exercise of the Option, Employee
will, upon the request of the Company, agree in writing that he is acquiring
such shares for investment only and not with a view to resale, and that he will
not sell, pledge or otherwise dispose of such shares so issued unless and until
(i) the Company is furnished with an opinion of counsel to the effect that
registration of such shares pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), is not required by the Securities Act and the rules and
regulations thereunder and any applicable state securities laws; or (ii) such
registration or notification as is, in the opinion of counsel for the Company,
required for the lawful disposition of such shares has been filed by the Company
and has become effective; provided however, that the Company is not obligated to
file any such registration or notification.
Employee further agrees that the Company may place a legend embodying
such restriction on the certificate(s) evidencing such shares.
(e) Expiration of Option. To the extent that the Option has not been
exercised, this Agreement shall terminate and be of no further force and effect,
and the Option shall expire, on the earlier of (i) three months after
termination of Employee's employment with the Company for any reason except a
Specified Termination, (ii) thirty-six (36) months after termination of
Employee's employment because of a Specified Termination or (iii) the fifth
anniversary of the respective date of the grant of the options, which is August
14, 1995 for 7,500 shares and July 26, 1996 for 20,000 shares.
3
<PAGE> 4
3. Adjustment UPON CHANGES IN CAPITALIZATION.
The type and number of shares of Stock subject to the Option and the
purchase price per share shall be adjusted as the Board reasonably deems
appropriate to preserve the value of the Option in the event of a stock
dividend, stock split or reverse stock split, recapitalization, merger,
consolidation, reorganization, cash or property dividend (including without
limitation a dividend payable in shares of stock of any subsidiary of Company),
exchange of shares, repurchase of shares or any other change in corporate
structure of or by Company that in any such event materially affects the
outstanding shares of Stock.
4. NO RIGHTS AS STOCKHOLDER.
Employee shall have no rights as a stockholder with respect to any
shares of Stock subject to the Option until and unless a certificate or
certificates representing such shares are issued to Employee pursuant to Section
2(c) of this Agreement. Except as provided in Section 3, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
5. EMPLOYMENT.
Neither the granting of the Option evidenced by this Agreement nor any
term or provision of this Agreement shall constitute or be evidence of any
understanding, express or implied, on the part of Company to employ Employee for
any period of time.
6. NONTRANAFERABILITY.
Employee's rights under this Agreement are not transferable by Employee
other than by will or in accordance with the laws of descent and distribution,
and are exercisable, during Employee's lifetime, only by Employee or, during his
disability, by his legal representative, and, after Employee's death, by his
estate, heirs or devisees and their successors and assigns.
7. MISCELLANEOUS.
(a) Headings. The headings in this Agreement are inserted for
convenience only and shall have no significance in the interpretation of this
Agreement.
(b) Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the transactions contemplated under this
Agreement other than an employment agreement that may have been executed between
the Company and the Employee. This Agreement supersedes all prior arrangements
or understandings with respect to those transactions, written or oral. No
agreements or representations, oral or otherwise, expressed or implied, with
respect to the subject matter of this Agreement have been made by either party
which are not set forth expressly in this Agreement.
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<PAGE> 5
(c) Successors. The terms and conditions of this Agreement shall be
binding and inure to the benefits of the parties to this Agreement and their
respective heirs, personal representative and successors.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Iowa applicable to agreements made and
entirely to be performed within such jurisdiction except to the extent federal
law may be applicable.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
(f) Disposal of Shares. If Employee shall dispose of any of the shares
of Stock acquired upon exercise of the Option within two (2) years from the date
the Option was granted or within one (1) year after the date of exercise of the
Option, then, in order to provide the Company with the opportunity to claim the
benefit of any income tax deduction, Employee shall promptly notify the Company
of the dates of acquisition and disposition of such shares, the number of shares
so disposed of, and the consideration, if any, received for such shares.
IN WITNESS WHEREOF, each of the parties to this Agreement has executed
this Agreement as of the day and year first written above.
MEDICAL DEVICE INTERNATIONAL,
INC. ("Company")
By /s/ Walter L. Sembrowich
---------------------------------
Its Chairman
--------------------------------
/s/ F.A. Salama
------------------------------------
F.A. Salama ("Employee")
5
<PAGE> 6
EXHIBIT A
OPTION EXERCISE
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing stock option, hereby
irrevocably elects to exercise the purchase right represented by such option
for, and to purchase thereunder, __________ of the shares of Common Stock of
Medical Device International, Inc., to which such warrant relates and herewith
makes payment of $_________ therefor in cash or by check and requests that the
certificates for such shares be issued in the name of, and be delivered to
__________________________ whose address is set forth below the signature of the
undersigned.
Dated: _____________
________________________________
[Signature]
________________________________
________________________________
[Address]
6
<PAGE> 1
EXHIBIT 10.13
AMENDMENT TO EMPLOYEE STOCK OPTION AGREEMENT
This Amendment to Employee Stock Option Agreement (this "Amendment") is
entered into as of the first day of November, 1997, by and between Opticon
Medical Inc. (the "Company") and Dr. Fouad A. Salama ("Dr. Salama").
WHEREAS, the Company (formerly known as Medical Device International,
Inc.) and Dr. Salama entered into an Employee Stock Option Agreement dated as of
July 26, 1996 (the "Option Agreement"), pursuant to which the Company granted
Dr. Salama certain stock option rights to purchase shares of the Company's
common stock; and
WHEREAS, the Company and Dr. Salama have entered into an Agreement
dated as of October 31, 1997 pursuant to which the parties agreed that Dr.
Salama's employment by the Company as a full-time employee ceased as of October
31, 1997 and agreed to make certain amendments to the Option Agreement; and
WHEREAS, the parties desire to amend certain provisions of the Option
Agreement;
NOW THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged by the parties, the Company and Dr.
Salama agree as follows:
1. The parties acknowledge and agree that pursuant to the Option Agreement Dr.
Salama has been granted stock options to purchase up to 27,500 shares of common
stock of the Company at an exercise price of $5.50 per share, and that pursuant
to a stock split effected by the Company on September 9, 1996, Dr. Salama
currently holds stock options to purchase up to 137,500 shares of the Company's
common stock at a price of $1.10 per share. The parties acknowledge and agree
that the number of option shares and the exercise price referenced in this
Amendment reflect the effect of such stock split.
2. Pursuant to Section 1 of the Option Agreement, the stock options granted to
Dr. Salama thereunder were intended to be incentive stock options governed by
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The
parties acknowledge and agree that in accordance with Section 422(a)(2) of the
Code, only those vested stock options exercised by Dr. Salama within three (3)
months of the cessation of his employment by the Company on October 31, 1997
shall be eligible to be treated as incentive stock options under the Code. All
outstanding stock options not exercised by Dr. Salama within three (3) months of
the cessation of his employment by the Company shall continue to be outstanding
and exercisable as non-qualified stock options pursuant to the terms and
conditions of the Option Agreement as amended hereunder.
3. Section 2(a) of the Option Agreement is hereby deleted and the following
substituted therefor:
<PAGE> 2
"(a) Vesting and exercisability. Employee may exercise only that
portion of the Option that has vested in accordance with the schedule hereafter
set forth. Vesting of the Option shall occur as follows:
(i) The Option to purchase seven thousand five hundred (7,500)
shares vested on August 14, 1996, the first anniversary of the date of the grant
of the initial option for 37,500 shares;
(ii) The Option to purchase forty thousand eight hundred
thirty-five (40,835) shares vested on July 26, 1997;
(iii) The Option to purchase forty thousand eight hundred
thirty-five (40,835) shares shall vest on July 26, 1998;
(iv) The Option to purchase forty thousand eight hundred
thirty (40,830) shares shall vest on July 26, 1999; and
(v) The Option to purchase seven thousand five hundred (7,500)
shares shall vest upon receipt by the Company of written clearance from the
Federal Food and Drug Administration ("FDA") to market the OPTICON valved
device."
4. Section 2(b) of the Option Agreement is hereby deleted.
5. Section 2(e) of the Option Agreement is hereby deleted and the following
substituted therefor:
"(e) Expiration of Option. To the extent that the Option has not been
exercised, this Agreement shall terminate and be of no further force and effect,
and the Option shall expire on, the fifth anniversary of the respective date of
the grants of the options, which is August 14, 1995 for 37,500 shares and July
26, 1996 for 100,000 shares."
6. In all other respects, the Option Agreement is confirmed and shall continue
in full force and effect.
IN WITNESS WHEREOF, the Company and Dr. Salama have executed this Amendment as
of the date first written above.
OPTICON MEDICAL, INC
/s/ F.A. Salama By: /s/ William J. Post
- ------------------------------ ------------------------------------
Dr. Fouad A. Salama William J. Post, Chief Executive Officer
and President
2
<PAGE> 1
EXHIBIT 10.14
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of __________________,
between IMMUNE RESPONSE, INC., a Colorado corporation with principal executive
offices located at 7315 E. Peakview Avenue, Englewood, Colorado 80111 (the
"COMPANY"), and the undersigned (the "BUYER").
