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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the fiscal Year Ended December 31, 1998
[ ] Transition Report Under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the transition period from _____ to _____
Commission File Number 0-19567
CARDIAC SCIENCE, INC.
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(Name of Small Business Issuer in its Charter)
DELAWARE 33-0465681
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1176 Main Street, Suite C, Irvine, California 92614
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (949) 587-0357
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Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 Par Value
------------------------------
(Title of Class)
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Check whether the registrant (1) has filed all reports required by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days: YES [X] NO [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB: [X]
Revenues of the registrant for the year ended December 31, 1998 were $-0-.
The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $10,465,000 as of March 16, 1999 based on
the closing price of the Common Stock on the OTC/Bulletin Board on March 15,
1999. Shares held by each officer and director and by each person who owns 10%
or more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. The determination of affiliate status is not
necessarily a conclusive determination for other purposes.
There were 7,138,335 shares of the registrant's Common Stock outstanding as
of March 16, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Definitive Proxy Statement for Issuer's Annual Meeting of
Stockholders to be held in 1999 are incorporated by reference to Parts III of
this Form 10-KSB Report.
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TABLE OF CONTENTS
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Page
Item Number and Caption Number
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PART I
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . 3
Item 2. Description of Property. . . . . . . . . . . . . . . . . . .11
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .11
Item 4. Submission of Matters to a Vote of Security Holders. . . . .11
PART II
Item 5. Market for Common Equity
and Related Stockholder Matters . . . . . . . . . . . . .12
Item 6. Management's Discussion and Analysis or Plan of Operation. .13
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . .16
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . .29
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act . . . . . . . . . . . . . . . . . . .29
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . .29
Item 11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . .29
Item 12. Certain Relationships and Related Transactions . . . . . . .29
Item 13. Exhibits, List and Reports on Form 8-K . . . . . . . . . . .29
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
Cardiac Science, Inc. ("Cardiac Science" or the "Company") designs,
develops and intends to market non-invasive automatic external cardiac
defibrillation ("AECD-Registered Trademark-" devices (the "AECD Products")
that utilize its proprietary tachyarrhythmia detection and discrimination
software (the "AECD Technology"). Cardiac Science has been a public company
since its inception in 1991 when it was "spun-off" from Medstone
International, Inc. (NASDAQ:MEDS) to its stockholders. From inception up to
early 1997, the Company primarily was focused on the research and development
of the AECD Technology and FDA testing of clinical prototypes. In early 1997,
Cardiac Science employed a new management team and since September 1997 it
has raised equity capital in the amount of $5.7 million. In addition, through
its wholly-owned subsidiary, Diagnostic Monitoring, the Company manufactured
PC-based Holter Electrocardiogram ("ECG") systems and Ambulatory Holter
recorders and distributed these products in over 40 countries for the period
of April 1997 through December 31, 1998. On December 31, 1998, the Company
sold substantially all of the assets of Diagnostic Monitoring to Biosensor
Corporation (OTC:BSNR).
Cardiac arrest is the single largest cause of death in the United
States and Europe. It is estimated to strike approximately 1.5 million Americans
yearly and more than double that worldwide, a third of whom die. The number of
persons at temporary risk of life-threatening arrhythmias and cardiac arrest is
significantly higher. Such individuals include hospitalized patients with
symptoms that could indicate a heart attack, heart attack survivors, those
diagnosed with severe forms of heart disease, persons suffering from congestive
heart failure, heart transplant patients and patients whose surgery or treatment
increases the risk of cardiac arrest. The Company's mission is to increase the
survival rate of cardiac arrest victims and create a new standard of care
through the development and commercialization of its proprietary automatic
defibrillation technology.
The Company received FDA clearance for the AECD Technology in August
1998. The AECD Technology can be integrated into an external
defibrillator-monitor or combined with the Company's high-voltage
defibrillator and related hardware to provide defibrillation therapy without
the need for human intervention. There are three AECD Products under
development by Cardiac Science that utilize the AECD Technology. The
Company's initial product, the Powerheart-Registered Trademark-, is a bedside
defibrillator-monitor designed for in-hospital use. The Powerheart attaches
prophylactically to patients for the purpose of providing fully-automatic
detection and treatment of life threatening tachyarrhythmias (abnormal
rhythms of the heart), such as ventricular tachycardia (dangerously rapid
heart rate) and ventricular fibrillation (quivering of the heart), that lead
to cardiac arrest. It is designed to continuously monitor a patient's cardiac
activity, detect abnormalities within seconds, and automatically, without
human interaction, transmit electrical shock (defibrillation) via disposable
electrodes attached to the patient's chest to convert the patient's heart to
a normal rhythm.