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase from Company, and the
Company desires to issue and sell to the Buyer, upon the terms and subject to
the conditions of this Agreement, (i) a 6% Exchangeable Convertible Debenture
(the "DEBENTURE"), in the form attached hereto as EXHIBIT A, and (ii) 150,000
Common Stock Purchase Warrants in the form attached hereto as EXHIBIT B (the
"WARRANTS") on the Funding Date (as defined herein);
WHEREAS, the Debenture is (i) exchangeable for 1,500 shares of
the Company's Series A 6% Convertible Preferred Stock, par value $.0001 per
share (the "PREFERRED SHARES"), and (ii) convertible into shares of the
Company's common stock, par value $.0001 per share (the "COMMON STOCK"), in
accordance with the terms set forth therein;
WHEREAS, upon the terms and subject to the designations,
preferences and rights set forth in the Company's Articles of Amendment to the
Company's Amended and Restated Articles of Incorporation in the form attached
hereto as EXHIBIT C (the "ARTICLES OF AMENDMENT"), upon issuance the Preferred
Shares shall be convertible into shares of the Common Stock; and
WHEREAS, the Warrants, upon the terms and subject to the
conditions therein, will be exercisable to purchase 150,000 shares of Common
Stock for a period of five (5) years from and after the Funding Date.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
A. TRANSACTION. Subject to the terms and conditions contained
herein, Buyer hereby agrees to purchase from the Company, and the Company hereby
agrees to issue and sell to the Buyer in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "SECURITIES ACT"), the Debenture and the Warrants.
B. PURCHASE PRICE; FORM OF PAYMENT.
1. The purchase price for the Debenture and the Warrants to be
purchased by Buyer hereunder shall be $1,500,000 (the "PURCHASE PRICE") less
deductions for fees and expenses.
<PAGE> 2
2. Buyer shall pay the Purchase Price by wire transfer of
immediately available funds to the escrow agent (the "ESCROW AGENT") identified
in those certain Escrow Instructions dated as of the date hereof, a copy of
which is attached hereto as EXHIBIT D (the "ESCROW INSTRUCTIONS").
Simultaneously against receipt by the Escrow Agent of the Purchase Price, the
Company shall deliver to the Escrow Agent or its designated depository one or
more duly authorized, issued and executed certificates (in the name of Buyer or,
if the Company has been notified otherwise, in the name of Buyer's nominee)
evidencing the Debenture and the Warrants which the Buyer is purchasing. By
executing and delivering this Agreement, Buyer and the Company each hereby agree
to observe the terms and conditions of the Escrow Instructions, all of which are
incorporated herein by reference as if fully set forth herein.
C. METHOD OF PAYMENT. Payment into escrow of the Purchase
Price shall be made by wire transfer of immediately available funds to:
Fleet Bank
350 Fifth Avenue, Empire State Division
New York, New York 10016
For the Account of: Herrick, Feinstein LLP Attorney Trust Account
Account# 9405775163
ABA Reference# 021-200-339
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Debenture and the Warrants representing the securities to be
purchased.
D. EXCHANGE OF DEBENTURES. From and after the date hereof and
until the Maturity Date (as defined in the Debenture), Buyer may, at its option
and in its sole discretion, exchange the Debenture for Preferred Shares, which
shares shall have the rights and preferences set forth in the Articles of
Amendment. Such exchange shall take place in accordance with the provisions of
Section 3 of the Debenture.
II. BUYER'S REPRESENTATIONS, WARRANTIES; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
Buyer represents and warrants to and covenants and agrees with
the Company as follows:
A. Buyer is purchasing the Debenture, Preferred Shares
issuable upon the exchange thereof, the Warrants, the Common Stock issuable upon
exercise of the Warrants (the "WARRANT SHARES") and the shares of Common Stock
issuable upon conversion of the Debenture or the Preferred Shares (in either
case, the "CONVERSION SHARES" and, collectively with the Debenture, Preferred
Shares, the Warrants and the Warrant Shares, the "SECURITIES") for its own
account, for investment purposes only and not with a view towards or in
connection with the public sale or distribution thereof in violation of the
Securities Act.
<PAGE> 3
B. Buyer is (i) an "accredited investor" within the meaning of
Rule 501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered and
sold by the Company in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that the Company is relying upon the accuracy of, and Buyer's
compliance with, Buyer's representations, warranties and covenants set forth in
this Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Securities;
D. Buyer has been furnished with or provided access to all
materials relating to the business, financial position and results of operations
of the Company, and all other materials requested by Buyer to enable it to make
an informed investment decision with respect to the Securities.
E. Buyer acknowledges that it has had access to all press
releases issued by the Company since December 31, 1998 and has had access to
copies of the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998, and all other reports and documents heretofore filed by the
Company with the Commission pursuant to the Securities Act and the Securities
Exchange Act of 1934, as amended (the "EXCHANGE Act") since December 31, 1998
(collectively, the "COMMISSION FILINGS").
F. Buyer acknowledges that in making its decision to purchase
the Securities it has been given an opportunity to ask questions of and to
receive answers from the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
G. Buyer understands that the Securities have not been
approved or disapproved by the Commission or any state securities commission and
that the foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Securities and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
H. This Agreement has been duly and validly authorized,
executed and delivered by Buyer and is a valid and binding agreement of Buyer
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally.
I. Neither Buyer nor its affiliates nor any person acting on
its or their behalf has the intention of entering into, at any time prior to the
conversion of the entire principal amount the Debenture or all shares of
Preferred Stock and the exercise of the Warrants, any put option, short position
or other similar instrument or position with respect to the Common Stock, and
neither Buyer nor any of its affiliates nor any person acting on its or their
behalf has or will use at any time shares of Common Stock acquired pursuant to
this Agreement to settle any put
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<PAGE> 4
option, short position or other similar instrument or position that may have
been entered into prior to the execution of this Agreement.
III. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
A. CAPITALIZATION.
1. The authorized capital stock of the Company
consists of: (i) 25,000,000 shares of Common Stock, of which 1,983,233 shares
are issued and outstanding and 1,000,000 shares of preferred stock, none of
which are issued and outstanding. All of the issued and outstanding shares of
Common Stock have been duly authorized and validly issued and are fully paid and
non-assessable. As of the date hereof, the Company has outstanding warrants to
purchase 600,000 shares of Common Stock and no stock options. The Conversion
Shares and Warrant Shares have been duly and validly authorized and reserved for
issuance by the Company, and when issued by the Company upon conversion of or in
lieu of accrued dividends on the Preferred Shares, or on exercise of the
Warrants, will be duly and validly issued, fully paid and non-assessable and
will not subject the holder thereof to personal liability by reason of being
such holder. There are no preemptive, subscription, "call", convertible debt
instruments or other similar rights to acquire the Common Stock (including the
Conversion Shares and Warrant Shares) that have been issued or granted to any
person, except as disclosed on Schedule III.A.1. hereto or otherwise previously
disclosed in writing to Buyer.
2. Except as disclosed on Schedule III.A.2. hereto,
the Company does not own or control, directly or indirectly, any interest in any
other corporation, partnership, limited liability company, unincorporated
business organization, association, trust or other business entity.
3. The Company has entered into an Agreement and Plan
of Reorganization, dated as of December 9, 1999 (the "MERGER AGREEMENT"), among
the Company, Opticon Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of the Company ("ACQUISITION"), and Opticon Medical,
Inc., an Iowa corporation ("OPTICON"), pursuant to which Opticon will be merged
with and into Acquisition (the "MERGER"), and all of the outstanding capital
stock, and options, warrants and other rights exercisable for Opticon capital
stock, will be converted into the right to receive shares of Common Stock. The
Merger has received the requisite approval of shareholders of Opticon and
Acquisition, and will become effective on or prior to the Funding Date. Certain
information concerning Opticon and the Merger, as well as a copy of the Merger
Agreement, are disclosed on Schedule III.A.3 hereto.
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<PAGE> 5
B. ORGANIZATION; REPORTING COMPANY STATUS.
1. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado
and is duly qualified as a foreign corporation in all jurisdictions in which the
failure to so qualify would have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company or on the consummation of any of the transactions
contemplated by this Agreement (a "MATERIAL ADVERSE EFFECT").
2. The Company has voluntarily filed with the
Commission all reports and information required to be filed by it pursuant to
all reporting obligations under 15(d) of the Exchange Act for the 12-month
period immediately preceding the date hereof. Such Common Stock is listed and
traded on The National Association of Securities Dealers electronic bulletin
board ("OTC/BB") under the symbol "IMUN" and the Company has not received any
notice regarding, and to its knowledge there is no threat, of the termination or
discontinuance of the eligibility of the Common Stock for such listing.
C. AUTHORIZED SHARES. The Company has duly and validly
authorized and reserved for issuance 2,000,000 shares of Common Stock, which
amount is sufficient in number for the conversion of the Debenture or the
Preferred Shares, assuming for the purposes of this Section III.C a Conversion
Price (as defined in the Articles of Amendment) of $2.50, and the exercise of
the Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Conversion Shares and Warrant
Shares upon conversion of the Debenture or the Preferred Shares and exercise of
the Warrants, respectively. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Debenture or the Preferred
Shares and Warrant Shares upon exercise of the Warrants in accordance with this
Agreement, the Debenture, the Articles of Amendment and the Warrants, is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the
requisite corporate power and authority to file and perform its obligations
under the Debenture and Articles of Amendment and to enter into the Documents
(as hereinafter defined), and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Articles of
Amendment with the Colorado Secretary of State's office, the issuance of the
Debenture, the Preferred Shares, the Warrants and the issuance and reservation
for issuance of the Conversion Shares and Warrant Shares), has been duly
authorized by all necessary corporate action on the part of the Company. Each of
the Documents (as defined below) has been duly validly executed and delivered by
the Company and the Articles of Amendment have been duly filed with the Colorado
Secretary of State's office by the Company, and each instrument constitutes a
valid and binding obligation of the Company enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally. The Securities have been duly and validly
authorized for issuance by the Company and, when executed and delivered by the
Company, will be valid and
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<PAGE> 6
binding obligations of the Company enforceable against it in accordance with
their terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally. For purposes of this Agreement, the term
"DOCUMENTS" means (i) this Agreement; (ii) the Registration Rights Agreement of
even date herewith between the Company and Buyer, a copy of which is annexed
hereto as EXHIBIT E (the "REGISTRATION RIGHTS AGREEMENT"); (iii) the Debenture;
(iv) the Warrants; (v) the Articles of Amendment; and (vi) the Escrow
Instructions.
E. AUTHORIZATION OF THE SECURITIES. The authorization,
issuance, sale and delivery of the Debenture and the Preferred Shares and
Warrants has been duly authorized by all requisite corporate action on the part
of the Company. As of the Funding Date, the Debenture and the Warrants, and the
Preferred Shares, the Conversion Shares and the Warrant Shares, upon their
issuance in accordance with the Debenture, Articles of Amendment and the
Warrants, respectively, will be validly issued and outstanding, fully paid and
nonassessable, and not subject to any preemptive rights, rights of first refusal
or other similar rights.
F. NON-CONTRAVENTION. The execution and delivery by the
Company of the Documents, the issuance of the Securities, and the consummation
by the Company of the other transactions contemplated hereby and thereby,
including, without limitation, the filing of the Articles of Amendment with the
Colorado Secretary of State's office and payment of interest under the
Debenture, do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default (or an
event which, with notice, lapse of time or both, would constitute a default)
under (i) the articles of incorporation or by-laws of the Company or (ii) any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Company is a party or by which its properties or assets are bound, or
any law, rule, regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over the Company or any of the
Company's properties or assets.
G. APPROVALS. No authorization, approval or consent of any
third party or entity, including, without limitation, any court or public or
governmental authority is required to be obtained by the Company for the
issuance and sale of the Securities to Buyer as contemplated by this Agreement,
except such authorizations, approvals and consents that have been obtained by
the Company prior to the date hereof.
H. COMMISSION FILINGS. None of the Commission Filings
contained at the time they were filed any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
I. ABSENCE OF CERTAIN CHANGES. Except for the Merger as
provided on Schedule III.I, since the Balance Sheet Date (as defined in Section
III.M.), there has not occurred any change, event or development in the
business, financial condition, prospects or results of operations of the
Company, and there has not existed any condition having or reasonably likely to
have, a Material Adverse Effect.
J. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic or industry conditions known to the public
generally) that has not been fully
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<PAGE> 7
disclosed in writing to the Buyer that (i) reasonably could be expected to have
a Material Adverse Effect or (ii) reasonably could be expected to materially and
adversely affect the ability of the Company to perform its obligations pursuant
to the Documents.
K. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.
L. ABSENCE OF EVENTS OF DEFAULT. No "Event of Default" (as
defined in any agreement or instrument to which the Company is a party) and no
event which, with notice, lapse of time or both, would constitute an Event of
Default (as so defined), has occurred and is continuing, which could have a
Material Adverse Effect.
M. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The
Company has delivered to Buyer true and complete copies of its (i) audited
balance sheet as at December 31, 1998, and the related audited statements of
operations and cash flows for the fiscal year ended December 31, 1998, (ii) its
unaudited balance sheet and related statements of operations and cash flows for
the thirteen (13) month period ending January 31, 2000, including in each case,
the related notes and schedules thereto (collectively, the "FINANCIAL
STATEMENTS"), and all management letters, if any, from the Company's independent
auditors relating to the dates and periods covered by the Financial Statements.
Each of the Financial Statements is complete and fairly stated in all material
respects, has been prepared in accordance with United States Generally Accepted
Accounting Principles ("GAAP") (subject, in the case of the interim Financial
Statements, to normal year end adjustments and the absence of footnotes) and in
conformity with the practices consistently applied by the Company without
modification of the accounting principles used in the preparation thereof, and
fairly presents the financial position, results of operations and cash flows of
the Company as at the dates and for the periods indicated. For purposes hereof,
the audited balance sheet of the Company as at December 31, 1998, is hereinafter
referred to as the "BALANCE SHEET" and December 31, 1998, is hereinafter
referred to as the "BALANCE SHEET DATE". The Company has no indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent or
otherwise, and whether due or to become due) that would have been required to be
reflected in, reserved against or otherwise described in the Balance Sheet or in
the notes thereto in accordance with GAAP, which was not fully reflected in,
reserved against or otherwise described in the Balance Sheet or the notes
thereto or was not incurred in the ordinary course of business consistent with
the Company's past practices since the Balance Sheet Date.
N. COMPLIANCE WITH LAWS; PERMITS. The Company is in compliance
with all laws, rules, regulations, codes, ordinances and statutes (collectively
"LAWS") applicable to it or to the conduct of its business, except for such
noncompliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
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<PAGE> 8
O. RELATED PARTY TRANSACTIONS. Except as set forth on Schedule
III.O. hereto, neither the Company nor any of its officers, directors or
"Affiliates" (as such term is defined in Rule 12b-2 under the Exchange Act) has
borrowed any moneys from or has outstanding any indebtedness or other similar
obligations to the Company. Except as set forth on Schedule III.O. hereto,
neither the Company nor any of its officers, directors or Affiliates (i) owns
any direct or indirect interest constituting more than a one percent equity (or
similar profit participation) interest in, or controls or is a director,
officer, partner, member or employee of, or consultant to or lender to or
borrower from, or has the right to participate in the profits of, any person or
entity which is (x) a competitor, supplier, customer, landlord, tenant, creditor
or debtor of the Company, (y) engaged in a business related to the business of
the Company , or (z) a participant in any transaction to which the Company is a
party (other than in the ordinary course of the Company's business) or (ii) is a
party to any contract, agreement, commitment or other arrangement with the
Company.
P. INSURANCE. The Company maintains insurance coverage with
financially sound and reputable insurers and such insurance coverage is
adequate, consistent with industry standards and the Company's historical claims
experience, and includes coverage for such things as property and casualty,
general liability, workers' compensation, personal injury and other similar
types of insurance. The Company has not received notice from, and has no
knowledge of any threat by, any insurer (that has issued any insurance policy to
the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Q. SECURITIES LAW MATTERS. Based, in part, upon the
representations and warranties of Buyer set forth in Section II hereof, the
offer and sale by the Company of the Securities is exempt from (i) the
registration and prospectus delivery requirements of the Securities Act and the
rules and regulations of the Commission thereunder and (ii) the registration
and/or qualification provisions of all applicable state securities and "blue
sky" laws. Other than pursuant to the Merger or an effective registration
statement under the Securities Act, the Company has not issued, offered or sold
the Debenture, the Preferred Shares or any shares of Common Stock (including for
this purpose any securities of the same or a similar class as the Debenture, the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year immediately preceding the date hereof,
except as disclosed on Schedule III.Q. hereto, and the Company shall not
directly or indirectly take, and shall not permit any of its directors, officers
or Affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any person or entity of the Debenture, the
Preferred Shares or shares of Common Stock or any of the other Securities), so
as to make unavailable the exemption from Securities Act registration being
relied upon by the Company for the offer and sale to Buyer of the Securities as
contemplated by this Agreement. No form of general solicitation or advertising
has been used or authorized by the Company or any of its officers, directors or
Affiliates in connection with the offer or sale of the Securities as
contemplated by this Agreement or any other agreement to which the Company is a
party.
R. ENVIRONMENTAL MATTERS.
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<PAGE> 9
1. The operations of the Company are in compliance
with all applicable Environmental Laws (as defined below) and all permits issued
pursuant to Environmental Laws or otherwise;
2. the Company has obtained or applied for all
permits required under all applicable Environmental Laws necessary to operate
its business;
3. the Company is not the subject of any outstanding
written order of or agreement with any governmental authority or person
respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any Release or
threatened Release of Hazardous Materials;
4. the Company has not received, since the Balance
Sheet Date, any written communication alleging that it may be in violation of
any Environmental Law or any permit issued pursuant to any Environmental Law, or
may have any liability under any Environmental Law;
5. the Company does not have any current contingent
liability in connection with any Release of any Hazardous Materials into the
indoor or outdoor environment (whether on-site or off-site);
6. except as set forth on Schedule III.R.6 hereto, to
the Company's knowledge, there are no investigations of the business,
operations, or currently or previously owned, operated or leased property of the
Company pending or threatened which could lead to the imposition of any
liability pursuant to any Environmental Law;
7. there is not located at any of the properties of
the Company any (A) underground storage tanks, (B) asbestos-containing material
or (C) equipment containing polychlorinated biphenyls; and,
8. the Company has provided to Buyer all
environmentally related audits, studies, reports, analyses, and results of
investigations that have been performed with respect to the currently or
previously owned, leased or operated properties of the Company.
For purposes of this Section III.R.:
"ENVIRONMENTAL LAW" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law as now or hereafter in
effect in any way relating to the protection of human health and safety or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. App. Section 1801 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.),
the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42
U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 136 et seq.), and the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.), and the regulations promulgated pursuant thereto.
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<PAGE> 10
"HAZARDOUS MATERIAL" means any substance, material or waste
which is regulated by the United States, Canada or any of its provinces, or any
state or local governmental authority including, without limitation, petroleum
and its by-products, asbestos, and any material or substance which is defined as
a "hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or toxic substance" under any provision of any Environmental Law.
"RELEASE" means any release, spill, filtration, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, or
leaching into the indoor or outdoor environment, or into or out of any property.
"REMEDIAL ACTION" means all actions to (x) clean up, remove,
treat or in any other way address any Hazardous Material; (y) prevent the
Release of any Hazardous Material so it does not endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment; or (z)
perform pre-remedial studies and investigations or post-remedial monitoring and
care.