The Company received 510(k) clearance from the United States Food and
Drug Administration (the "FDA") in October 1997 on the clinical version of the
Powerheart. To the Company's knowledge, the Powerheart currently is the only
bedside defibrillator-monitor with FDA clearance to provide fully-automated
detection and treatment of ventricular tachyarrhythmias for in-hospital patients
at risk of sudden cardiac arrest. Cardiac Science is working to complete the
development of and begin production of the commercial version of the Powerheart,
the completion of which is anticipated for the second half of 1999. Upon its
completion, of which there can be no assurance, and upon receiving the necessary
regulatory clearances, the Company plans to sell the Powerheart in the United
States and Canada via its strategic partner, Medtronic Physio-Control, and
overseas via a network of qualified international distributors.
The second AECD Product under development, the RHYTHMx ECD-TM-, is
designed for integration into patient monitoring systems. Functionally, the
RHYTHMx ECD extends patient monitoring systems beyond diagnostics to provide
patients with the added protection of automatic therapy delivery without human
intervention. The Company has designed a conceptual model of the RHYTHMx ECD
which is comprised of the AECD Technology and a high voltage defibrillator
module to be integrated into patient monitoring systems. There can be no
assurance that the Company will be successful in completing the development of
the RHYTHMx ECD.
The third AECD Product under development is a fully-automatic public
access defibrillator ("PAD") that can be used by first responders and other
non-technical individuals outside of the hospital environment. Cardiac Science
has developed a conceptual model for the PAD and intends to modify the AECD
Technology for this application. The PAD will be designed
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to be small, lightweight, portable, battery-operated and easy to use. There
can be no assurance that the Company will be successful in completing the
development of the PAD.
Cardiac Science has been issued one patent, has one additional patent
under exclusive license and is in the process of filing additional patents
relating to the AECD Technology.
From May 20, 1991 (inception) through December 31, 1998, the Company
incurred losses of approximately $11 million. Successful completion of the
Company's development program and its transition to attaining profitable
operations is dependent upon achieving a level of revenues adequate to support
the Company's cost structure. The Company currently is seeking financing. There
can be no assurance that the Company will be successful in any of these areas.
The Company's offices are located at 1176 Main Street, Building "C",
Irvine, California 92614 and the telephone number is (949) 587-0357.
CARDIAC ARREST, LIFE-THREATENING ARRHYTHMIAS AND THEIR TREATMENTS
Cardiac arrest is the loss of effective pumping action of the heart
caused by life-threatening arrhythmias. It results in the abrupt cessation of
circulation of blood to the brain and other vital organs and, left untreated,
leads to death in a matter of minutes.
Arrhythmias are caused by disturbances in the electrical conduction
mechanism of the heart, and usually occur in persons suffering from various
forms of heart disease. While not all arrhythmias are life-threatening, the most
common life-threatening arrhythmias are ventricular tachycardia and ventricular
fibrillation. Ventricular tachycardia, in which electrical disturbances cause a
dangerously fast heart rate, is often the precursor to ventricular fibrillation,
which is a rapid, chaotic contraction of the heart that causes the heart to
quiver. In ventricular fibrillation, the electrical activity of the heart is
completely disorganized and ineffectual, producing no pulse or blood pressure.
Ventricular fibrillation can be fatal within minutes unless it is interrupted
and a normal heart rhythm is quickly restored.