S. LABOR MATTERS. The Company is not party to any labor or
collective bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. No employees of the
Company are represented by any labor organization and none of such employees has
made a pending demand for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding presently pending
or, to the Company's knowledge, threatened to be brought or filed, with the
National Labor Relations Board or other labor relations tribunal. There is no
organizing activity involving the Company pending or to the Company's knowledge,
threatened by any labor organization or group of employees of the Company. There
are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii)
material grievances or other labor disputes pending or, to the knowledge of the
Company, threatened against or involving the Company. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company.
T. ERISA MATTERS. The Company and its ERISA Affiliates (as
defined below) are in compliance in all material respects with all provisions of
ERISA (as defined below) applicable to it. No Reportable Event (as defined
below) has occurred, been waived or exists as to which the Company or any ERISA
Affiliate was required to file a report with the Pension Benefits Guaranty
Corporation, and the present value of all liabilities under all Plans (based on
those assumptions used to fund such Plans) did not, as of the most recent annual
valuation date applicable thereto, exceed the value of the assets of all such
Plans (as defined below) in the aggregate. None of the Company or ERISA
Affiliates has incurred any Withdrawal Liability that could result in a Material
Adverse Effect. None of the Company or ERISA Affiliates has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is
reasonably expected to be in reorganization or termination where such
reorganization or termination has resulted or could reasonably be expected to
result in increases to the contributions required to be made to such Plan or
otherwise.
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<PAGE> 11
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of
1974, or any successor statute, together with the regulations thereunder, as the
same may be amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under ss. 414
of the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE CODE").
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
ss. 414 of the Internal Revenue Code) is making or accruing an obligation to
make contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"PLAN" means any pension plan (other than a Multiemployer
Plan) subject to the provision of Title IV of ERISA or ss. 412 of the Internal
Revenue Code that is maintained for employees of the Company or any ERISA
Affiliate.
"REPORTABLE EVENT" means any reportable event as defined in
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate that is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of ss. 414 of the
Internal Revenue Code.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. TAX MATTERS.
1. The Company has filed all Tax Returns which it is
required to file under applicable Laws, except for such Tax Returns in respect
of which the failure to so file does not and could not have a Material Adverse
Effect; all such Tax Returns are complete and fairly stated in all material
respects and have been prepared in compliance with all applicable Laws; the
Company has paid all Taxes (as defined below) due and owing by it (whether or
not such Taxes are required to be shown on a Tax Return) and have withheld and
paid over to the appropriate taxing authorities all Taxes which it is required
to withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since the Balance Sheet Date, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
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<PAGE> 12
2. No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that such corporation
is or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company; no information related
to Tax matters has been requested by any foreign, federal, state or local taxing
authority; and, except as disclosed above, no written notice indicating an
intent to open an audit or other review has been received by the Company from
any foreign, federal, state or local taxing authority. There are no material
unresolved questions or claims concerning the Company's Tax liability. The
Company (A) has not executed or entered into a closing agreement pursuant to ss.
7121 of the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (B) has not agreed to or is
required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue
Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Internal Revenue Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Internal Revenue Code.
3. The Company has not made an election under
Section 341(f) of the Internal Revenue Code. The Company is not liable for the
Taxes of another person that is not a subsidiary of the Company under (A)
Treas. Reg. Section 1.1502-6 (or comparable provisions of state, local or
foreign law), (B) as a transferee or successor, (C) by contract or indemnity or
(D) otherwise. The Company is not a party to any tax sharing agreement. The
Company has not made any payments, is obligated to make payments or is a party
to an agreement that could obligate it to make any payments that would not be
deductible under Section 28OG of the Internal Revenue Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
V. PROPERTY. The Company has good and marketable title to all
real and personal property owned by it, free and clear of all liens,
encumbrances and defects except as are described on Schedule III.V. hereto or
such as do not materially affect the value of such property
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<PAGE> 13
and do not interfere with the use made and proposed to be made of such property
by the Company; and any real property and buildings held under lease by the
Company are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company.
W. INTELLECTUAL PROPERTY. The Company owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"INTANGIBLES") for the conduct of its business as now being conducted as
described on Schedule III.W. hereto. The Company is not infringing upon or in
conflict with any right of any other person with respect to any Intangibles.
Except as disclosed on Schedule III.W. hereto, no claims have been asserted by
any person to the ownership or use of any Intangibles and the Company has no
knowledge of any basis for such claim.
X. INTERNAL CONTROLS AND PROCEDURES. The Company maintains
accurate books and records and internal accounting controls which provide
reasonable assurance that (i) all transactions to which the Company is a party
or by which its properties are bound are executed with management's
authorization; (ii) the reported accountability of the Company's assets is
compared with existing assets at regular intervals; (iii) access to the
Company's assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with U.S. generally
accepted accounting principles consistently applied.
Y. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any of
its directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Z. NO MISREPRESENTATION. No representation or warranty of the
Company contained in this Agreement, any schedule, annex or exhibit hereto or
any agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, not misleading.
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<PAGE> 14
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. RESTRICTIVE LEGEND. Buyer acknowledges and agrees that,
upon issuance pursuant to this Agreement, the Debenture, the Preferred Shares
and the Warrants (and any shares of Common Stock issued in conversion of the
Debenture, or the Preferred Shares or exercise of the Warrants) shall have
endorsed thereon a legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Debenture, the
Preferred Shares and the Conversion Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND
SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
B. FILINGS. The Company shall make all necessary Commission
Filings and "blue sky" filings required to be made by the Company in connection
with the sale of the Securities to the Buyer as required by all applicable Laws,
and shall provide a copy thereof to the Buyer promptly after such filing.
C. REPORTING STATUS. So long as the Buyer beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed by it with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act.
D. USE OF PROCEEDS. The Company shall use the net proceeds
from the sale of the Securities (excluding amounts paid by the Company for legal
fees and finder's fees in connection with such sale) solely for general
corporate and working capital purposes.
E. LISTING. Except to the extent the Company lists its Common
Stock on The New York Stock Exchange, the Company shall use its best efforts to
maintain its listing of the Common Stock on the OTC/BB.
F. RESERVED CONVERSION SHARES. The Company at all times from
and after the date hereof shall have a sufficient number of shares of Common
Stock duly and validly authorized and reserved for issuance to satisfy the
conversion, in full, of the Debenture or the Preferred Shares and upon the
exercise of the Warrants.
G. RIGHT OF FIRST REFUSAL. If the Company should propose (the
"PROPOSAL") to issue Common Stock or securities convertible into Common Stock at
a price less than the
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<PAGE> 15
Current Market Price (as defined in the Articles of Amendment), or debt at less
than par value or having an effective annual interest rate in excess of nine and
nine-tenths percent (9.9%) (each a "RIGHT OF FIRST REFUSAL SECURITY" and
collectively, the "RIGHT OF FIRST REFUSAL SECURITIES"), in each case on the date
of issuance during the period ending two years after the Closing Date (the
"RIGHT OF FIRST REFUSAL PERIOD"), the Company shall be obligated to offer the
Buyer on the terms set forth in the Proposal (the "OFFER") and the Buyer shall
have the right, but not the obligation, to accept such Offer on such terms. If
during the Right of First Refusal Period, the Company provides written notice to
the Buyer that it proposes to issue any Right of First Refusal Securities on the
terms set forth in the Proposal, then the Buyer shall have ten (10) business
days to accept or reject such offer in writing. If the Company fails to: (i)
issue a Proposal during the Right of First Refusal Period, (ii) offer the Buyer
the opportunity to complete the transaction as set forth in the Proposal, or
(iii) enter into an agreement with the Buyer, at such terms after the Buyer has
accepted the Offer, then the Company shall pay to the Buyer, as liquidated
damages, an amount in total equal to ten percent (10%) of the amount paid to the
Company for the Right of First Refusal Securities. The foregoing Right of First
Refusal is and shall be senior in right to any other right of first refusal
issued by the Company to any other Person (as defined in the Articles of
Amendment). Notwithstanding the foregoing, the Buyer shall have no rights under
this Section IV.G. in respect of Common Stock or any other securities of the
Company issuable (i) upon the exercise or conversion of options, warrants or
other rights to purchase securities of the Company outstanding as of the date
hereof or (ii) to officers, directors or employees of the Company or any of its
subsidiaries.
v. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other
than the instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Debenture or the Preferred Shares and exercise of the Warrants otherwise
shall be freely transferable on the books and records of the Company as and to
the extent provided in this Agreement, the Registration Rights Agreement and
applicable law. Nothing contained in this Section V.A. shall affect in any way
Buyer's obligations and agreement to comply with all applicable securities laws
upon resale of such Common Stock. If, at any time, Buyer provides the Company
with an opinion of counsel reasonably satisfactory to the Company and its
counsel that registration of the resale by Buyer of such Common Stock is not
required under the Securities Act and that the removal of restrictive legends is
permitted under applicable law, the Company shall permit the transfer of such
Common Stock and, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without any restrictive legends endorsed
thereon.
B. The Company shall permit Buyer to exercise its right to
convert the Debenture or the Preferred Shares by telecopying an executed and
completed Notice of Conversion to the Company. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date. The Company shall transmit
the certificates evidencing the shares of Common Stock issuable upon conversion
of any principal amount of the Debenture or the Preferred Shares (together with
certificates evidencing any Preferred Shares not being so converted) to Buyer
via
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<PAGE> 16
express courier, by electronic transfer or otherwise, within five business days
after receipt by the Company of the Notice of Conversion (the "DELIVERY DATE").
Within 30 days after Buyer delivers the Notice of Conversion to the Company,
Buyer shall deliver to the Company the Debenture or the Preferred Shares being
converted.
C. The Company shall permit Buyer to exercise its right to
purchase shares of Common Stock pursuant to exercise of the Warrants in
accordance with its applicable terms of the Warrants. The last date that the
Company may deliver shares of Common Stock issuable upon any exercise of
Warrants is referred to herein as the "WARRANT DELIVERY DATE."