The procedure for terminating life-threatening arrhythmias is known as
defibrillation. Defibrillation is achieved by the application of an electric
shock to the heart, which synchronizes the heart's electrical activity and
causes the normal rhythm of the heart to be restored. Early defibrillation is
the single most important factor in reviving patients in cardiac arrest. In the
case of ventricular fibrillation, there is approximately a 10%-15% decline in a
patient's chance of survival with each passing minute. Defibrillation delayed
much longer than 10 minutes yields a virtual zero probability of survival. The
following graph from the TEXTBOOK OF ADVANCED CARDIAC LIFE SUPPORT, published by
the American Heart Association ("AHA") in 1994, illustrates the percentage
resuscitation rate when defibrillation is administered within the first ten
minutes following the onset of ventricular fibrillation.
RELATIONSHIP BETWEEN SURVIVAL RATE
AND TIME TO EXTERNAL DEFIBRILLATION
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Time 0 1 2 3 4 5 6 7 8 9 10
% Survival 100 90 78 66 54 43 33 23 15 11 8
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Persons who have survived heart attacks, or who have been diagnosed as
having certain forms of heart disease or who have undergone major heart surgery,
have higher risks of suffering cardiac arrest and sudden death.
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Current modalities for treating life-threatening arrhythmias include
drug therapies, automatic implantable cardioverter defibrillators ("ICDs") which
require surgery, and external cardioverter defibrillators which require human
intervention to analyze and interpret the patient's cardiac activity and/or
administer the shock.
ICD devices are fully-automatic products and have been clinically
proven to be the ideal treatment for patients who have been diagnosed as
being at permanent risk for cardiac arrest. An ICD device is a complex
electronic instrument, consisting of a heart monitor and defibrillator
module. It is implanted in the abdominal cavity or chest with electrodes
attached directly to the heart. When the monitor detects a life-threatening
arrhythmia that satisfies the detection algorithm criteria designed into the
device, the defibrillator delivers an electrical charge into the heart that
provides nearly instantaneous reversion to normal heart rhythm.
Non-surgical external defibrillators are widely used to treat patients in
cardiac arrest. One type of device is the manual defibrillator, for which a
highly skilled human operator (i.e., a physician or paramedic) must analyze and
interpret the patient's electrocardiogram (ECG) data to determine if
defibrillation is required and, if necessary, manually administer an electrical
shock. Recently, more sophisticated automated external defibrillators (AEDs)
have been developed which perform the analysis of the patient's heart rhythm
and, if it is determined that the patient is in cardiac arrest, advise the
operator to administer the shock. The common denominator among these existing
devices is that they require the presence of a human operator (frequently a
skilled one) to administer the shock. The time interval from cardiac arrest to
the moment a shock is delivered is typically several minutes.
Clinical studies have shown that the average survival rate of patients who
have had an in-hospital cardiac arrest is about 15 percent and has not improved
since the 1960s. The AHA has acknowledged that it has under-emphasized the role
of prompt defibrillation. The AHA, as well as the world's major resuscitation
councils, have determined that rapid defibrillation is the single most important
therapy for the treatment of cardiac arrest. Studies have documented delays of
more than 5 minutes between recognition of cardiac arrest and first
defibrillation. Immediate defibrillation means significantly increased survival
rates, reduced damage to heart and other vital organs, including the brain,
which may lessen debilitation and quicken recovery periods. Clinical studies
have shown survival rates of 90 percent when cardiac arrest patients are
defibrillated in less than one minute. For each minute that passes after cardiac
arrest, the likelihood of survival decreases approximately 10-15 percent.
Accordingly, early rhythm assessment and rapid defibrillation can significantly
improve survival rates.
THE COMPANY'S AECD PRODUCTS UNDER DEVELOPMENT
GENERAL
The Company has developed proprietary detection and discrimination
software (the "AECD Technology") which can be integrated into an external
defibrillator-monitor or combined with the Company's high-voltage defibrillator
and related hardware to provide defibrillation therapy without the need for
human intervention. The AECD Technology is designed for devices that are
non-invasive and do not require surgery. In accordance with patient specific
parameters programmed into a device's microcomputer by the patient's physician,
the AECD Technology will enable such device to continuously monitor a patient's
cardiac activity, detect life-threatening abnormalities, and, within less than
30 seconds and without human interaction, transmit an electrical defibrillation
shock to convert the patient's heart to a normal rhythm. The Company received
FDA clearance for its AECD Technology in August 1998.
MULTIPLE PRODUCTS FROM CORE TECHNOLOGY
There are three AECD Products under development by Cardiac Science
which utilize the AECD Technology. The Company's initial product, the
Powerheart, is a defibrillator-monitor designed for in-hospital use. The Company
received 510(k) clearance on the clinical version of the Powerheart in late
1997. The second AECD Product under development, the RHYTHMx ECD, is designed
for integration into patient monitoring systems. The third AECD Product under
development is a fully-automatic public access defibrillator that can be used by
first responders and other non-technical individuals outside of the hospital
environment.
THE POWERHEART AECD HOSPITAL BEDSIDE DEFIBRILLATOR-MONITOR
The Powerheart is a fully automatic bedside defibrillator-monitor
designed for in-hospital use that can detect cardiac arrest within seconds
without the need for observation by a nurse or physician. When appropriate, a
defibrillation shock is automatically delivered in seconds without human
intervention, as compared to the current approach to in-hospital cardiac arrest
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which has inherent delays and can take several minutes before a
defibrillation shock is delivered. Currently, a life-threatening event must
be detected and observed and the defibrillator must be moved to the patient
and connected prior to the actual shock being delivered by highly trained
hospital personnel.
The commercial version of the Powerheart which is currently under
development is designed for wall mounting or for use as a transport monitor. It
is also designed to be transported by mobile "pole cart" or carried by hand.
Cardiac Science believes the Powerheart will offer significant advantages over
defibrillators currently used in hospitals today and will be ideally suited for
use in many areas of the hospital, including the Operating Room (OR), the
Intensive Care Unit (ICU), the Cardiac Care Unit (CCU), the Emergency Room (ER),
the Step-Down Unit (SDU), the Recovery Room (RR), the Catheterization Lab
(CATH), Transport (EMS), and the Free-Standing Surgery Center (FSC).
POWERHEART DESIGN AND TECHNOLOGY
The Powerheart includes the following basic components:
- - TACHYARRHYTHMIA DETECTION AND RHYTHM ANALYSIS SOFTWARE AND HARDWARE
SYSTEM - The AECD Technology is integrated with the necessary hardware
components to access the patient's electrocardiogram signal to determine
when therapy is appropriate based upon parameters set by the patient's
physician. ECG signals are sensed by disposable defibrillator pads placed
on the patient's chest. This signal is amplified and filtered by an
electrical analog circuit, digitized, and then analyzed by the device's
proprietary software algorithms, which makes the determination of when
and if therapy (a defibrillation shock) is appropriate for the patient.
- - DEFIBRILLATOR - The Powerheart uses electrical circuitry that provides an
Association for the Advancement of Medical Instrumentation ("AAMI")
standard waveform for defibrillation. Such waveforms are used by a majority
of defibrillators on the market, and have the longest proven record of
success. The Powerheart can be programmed to transmit low amounts of
electrical energy to the heart to terminate life-threatening arrhythmias.
The Powerheart is designed to provide progressively greater amounts of
energy, if needed, to restore the patient's heart to its normal cardiac
rhythm. The maximum energy that can be delivered by the device is 360
joules, which is the maximum limit recommended by the American Heart
Association.
- - DEFIBRILLATION ELECTRODES - The Powerheart uses self-adhesive, disposable
defibrillation electrodes manufactured by a third party vendor to the
Company's specifications. Electrodes require daily replacement.
- - DATA STORAGE - The device stores ECG data on a real-time basis in digital
form. In addition, a strip chart recorder automatically prints real-time
ECG and relevant parameter settings.
- - GRAPHICAL USER INTERFACE - Operating modes and setting parameters for
rhythm analysis are programmed via the user interface. It has a liquid
crystal display that displays real-time patient ECG, device actions and
device settings.
- - DATA RETRIEVAL SOFTWARE - This software is used to access the data stored
from the Powerheart. This software runs on a personal computer. The data
can be viewed on a monitor and printed on a standard high-resolution
printer. This provides valuable post-facto analysis of the patient's rhythm
and device operation.