D. The Company understands that a delay in the issuance of the
shares of Common Stock issuable in lieu of cash dividends on the Preferred
Shares, upon the conversion of the Debenture or the Preferred Shares or exercise
of the Warrants beyond the applicable Dividend Payment Due Date (as defined in
the Articles of Amendment), Delivery Date or Warrant Delivery Date could result
in economic loss to Buyer. As compensation to Buyer for such loss (and not as a
penalty), the Company agrees to pay to Buyer for late issuance of Common Stock
issuable in lieu of cash dividends on the Preferred Shares, upon conversion of
the Debenture or the Preferred Shares or exercise of the Warrants in accordance
with the following schedule (where "NO. BUSINESS DAYS" is defined as the number
of business days beyond five (5) days from the Dividend Payment Due Date (as
that term is defined in the Articles of Amendment), the Delivery Date or the
Warrant Delivery Date, as applicable):
Compensation For Each $10,000 of
Debenture principal amount or 10
No. Business Days Shares of Preferred Shares Not
----------------- Converted Timely or 500 Shares of
Common Stock Issuable In Payment of
Dividends Not Issued Timely
---------------------------
1 $ 25
2 $ 50
3 $ 75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
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<PAGE> 17
Compensation For Each $10,000 of
Debenture principal amount or 10
No. Business Days Shares of Preferred Shares Not
----------------- Converted Timely or 500 Shares of
Common Stock Issuable In Payment of
Dividends Not Issued Timely
---------------------------
10 $250
more than 10 $250 + $100 for each Business Day
Late beyond 10 business days
The Company shall pay to Buyer the compensation described above as liquidated
damages by the transfer of immediately available funds upon Buyer's demand.
Nothing herein shall limit Buyer's right to pursue actual damages for the
Company's failure to issue and deliver Common Stock to Buyer, and in addition to
any other remedies which may be available to Buyer, in the event the Company
fails for any reason to effect delivery of such shares of Common Stock within
five business days after the relevant Dividend Payment Due Date, the Delivery
Date or the Warrant Delivery Date, as applicable, Buyer shall be entitled to
rescind the relevant Notice of Conversion or exercise of Warrants by delivering
a notice to such effect to the Company whereupon the Company and Buyer shall
each be restored to their respective original positions immediately prior to
delivery of such Notice of Conversion on delivery.
VI DELIVERY INSTRUCTIONS.
The Securities shall be delivered by the Company to the Escrow
Agent pursuant to Section I.B. hereof on a "delivery-against-payment basis" at
the closing of the transactions contemplated hereby.
VII FUNDING DATE.
The date and time of the issuance and sale of the Debenture
and the Warrants (the "FUNDING Date") shall be the date hereof or such other
date as shall be mutually agreed upon in writing. The issuance and sale of the
Debenture and the Warrants shall occur on the Funding Date, at the offices of
the Escrow Agent. Notwithstanding anything to the contrary contained herein, the
Escrow Agent shall not be authorized to release to the Company the Purchase
Price and to Buyer the Debenture and the Warrants unless the conditions set
forth in VIII.C. and IX.G hereof have been satisfied.
VIII CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to sell
the Securities on the Funding Date to Buyer pursuant to this Agreement is
conditioned upon:
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<PAGE> 18
A. Delivery by Buyer to the Escrow Agent of the Purchase Price
on the Funding Date.
B. The accuracy in all material respects on the Funding Date
of the representations and warranties of Buyer contained in this Agreement as if
made on the Funding Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by Buyer in all material respects on or before the Funding Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Funding Date;
C. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement.
IX CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to purchase
the Securities on the Funding Date pursuant to this Agreement is conditioned
upon:
A. Delivery by the Company to the Escrow Agent on or before
the Funding Date of one or more certificates evidencing the Securities;
B. The accuracy in all respects on the Funding Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Funding Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all respects on or before the Funding Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Funding Date;
C. Buyer having received an opinion of counsel for the
Company, dated the Funding Date, in form, scope and substance satisfactory to
the Buyer.
D. There not having occurred (i) any general suspension of
trading in, or limitation on prices listed for, the Common Stock on the OTC/BB,
(ii) the declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or any of its territories, protectorates or
possessions, or (iv) in the case of the foregoing existing at the date of this
Agreement, a material acceleration or worsening thereof.
E. There not having occurred any event or development, and
there being in existence no condition, having or which reasonably and
foreseeably could have a Material Adverse Effect.
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<PAGE> 19
F. The Company shall have delivered to Buyer (as provided in
the Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and
expenses incurred in connection with the transactions contemplated by this
Agreement, including without limitation, attorneys fees and disbursements.
G. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement.
H. A simultaneous consummation of a purchase of at least
$1,225,000 in Series A Preferred by an unrelated third party.
I. Simultaneous consummation of the Merger.
X TERMINATION.
A. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement may
be terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Funding Date, by the mutual written consent
of the Company and Buyer.
B. TERMINATION BY THE COMPANY OR BUYER. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Funding Date shall not have occurred at or
prior to 5:00 p.m., New York City time, on March 7, 2000; PROVIDED, HOWEVER,
that the right to terminate this Agreement pursuant to this Section X.B.(i)
shall not be available to any party whose failure to fulfill any of its
obligations under this Agreement has been the cause of or resulted in the
failure of the Funding Date to occur at or before such time and date or (ii) any
court or public or governmental authority shall have issued an order, ruling,
judgment or writ, or there shall be in effect any Law, restraining, enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by this Agreement.
C. TERMINATION BY BUYER. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by Buyer at any time prior
to the Funding Date, if (i) the Company shall have failed to comply with any of
its covenants or agreements contained in this Agreement, (ii) there shall have
been a breach by the Company with respect to any representation or warranty made
by it in this Agreement, or (iii) there shall have occurred any event or
development, or there shall be in existence any condition, having or reasonably
and foreseeably likely to have a Material Adverse Effect.
D. TERMINATION BY THE COMPANY. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by the
Company at any time prior to the Funding Date, if (i) Buyer shall have failed to
comply with any of its covenants or agreements contained in this Agreement or
(ii) there shall have been a breach by Buyer with respect to any representation
or warranty made by it in this Agreement.
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<PAGE> 20
XI SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each
of the Company and Buyer in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement, shall survive the Funding Date and
the consummation of the transactions contemplated hereby for a period of three
(3) years from and after the Funding Date or such later date as when all of the
Debenture or the Preferred Shares have been converted to Common Stock In the
event of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement or otherwise, whether at
law or in equity, irrespective of any investigation made by or on behalf of such
party on or prior to the Funding Date.
B. The Company hereby agrees to indemnify and hold harmless
the Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "BUYER INDEMNITEES"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "LOSSES"), and agrees to reimburse the Buyer Indemnitees for all
out-of-pocket expenses (including the fees and expenses of legal counsel), in
each case promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:
1 any misrepresentation, omission of fact or breach
of any of the Company's representations or warranties
contained in this Agreement or the other Documents, or the
annexes, schedules or exhibits hereto or thereto or any
instrument, agreement or certificate entered into or delivered
by the Company pursuant to this Agreement or the other
Documents; or
2 any failure by the Company to perform any of its
covenants, agreements, undertakings or obligations set forth
in this Agreement or the other Documents, or the annexes,
schedules or exhibits hereto or thereto or any instrument,
agreement or certificate entered into or delivered by the
Company pursuant to this Agreement or the other Documents.
C. Buyer hereby agrees to indemnify and hold harmless the
Company, its Affiliates and their respective officers, directors, partners and
members (collectively, the "COMPANY INDEMNITEES"), from and against any and all
Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket
expenses (including the fees and expenses of legal counsel), in each case
promptly as incurred by the Company Indemnitees and to the extent arising out of
or in connection with:
1 any misrepresentation, omission of fact, or breach
of any of Buyer's representations or warranties contained in
this Agreement or the other Documents, or the annexes,
schedules or exhibits hereto or thereto or any instrument,
agreement or
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<PAGE> 21
certificate entered into or delivered by Buyer pursuant to
this Agreement or the other Documents; or
2 any failure by Buyer to perform in any material
respect any of its covenants, agreements, undertakings or
obligations set forth in this Agreement or the other Documents
or any instrument, certificate or agreement entered into or
delivered by Buyer pursuant to this Agreement or the other
Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "INDEMNIFIED PARTY") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "CLAIM"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "INDEMNIFYING PARTY") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
Party reasonably shall have concluded that representation of the Indemnified
Party and the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party shall not,
in connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
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<PAGE> 22
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to the
conflicts of law principles of such state. Each of the parties consents to the
jurisdiction of the United States District Court for the Southern District of
New York in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto. This Agreement may be signed in one
or more counterparts, each of which shall be deemed an original. The headings of
this Agreement are for convenience of reference and shall not form part of, or
affect the interpretation of, this Agreement. if any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
XIII NOTICES.
Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be sent by facsimile with a copy delivered personally or sent
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, as follows:
(1) if to the Company, to:
IMMUNE RESPONSE, INC.
7315 Peakview Avenue
Englewood, Colorado 80111
Attention: Joseph W. Hovorka
President
Telephone: (303) 796-8940
Facsimile: (303) 796-9762
With a copy to:
Porter Wright Morris & Arthur LLP
41 South High St., Ste. 2800
Columbus, Ohio 43215-6194
Attention: William J. Kelly, Esq.
Telephone: 614-227-2136
Facsimile: 614-227-2100
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<PAGE> 23
(2) if to the Buyer, to
with a copy to:
(3) if to the Escrow Agent, to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1400
Facsimile: (212) 889-7577
The Company, the Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIII.