RHYTHMx ECD PATIENT MONITORING MODULE
The RHYTHMx ECD module, which is currently under development, is being
designed for integration into patient monitoring systems. The Company has
designed a conceptual model of the RHYTHMx ECD which includes AECD Technology
and a high voltage defibrillator module to be integrated into patient monitoring
systems. Functionally, the RHYTHMx ECD extends patient monitoring systems beyond
diagnostics to automatic therapy delivery without human intervention. The
RHYTHMx ECD will enable a patient monitoring system to accurately and instantly
detect the onset of ventricular tachyarrythmias, discriminate between a
shockable and nonshockable rhythm, and direct a high voltage defibrillator
module to automatically deliver a therapeutic shock without the need for human
intervention. This therapeutic shock will convert a patient's heart rhythm back
to normal within seconds from the onset of the event. The Company believes the
RHYTHMx ECD will add life saving cardioversion/defibrillation capabilities to
the patient monitoring system.
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THE COMPANY BELIEVES, ALTHOUGH THERE CAN BE NO ASSURANCE IN THIS
REGARD, PATIENT MONITORING SYSTEMS INCORPORATING THE RHYTHMX ECD CAN PROVIDE
NUMEROUS BENEFITS:
- - Sudden cardiac arrest survival rates can be dramatically improved
- - Earlier intervention may lower complications associated with long
resuscitation times
- - Faster defibrillation will eliminate damage to brain and other vital organs
- - Patients can be stepped down to lower acuity (i.e. less expensive)
settings faster
- - Reduced complications equal lower cost to patient and healthcare system
A new capability with a very low cost per patient bed
PUBLIC ACCESS DEFIBRILLATOR (AED)
Individuals experiencing cardiac arrest need immediate defibrillation
wherever the episode occurs. Short of having an AECD Product attached to them,
the best public alternative is to have one immediately available. This is the
concept behind the automated external defibrillator (AED) or public access
defibrillator (PAD). Since 1994, the AHA has focused on early defibrillation and
has urged making PADs widely accessible. The market for PADs includes the first
responders (i.e., EMTs, fire trucks, police cars), the clinical segment (i.e.,
out patient clinics, doctors and dentists offices), the industrial segment
(i.e., stadiums, commercial airlines, office buildings, retirement homes, health
clubs and golf courses), and other markets (i.e., home, military and places the
public gathers).
Cardiac Science has developed a conceptual model and intends to design
its PAD to be small, lightweight, portable, battery-operated and easy-to-use. In
addition, it is anticipated that it will offer Cardiac Science's AECD Technology
and the more traditional semi-automatic rhythm analysis, feature a
state-of-the-art optimized low energy defibrillator waveform, voice prompts to
assist users, and disposable defibrillator pads, data recording, storage &
retrieval as well as self-test capabilities.
RESEARCH, DEVELOPMENT AND FDA CLINICAL EVALUATION
Research and development expenditures were $2,209,524 in 1998 and
$756,936 in 1997. Expenditures in 1998 primarily were attributable to the costs
associated with the development of the commercial version of the Powerheart.
FDA CLINICAL EVALUATION
To test the safety and efficacy of the AECD Technology, a multi-center
clinical trial study was conducted from 1993 to 1997. The trial was divided into
two phases. Phase I tested the tachyarrhythmia detection and discrimination
algorithm. Phase II tested the entire system including both the algorithm and
the shock delivery system. In the Phase II trial, patients attached to the
clinical prototype of the Powerheart defibrillator-monitor were studied in
either the electrophysiology laboratory or in critical care units.
Phase II data was collected from a total of 155 patients at Arizona
Heart Institute, University of California-Irvine Medical Center and USC Medical
Center for over 1200 hours during this study. The study found that the AECD
Technology had a sensitivity of 100% (correctly identifying shockable episodes),
and a specificity of 99.4 percent (not allowing a non-shockable rhythm to be
shocked). The average response time was approximately 21 seconds. In addition,
normal rhythm was restored by the first shock in 96% of the actual shocks
delivered with energy levels as low as 50 joules.
In late February 1997 the Company submitted a 510(k) pre-market
notification to the FDA, pursuant to Section 510(k) of the Federal Food, Drug
and Cosmetic Act, for the clinical version of the Powerheart
defibrillator-monitor for in-hospital use. 510(k) clearance was received from
the FDA in October 1997.
In August 1998, the Company received Section 510(k) clearance from the
FDA for its AECD Technology and to integrate it into bedside
monitor-defibrillator platforms. The Company believes that the integration of
the AECD Technology into external defibrillators and patient monitors widely
used in hospitals has the potential to save thousands of lives annually. To the
Company's knowledge, the AECD Technology is the first and only software cleared
by the FDA to provide fully-automatic detection and treatment of
life-threatening heart rhythms.
MARKETING AND SALES
MARKET OVERVIEW
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The Powerheart bedside defibrillator-monitor and RHYTHMx ECD module
target a large hospital market of over 10,000 hospital locations around the
world. Patients spend nearly 1.0 million days annually in U.S. hospitals with
ventricular fibrillation, ventricular tachycardia or cardiac arrest as the
primary diagnosis. Another 1.4 million days are spent with unspecified cardiac
arrhythmia, premature beats, conduction disease such as sick sinus syndrome, and
functional disorders as the principal diagnosis. The number of persons at least
temporarily at risk of life-threatening arrhythmias and cardiac arrest includes
hospitalized patients with symptoms that could indicate a heart attack, heart
attack survivors, those diagnosed with severe forms of heart disease, persons
suffering from congestive heart failure, heart transplant patients, and patients
whose surgery or treatment increases the risk of cardiac arrest.
The Company believes that the key to adoption of its AECD Products will
be market awareness of, and exposure to, the devices, as well as clinical
experience with the AECD Products. The Company believes that the commercial
success of its initial product, the Powerheart, will require active marketing,
education and sales efforts to bring market awareness to the product. The
Company believes that decisions to purchase the AECD Products generally will be
made by cardiologists, cardiovascular specialists (including those specializing
in electrophysiology and arrhythmia control), internists, nursing staffs,
administrators and other hospital personnel involved in product procurement and
cost benefit analysis.
MARKETING STRATEGY
POWERHEART
Cardiac Science's strategy is to focus on accelerating the market
adoption and penetration of the Powerheart via its strategic partner, Medtronic
Physio-Control, in the United States and Canada, and via a network of qualified
international distributors overseas.
In December 1998, Cardiac Science entered into a five-year exclusive
distribution and licensing agreement with Medtronic Physio-Control, a
subsidiary of Medtronic Inc., (NYSE: MDT). Medtronic Physio-Control is the
world market leader in external defibrillation. Under the agreement,
Medtronic Physio-Control will market the Powerheart on an exclusive basis in
the United States and Canada. Medtronic Physio-Control also obtained a
license to the AECD Technology for integration into their in-hospital
LIFEPAK-Registered Trademark- defibrillator-monitor products. This license is
non-exclusive outside of the United States. The agreement also provides for
Cardiac Science to share profits from the sale of proprietary disposable
defibrillator pads that are used with the Powerheart as well as
Physio-Control LIFEPAK defibrillators that include the AECD Technology
("Software Technology Packages"). Exclusivity is conditioned upon Medtronic
Physio-Control purchasing an aggregate of 14,000 Powerhearts or Software
Technology Packages over the five-year term. The first year's minimum is
1,000 units. Cardiac Science has retained the right to sell the AECD
Technology in any market or embed it in any products other than "stand-alone"
defibrillator-monitors.
Pursuant to the agreement, Medtronic Physio-Control was granted
warrants to purchase 200,000 shares of Cardiac Science common stock, par value
$0.001 per share (the "Common Stock"), at $3.00 per share. These warrants will
expire in November 1999. Medtronic Physio-Control also will receive warrants to
purchase an additional 200,000 shares of Common Stock upon the sale of the
1,000th unit by Medtronic Physio-Control.
The Company plans to penetrate the international market by establishing
a network of qualified international distributors managed by Company employees
on a country-by-country basis. As of January 1999, the Company has received
interest from hundreds of distributors interested in marketing the Powerheart in
their respective markets. Cardiac Science anticipates signing agreements with
approximately 45 of these companies in 1999, however there can be no assurance
in this regard.
RHYTHMx ECD
The Company's believes the RHYTHMx ECD module will easily interface
with patient monitoring systems. Although there is no assurance that the Company
will succeed in its efforts, Cardiac Science plans to accommodate patient
monitoring and defibrillator manufacturers by licensing its patented
technologies to those who see the benefit of offering the new AECD capability.