XIV CONFIDENTIALITY.
Each of the Company and Buyer agrees to keep confidential and not
to disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 10 of Rule
601 of Regulation S-K under the Securities Act and the Exchange Act).
XV ASSIGNMENT.
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<PAGE> 24
This Agreement shall not be assignable by either of the parties
hereto without the prior written consent of the other party, and any attempted
assignment contrary to the provisions hereby shall be null and void; provided,
however, that Buyer may assign its rights and obligations hereunder, in whole or
in part, to any affiliate of Buyer who furnishes to the Company the
representations and warranties set forth in Section II hereof and otherwise
agrees to be bound by the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement on the date first written above.
THE COMPANY:
------------
IMMUNE RESPONSE, INC.
By:
--------------------------------------
Joseph W. Hovorka
President
BUYER:
------
By:
----------------------------------
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<PAGE> 25
EXHIBIT A
Debenture
<PAGE> 26
EXHIBIT B
Common Stock Purchase Warrant
<PAGE> 27
EXHIBIT C
Certificate of Amendment
<PAGE> 28
EXHIBIT D
Escrow Instructions
<PAGE> 29
EXHIBIT E
Registration Rights Agreement
<PAGE> 30
SCHEDULE III.A.1
RIGHTS TO ACQUIRE COMMON STOCK
<PAGE> 31
SCHEDULE III.A.2
SUBSIDIARIES
<PAGE> 32
SCHEDULE III.I
MATERIAL ADVERSE EFFECTS
<PAGE> 33
SCHEDULE III.O.
RELATED PARTY TRANSACTIONS
<PAGE> 34
SCHEDULE III.Q.
SECURITIES LAW MATTERS
<PAGE> 35
SCHEDULE III.R.6.
ENVIRONMENTAL MATTERS
<PAGE> 36
SCHEDULE III.V.
PROPERTY
<PAGE> 37
SCHEDULE III.W.
INTELLECTUAL PROPERTY
<PAGE> 1
EXHIBIT 10.15
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated this _________________
(this "AGREEMENT"), between IMMUNE RESPONSE, INC., a Colorado corporation with
principal executive offices located at 7315 E. Peakview Avenue, Englewood,
Colorado 80111 (the "COMPANY"), and the undersigned (the "INVESTOR").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement dated as of the date hereof, between the Investor
and the Company (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed to
issue and sell to the Investor on the date hereof, (i) a 6% Exchangeable
Convertible Debenture, which is (A) exchangeable for 1,500 shares of the
Company's Series A 6% Convertible Preferred Stock, par value $0.0001 per share
(the "PREFERRED SHARES") which Preferred Shares, upon the terms of and subject
to the conditions of the Company's Articles of Amendment to the Company's
Amended and Restated Articles of Incorporation (the "ARTICLES OF AMENDMENT"),
are convertible into shares of the Company's common stock, par value $0.0001 per
share (the "COMMON STOCK"), and (B) convertible into Common Stock upon the terms
and subject to the conditions contained therein; and (ii) Common Stock Purchase
Warrants (the "WARRANTS") to purchase 150,000 shares of Common Stock; and
WHEREAS, to induce the Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable upon conversion of the Debenture or the
Preferred Shares, in lieu of cash dividend payments on the Preferred Shares, and
exercise of the Warrants, certain registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "AFFILIATE", of any specified Person means any
other Person who directly, or indirectly through one or more intermediaries, is
in control of, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, control of a Person means the power,
directly or indirectly, to direct or cause the direction of the management and
policies of such Person whether by contract, securities, ownership or otherwise;
and the terms "controlling" and "controlled" have the respective meanings
correlative to the foregoing.
(ii) "COMMISSION" means the Securities and Exchange
Commission.
<PAGE> 2
(iii) "CURRENT MARKET PRICE" on any date of
determination means the closing bid price of a share of the Common Stock on such
day as reported by The National Association of Securities Dealers electronic
bulletin board "(OTC/BB"), or if such security is not listed or admitted to
trading on the OTC/BB, on the principal national security exchange or quotation
system on which such security is quoted or listed or admitted to trading, or, if
not quoted or listed or admitted to trading on any national securities exchange
or quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished by any National
Association of Securities Dealers member firm selected from time to time by the
Board of Directors of the Company for that purpose, or a price determined in
good faith by the Board of Directors of the Company as being equal to the fair
market value thereof, as the case may be.
(iv) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended, and the rules and regulations of the Commission thereunder,
or any similar successor statute.
(v) "FUNDING DATE" means the date and time of the
issuance and sale of the Debenture and the Warrants.
(vi) "INVESTORS" means the Investor and any
transferee or assignee of Registrable Securities who agrees to become bound by
all of the terms and provisions of this Agreement in accordance with Section 8
hereof.
(vii) "PUBLIC OFFERING" means an offer registered
with the Commission and the appropriate state securities commissions by the
Company of its Common Stock and made pursuant to the Securities Act.
(viii) "PERSON" means any individual, partnership,
corporation, limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
(ix) "PROSPECTUS" means the prospectus (including,
without limitation, any preliminary prospectus and any final prospectus filed
pursuant to Rule 424(b) under the Securities Act, including any prospectus that
discloses information previously omitted from a prospectus filed as part of an
effective registration statement in reliance on Rule 430A under the Securities
Act) included in the Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by the Registration Statement and by all
other amendments and supplements to such prospectus, including all material
incorporated by reference in such prospectus and all documents filed after the
date of such prospectus by the Company under the Exchange Act and incorporated
by reference therein.
(x) "REGISTRABLE SECURITIES" means the Common Stock
issued or issuable (i) in lieu of cash dividend payments on the Preferred
Shares, (ii) upon conversion of the Debenture or the Preferred Shares or (iii)
upon exercise of the Warrants; PROVIDED, however, that
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<PAGE> 3
a share of Common Stock shall cease to be a Registrable Security for purposes of
this Agreement when it no longer is a Restricted Security.
(xi) "REGISTRATION STATEMENT" means a registration
statement of the Company filed on an appropriate form under the Securities Act
providing for the registration of, and the sale on a continuous or delayed basis
by the holders of, all of the Registrable Securities pursuant to Rule 415 under
the Securities Act, including the Prospectus contained therein and forming a
part thereof, any amendments to such registration statement and supplements to
such Prospectus, and all exhibits and other material incorporated by reference
in such registration statement and Prospectus.
(xii) "RESTRICTED SECURITY" means any share of Common
Stock issued or issuable in lieu of cash dividend payments on the Preferred
Shares, upon conversion of the Debenture or the Preferred Shares or exercise of
the Warrants except any such share that (i) has been registered pursuant to an
effective registration statement under the Securities Act, (ii) has been
transferred in compliance with the resale provisions of Rule 144 under the
Securities Act (or any successor provision thereto) or is transferable pursuant
to paragraph (d) of Rule 144 under the Securities Act (or any successor
provision thereto), or (iii) otherwise has been transferred and a new share of
Common Stock not subject to transfer restrictions under the Securities Act has
been delivered by or on behalf of the Company.
(xiii) "SECURITIES ACT" means the Securities Act of
1933, as amended, and the rules and regulations of the Commission thereunder, or
any similar successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.
2. REGISTRATION.
(a) FILING AND EFFECTIVENESS OF REGISTRATION STATEMENT. The
Company shall prepare and file with the Commission not later than sixty (60)
days after the Funding Date, a Registration Statement relating to the offer and
sale of all of the Registrable Securities and shall use its best efforts to
cause the Commission to declare such Registration Statement effective under the
Securities Act as promptly as practicable but not later than one hundred and
eighty (180) days after the Funding Date. The Company shall not include any
other securities in the Registration Statement relating to the offer and sale of
the Registrable Securities. The Company shall notify the Investor by written
notice that such Registration Statement has been declared effective by the
Commission within 24 hours of such declaration by the Commission.
(b) REGISTRATION DEFAULT. (i) If the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2 (a) hereof is not (A) filed with the Commission within sixty (60)
days after the Funding Date or (B) declared effective by the Commission within
one hundred and eighty (180) days after the Funding Date (either of which,
without duplication, an "INITIAL DATE"), then the Company shall make the
payments to the Investor as provided in the next sentence as liquidated damages
and not as a penalty. The amount to be paid by the Company to the Investor shall
be determined as of each Computation Date (as defined below), and such amount
shall be equal to 2% (the "LIQUIDATED DAMAGE RATE") of the Purchase Price (as
defined in the Securities Purchase Agreement) from the
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<PAGE> 4
Initial Date to the first Computation Date and for each Computation Date
thereafter, calculated on a pro rata basis to the date on which the Registration
Statement is filed with or declared effective by the Commission (the "PERIODIC
AMOUNT"); PROVIDED, HOWEVER, that in no event shall the Liquidated Damages be
less than $15,000. The full Periodic Amount shall be paid by the Company to the
Investor by wire transfer of immediately available funds within three days after
each Computation Date.
(ii) As used in this Section 2(b), "COMPUTATION DATE" means
the date which is 30 days after the applicable Initial Date and, if the
Registration Statement required to be filed by the Company pursuant to Section
2(a) has not theretofore been declared effective by the Commission, each date
which is 30 days after the most recent applicable Computation Date until such
Registration Statement is so declared effective.
(iii) Notwithstanding the above, if the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) hereof, as the case may be, is not filed with the Commission by
the sixtieth (60th) day after the Funding Date, the Company shall be in default
of this Registration Rights Agreement.
(c) (i) If the Company proposes to register any of its
warrants, Common Stock or any other shares of common stock under the Securities
Act (other than a registration (A) on Form S-8 or S-4 or any successor or
similar forms, (B) relating to Common Stock or any other shares of common stock
of the Company issuable upon exercise of employee share options or in connection
with any employee benefit or similar plan of the Company or (C) in connection
with a direct or indirect acquisition by the Company of another Person or any
transaction with respect to which Rule 145 (or any successor provision) under
the Securities Act applies, whether or not for sale for its own account, it will
at each such time, give written notice at least 20 days prior to the anticipated
filing date of the registration statement relating to such registration to the
Investor, which notice shall set forth such Investor's rights under Section 3
hereof and shall offer the Investor the opportunity to include in such
registration statement such number of Registrable Shares as the Investor may
request. Upon the written request of the Investor made within ten (10) days
after the receipt of notice from the Company (which request shall specify the
number of Registrable Shares intended to be disposed of by such Investor), the
Company will use its best efforts to effect the registration under the
Securities Laws of all Registrable Shares that the Company has been so requested
to register by the Investor, to the extent requisite to permit the disposition
of the Registrable Shares so to be registered; provided, however, that (A) if
such registration involves a Public Offering, the Investor must sell its
Registrable Shares to the underwriters selected as provided in Section 3(b)
hereof on the same terms and conditions as apply to the Company and (B) if, at
any time after giving written notice of its intention to register any
Registrable Shares pursuant to Section 3 hereof and prior to the effective date
of the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such Registrable Shares,
the Company shall give written notice to the Investor and, thereupon, shall be
relieved of its obligation to register any Registrable Shares in connection with
such registration. The Company's obligations under this Section 2(c) shall
terminate on the date that the registration statement to be filed in accordance
with Section 2(a) is declared effective by the Commission.
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<PAGE> 5
(ii) If a registration pursuant to this Section 2(c)
involves a Public Offering and the managing underwriter thereof advises the
Company that, in its view, the number of shares of Common Stock, Warrants or
other shares of Common Stock that the Company and the Investor intend to include
in such registration exceeds the largest number of shares of Common Stock or
Warrants (including any other shares of Common Stock or Warrants of the Company)
that can be sold without having an adverse effect on such Public Offering (the
"MAXIMUM OFFERING SIZE"), the Company will include in such registration, only
that number of shares of Common Stock or Warrants, as applicable, such that the
number of Registrable Shares registered does not exceed the Maximum Offering
Size, with the difference between the number of shares in the Maximum Offering
Size and the number of shares to be issued by the Company to be allocated (after
including all shares to be issued and sold by the Company) among the Company and
the Investor pro rata on the basis of the relative number of Registrable Shares
offered for sale under such registration by each of the Company and the
Investor.
(iii) If as a result of the proration provisions of
Section 2 (c) (ii) above, any Investor is not entitled to include all such
Registrable Shares in such registration, such Investor may elect to withdraw its
request to include any Registrable Shares in such registration. With respect to
registrations pursuant to this Section 2(c), the number of securities required
to satisfy any underwriters' over-allotment option shall be allocated pro rata
among the Company and the Investor on the basis of the relative number of
securities otherwise to be included by each of them in the registration with
respect to which such over-allotment option relates.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall:
(a) Promptly (i) prepare and file with the Commission such
amendments (including post-effective amendments) to the Registration Statement
and supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of three (3) years from the date on which the
Registration Statement is first declared effective by the Commission (the
"EFFECTIVE TIME") or such shorter period that will terminate when all the
Registrable Securities covered by the Registration Statement have been sold
pursuant thereto in accordance with the plan of distribution provided in the
Prospectus, transferred pursuant to Rule 144 under the Securities Act or
otherwise transferred in a manner that results in the delivery of new securities
not subject to transfer restrictions under the Securities Act (the "REGISTRATION
PERIOD") and (ii) take all lawful action such that each of (A) the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, not misleading
and (B) the Prospectus forming part of the Registration Statement, and any
amendment or supplement thereto, does not at any time during the Registration
Period include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing provisions of this Section 3(a), the
Company may, during the Registration Period, suspend the use of the Prospectus
for a period not to exceed 60 days (whether or not consecutive) in any 12-month
period if the Board of Directors of the Company determines in good faith that
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<PAGE> 6
because of valid business reasons, including pending mergers or other business
combination transactions, the planned acquisition or divestiture of assets,
pending material corporate developments and similar events, it is in the best
interests of the Company to suspend such use, and prior to or contemporaneously
with suspending such use the Company provides the Investors with written notice
of such suspension, which notice need not specify the nature of the event giving
rise to such suspension. At the end of any such suspension period, the Company
shall provide the Investors with written notice of the termination of such
suspension.
(b) During the Registration Period, comply with the provisions
of the Securities Act with respect to the Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
(c) (i) Prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the distribution
or delivery of any Prospectus (including any supplements thereto), provide draft
copies thereof to the Investors and reflect in such documents all such comments
as the Investors (and their counsel) reasonably may propose and (ii) furnish to
each Investor whose Registrable Securities are included in the Registration
Statement and its legal counsel identified to the Company, (A) promptly after
the same is prepared and publicly distributed, filed with the Commission, or
received by the Company, one copy of the Registration Statement, each
Prospectus, and each amendment or supplement thereto, and (B) such number of
copies of the Prospectus and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered
by the Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
PROVIDED, HOWEVER, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d);
(e) As promptly as practicable after becoming aware of such
event, notify each Investor of the occurrence of any event, as a result of which
the Prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
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<PAGE> 7
(f) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) Cause all the Registrable Securities covered by the
Registration Statement to be listed on a national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts, as the case may be, as the
Investors reasonably may request and registered in such names as the Investor
may request; and, within three business days after a Registration Statement
which includes Registrable Securities is declared effective by the Commission,
deliver and cause legal counsel selected by the Company to deliver to the
transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
appropriate instruction and, to the extent necessary, an opinion of such
counsel;
(j) Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;
(k) Make generally available to its security holders as soon
as practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(l) In the event of an underwritten offering, promptly include
or incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
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<PAGE> 8
(m) (i) Make reasonably available for inspection by Investors,
any underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
PROVIDED, HOWEVER, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
PROVIDED, HOWEVER, that such records, information and documents shall be used by
such person solely for the purpose of determining that disclosures made in the
Registration Statement are true and correct, and for no other purpose; and
PROVIDED FURTHER that, if the foregoing inspection and information gathering
would otherwise disrupt the Company's conduct of its business, such inspection
and information gathering shall, to the maximum extent possible, be coordinated
on behalf of the Investors and the other parties entitled thereto by one firm of
counsel designed by and on behalf of the majority in interest of Investors and
other parties;
(n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
(o) In connection with any underwritten offering, obtain
opinions of counsel to the Company (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the managers) addressed to
the underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter,
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<PAGE> 9
representations or documentation, if any, required for such cold comfort letter
to be so addressed), in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with secondary
underwritten offerings;
(q) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the managers, if
any; and
(r) In the event that any broker-dealer registered under the
Exchange Act shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules
and regulations of the NASD (the "NASD RULES") (or any successor provision
thereto)) of the Company or has a "conflict of interest" (as defined in Rule
2720(b)(7) of the NASD Rules (or any successor provision thereto)) and such
broker-dealer shall underwrite, participate as a member of an underwriting
syndicate or selling group or assist in the distribution of any Registrable
Securities covered by the Registration Statement, whether as a holder of such
Registrable Securities or as an underwriter, a placement or sales agent or a
broker or dealer in respect thereof, or otherwise, the Company shall assist such
broker-dealer in complying with the requirements of the NASD Rules, including,
without limitation, by (A) engaging a "qualified independent underwriter" (as
defined in Rule 2720(b) (15) of the NASD Rules (or any successor provision
thereto)) to participate in the preparation of the Registration Statement
relating to such Registrable Securities, to exercise usual standards of due
diligence in respect thereof and to recommend the public offering price of such
Registrable Securities, (B) indemnifying such qualified independent underwriter
to the extent of the indemnification of underwriters provided in Section 6(a)
hereof, and (C) providing such information to such broker-dealer as may be
required in order for such broker-dealer to comply with the requirements of the
NASD Rules.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least ten (10)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor (the "REQUESTED INFORMATION") if such Investor
elects to have any of its Registrable Securities included in the Registration
Statement. If at least five (5) business days prior to the anticipated filing
date the Company has not received the Requested Information from an Investor (a
"NON-RESPONSIVE INVESTOR") , then the Company may file the Registration
Statement without including Registrable Securities of such Non-Responsive
Investor and have no further obligations to the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable
Securities agrees to cooperate with the Company in connection with the
preparation and filing of the Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from the Registration Statement; and
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<PAGE> 10
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in Section 3(e)
or 3(f), it shall immediately discontinue its disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(e) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company, and
the reasonable fees of one firm of counsel to the holders of a majority in
interest of the Registrable Securities shall be borne by the Company.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless each
Investor and each underwriter, if any, which facilitates the disposition of
Registrable Securities, and each of their respective officers and directors and
each person who controls such Investor or underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (each such
person being sometimes hereinafter referred to as an "Indemnified Person") from
and against any losses, claims, damages or liabilities, joint or several, to
which such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
an omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
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<PAGE> 11
(b) INDEMNIFICATION BY THE INVESTORS AND UNDERWRITERS. Each
Investor agrees, as a consequence of the inclusion of any of its Registrable
Securities in a Registration Statement, and each underwriter, if any, which
facilitates the disposition of Registrable Securities shall agree, as a
consequence of facilitating such disposition of Registrable Securities,
severally and not jointly, to (i) indemnify and hold harmless the Company, its
directors (including any person who, with his or her consent, is named in the
Registration Statement as a director nominee of the Company), its officers who
sign any Registration Statement and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, against any losses, claims, damages or liabilities to
which the Company or such other persons may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in such Registration
Statement or Prospectus or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in light of the circumstances under
which they were made, in the case of the Prospectus), not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
holder or underwriter expressly for use therein; PROVIDED, HOWEVER, that no
Investor or underwriter shall be liable under this Section 6(b) for any amount
in excess of the net proceeds paid to such Investor or underwriter in respect of
shares sold by it, and (ii) reimburse the Company for any legal or other
expenses incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) NOTICE OF CLAIMS, ETC. Promptly after receipt by a party
seeking indemnification pursuant to this Section 6 (an "INDEMNIFIED PARTY") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "CLAIM"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Section 6 is being sought (the "INDEMNIFYING PARTY") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the
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<PAGE> 12
commencement of such Claim. If the Indemnified Party employs separate legal
counsel in circumstances other than as described in clauses (x) , (y) or (z)
above, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of counsel for the
Indemnified Party (together with appropriate local counsel). The Indemnifying
Party shall not, without the prior written consent of the Indemnifying Party
(which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an
unconditional release of the Indemnifying Party from all liabilities with
respect to such Claim or judgment.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 6 is unavailable to or insufficient to hold harmless an Indemnified
Person under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnified Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6 (d) .
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
(e) Notwithstanding any other provision of this Section 6, in
no event shall any (i) Investor be required to undertake liability to any person
under this Section 6 for any amounts in excess of the dollar amount of the
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect
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<PAGE> 13
to the Registrable Securities underwritten by it and distributed pursuant to the
Registration Statement.
(f) The obligations of the Company under this Section 6 shall
be in addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7 RULE 144. With a view to making available to the Investors the
benefits of Rule 144 under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Investors to sell
securities of the Company to the public without registration ("RULE 144"), the
Company agrees to use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule
144; and
(b) file with the Commission in a timely manner all reports
and other documents required to be filed by the Company pursuant to Section 13
or 15(d) under the Exchange Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of any Holder, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.
8. ASSIGNMENT. The rights to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assigned by the
Investors to not more than five (5) transferees of all or any portion of such
securities (or all or any portion of the Debenture, any Preferred Shares or
Warrant of the Company which is convertible into such securities) of Registrable
Securities only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights subject to the terms and conditions of this
Agreement and the Securities Purchase Agreement, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment, the securities so transferred or assigned to the transferee or
assignee constitute Restricted Securities, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein.
9. AMENDMENT AND WAIVER. Any provision of this Agreement may be amended
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) , only with the written
consent of the Company and Investors who hold a majority-in-interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Investor and the Company.
10. MISCELLANEOUS.
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<PAGE> 14
(a) A person or entity shall be deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) If, after the date hereof and prior to the Commission
declaring the Registration Statement to be filed pursuant to Section 2(a)
effective under the Securities Act, the Company grants to any Person any
registration rights with respect to any Company securities which are more
favorable to such other Person than those provided in this Agreement, then the
Company forthwith shall grant (by means of an amendment to this Agreement or
otherwise) identical registration rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be sent by facsimile with a copy delivered personally or sent
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, as follows:
(1) if to the Company, to:
IMMUNE RESPONSE, INC.
7315 E. Peakview Avenue
Englewood, Colorado 80111
Attention: Joseph W. Hovorka
President
Telephone: (303) 796-8940
Facsimile: (303) 796-9762
With a copy to:
PORTER WRIGHT MORRIS & ARTHUR LLP
41 South High Street
Columbus, Ohio 43215
Attention: William J. Kelly, Esq.
Telephone: (614) 227-2136
Facsimile: (614) 227-4498
(2) if to the Investor, to:
with a copy to:
(3) if to any other Investor, at such address as such
Investor shall have provided in writing to the
Company.
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<PAGE> 15
The Company or any Investor may change the foregoing address by notice given
pursuant to this Section 10(c).
(d)Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(e)This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
(f)The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
-15-
<PAGE> 16
(g)Subsequent to the date hereof, the Company shall not enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof. Subject to the registration
rights set forth on Schedule III.A.I or Schedule III.A.3 of the Securities
Purchase Agreement, the Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for such rights and conflicts as have been
irrevocably waived. Without limiting the generality of the foregoing, without
the written consent of the Holders of a majority in interest of the Registrable
Securities, the Company shall not grant to any person the right to request it to
register any of its securities under the Securities Act unless the rights so
granted are subject in all respect to the prior rights of the holders of
Registrable Securities set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement. The restrictions on the
Company's rights to grant registration rights under this paragraph shall
terminate on the date the Registration Statement to be filed pursuant to Section
2(a) is declared effective by the Commission.
(h)This Agreement, the Securities Purchase Agreement, the Escrow
Instructions, dated as of the date hereof (the "ESCROW INSTRUCTIONS"), between
the Company, the Investor and Herrick, Feinstein LLP, the Debenture and the
Warrants constitute the entire agreement among the parties hereto with respect
to the subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Agreement,
the Securities Purchase Agreement, the Escrow Instructions, the Articles of
Amendment and the Warrants supersede all prior agreements and undertakings among
the parties hereto with respect to the subject matter hereof.
(i)Subject to the requirements of Section 8 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(j)All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(k)The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(l)The Company acknowledges that any failure by the Company to
perform its obligations under Section 3, or any delay in such performance could
result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
such failure or delay.
(m)This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto.
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
THE COMPANY:
------------
IMMUNE RESPONSE, INC.
By:
---------------------------------
Joseph W. Hovorka
President
INVESTOR:
---------
By:
-17-
<PAGE> 1
EXHIBIT 21
Subsidiaries of Immune Response, Inc.:
Immune Response, Inc. owns 100% of the issued and outstanding stock of
Opticon Medical, Inc., a Delaware corporation, and Opticon Acquisition Corp., a
Colorado corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Opticon Medical Inc:
We consent to the inclusion of our report dated March 24, 2000, with respect to
the balance sheet of Opticon Medical Inc. (a development stage enterprise) as of
December 31, 1999, and the related statements of operations, stockholders'
equity (deficit), and cash flows for the year then ended and the period from
July 28, 1994 (date of inception) to December 31, 1999, which report appears in
the Form 10-KSB of Immune Response, Inc. dated March 30, 2000. The cumulative
statements of operations, stockholders' equity (deficit), and cash flows for the
period July 28, 1994 (inception) to December 31, 1999 include amounts for the
period from July 28, 1994 (inception) to December 31, 1998 and year ended
December 31, 1998, which were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for the period July 28, 1994 through December 31, 1998 is based solely on the
report of the other auditors.
Our report dated March 24, 2000, contains an explanatory paragraph that states
that Opticon Medical Inc. has suffered recurring losses from operations and has
a net capital deficiency, which raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
/s/ KPMG LLP
KPMG LLP
Columbus, Ohio
March 30, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement of our report dated
August 12, 1999 for Opticon Medical, Inc. included in Immune Response, Inc. Form
10-KSB for the fiscal year ended December 31, 1999 and to all references to our
firm included in this Registration Statement.
/s/ LUND KOEHLER COX & ARKEMA LLP
LUND KOEHLER COX & ARKEMA LLP
Minneapolis, Minnesota
March 27, 2000
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Form 10-KSB of Immune Response, Inc. of
our report dated March 23, 1999, relating to the statements of changes in
stockholders' equity, operations and cash flows of Immune Response, Inc. for the
year ended December 31, 1998, and for the period from inception (May 14, 1984)
to December 31, 1998.
/s/ Davis & Co., CPAs, P.C.
DAVIS & CO., CPAs, P.C.
Englewood, Colorado
March 29, 2000
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
-----------------
Each director and/or officer of Immune Response, Inc. (the
"Corporation") whose signature appears below hereby appoints William J. Post or
William J. Kelly, Jr. as the undersigned's attorneys or any one of them
individually as the undersigned's attorney, to sign, in the undersigned's name
and behalf and in any and all capacities stated below, and to cause to be filed
with the Securities and Exchange Commission (the "Commission"), the
Corporation's Annual Report on Form 10-K (the "Form 10-K") for the fiscal year
ended December 31, 1999, and likewise to sign and file with the Commission any
and all amendments to the Form 10-K, and the Corporation hereby also appoints
such persons as its attorneys-in-fact and each of them as its attorney-in-fact
with like authority to sign and file the Form 10-K and any amendments thereto
granting to each such attorney-in-fact full power of substitution and
revocation, and hereby ratifying all that any such attorney-in-fact or the
undersigned's substitute may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney, in counterparts if necessary, effective as of March 24, 2000.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
/s/ William J. Post
- ------------------------------------ President, Chief Executive Officer and Director
William J. Post
/s/ David B. Bittner
- ------------------------------------ Treasurer and Chief Financial Officer
David B. Bittner
/s/ John LaMarche
- ------------------------------------ Vice President of Operations
John LaMarche
/s/ Walter L. Sembrowich
- ------------------------------------ Chairman of the Board
Walter L. Sembrowich, Ph.D.
/s/ Ronald E. Eibensteiner
- ------------------------------------ Director
Ronald E. Eibensteiner
/s/ David Lundquist
- ------------------------------------ Director
David Lundquist
/s/ F. A. Salama
- ------------------------------------ Director
Fouad A. Salama, M.D.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 90,366
<SECURITIES> 18,093
<RECEIVABLES> 100,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 228,222
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 228,222
<CURRENT-LIABILITIES> 48,544
<BONDS> 0
0
0
<COMMON> 204
<OTHER-SE> 179,474
<TOTAL-LIABILITY-AND-EQUITY> 228,222
<SALES> 0
<TOTAL-REVENUES> 21,748
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 42,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (20,457)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,457)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,457)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