The Company currently has no agreements with respect thereto but has received
interest from, and believes it can establish OEM partnerships with,
well-established domestic and foreign patient monitoring manufacturers. Once
strategic partnerships are established, Cardiac Science will work with its
partners to integrate and embed its AECD Technology into their multiparameter
patient monitoring systems. As a result of this strategy, Cardiac Science hopes
to quickly penetrate the market and gain measurable license revenue and sell a
significant number of disposable defibrillator pads.
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THE AMBULATORY ECG (HOLTER) PRODUCTS OF THE DIAGNOSTIC MONITORING
SUBSIDIARY
In April 1997, the Company acquired Innovative Physician Services,
Inc., d/b/a Diagnostic Monitoring ("DM"), a Nevada corporation. On December 31,
1998, the Company sold substantially all of the assets of DM to Biosensor
Corporation (OTC:BSNR) for 1,440,000 shares of Biosensor Corporation common
stock representing 7.7 percent of the voting shares.
During the period from April 1997 to December 1998, DM generated
revenues of $2,650,570 from the sale of its PC-based Ambulatory Holter ECG,
Holter recorders and related supplies and accessories. Sales were made
through qualified domestic and international distributors in over 40
countries. For the year ended December 31, 1998, sales of DM's
Windows 95-Registered Trademark- compatible Holter software and systems, Holter
Recorder products, and related Holter supplies represented 79% of the DM's
total revenue, sales of PC-based Electrocardiographs accounted for 4% of
revenues, sales of Spirometers accounted for 4% of revenues and Ambulatory
Blood Pressure products accounted for 6% of revenues. Export sales of DM's
products to international countries represented 85% of the Company's revenue,
with the balance of sales coming from within the United States. The Company
has restated its prior financial statements to present the operating results
of DM as a discontinued operation (see note 5 of the consolidated financial
statements).
MANUFACTURING
To date, the Company's AECD manufacturing activities have been limited
to the production of prototypes of its Powerheart for use in its clinical
trials. In September 1998, the Company entered into a development and
manufacturing agreement with ZEVEX, Inc. ("Zevex"), a contract medical device
manufacturer. Although there can be no assurance, commercial production of the
Powerheart is anticipated to begin in the second half of 1999.
The Company currently contemplates that the materials to be used in
manufacturing the Powerheart will consist primarily of electronic, mechanical
and electromechanical components that generally are available from various
vendors and suppliers. However, certain components require customization for the
Company by selected vendors and their availability cannot be assured. The
Company intends to warehouse sufficient components to meet its monthly
production needs and to carry an inventory of finished goods adequate to meet
its customers needs. As of December 31, 1998, the Company did not have any
backlog in orders for its AECD Products.
The FDA and foreign counterparts will conduct periodic inspections of
such facilities and manufacturing so as to ensure compliance with Quality System
and Good Manufacturing Practices and other regulations, such as those
promulgated by the International Standards Organization, and any concerns raised
by such inspections could result in regulatory action, delays, or termination of
production.
COMPETITION
To the Company's knowledge, its Powerheart is the only external
defibrillator device with 510(k) clearance to provide fully-automated detection
and treatment of ventricular tachyarrhythmias for in-hospital patients at risk
of sudden cardiac arrest. The Powerheart may compete with a variety of
semi-automatic and manual defibrillators presently in use which are developed by
Medtronic Physio-Control, Hewlett Packard Corporation and Zoll Medical, Inc.,
designed to deliver therapy after being activated by a trained medical
technician responding to a cardiac emergency. The Company also may compete with
products from other companies, such as Heartstream, Inc. (now a division of
Hewlett Packard), SurVivaLink, Inc., and Laerdal Corporation, which may be used
by first responders and lay persons. All of the foregoing products, unlike the
Powerheart, require human intervention.
The Company believes its AECD Products will not compete with ICD
devices. The Company's AECD Products may be utilized by patients waiting for ICD
implant surgery or patients temporarily unable to risk such surgery.
Many of the Company's competitors are well established in the medical
device field and have much greater financial, research, manufacturing and
marketing resources than the Company. There is no assurance that such companies
or other competitors will not develop invasive or non-invasive products capable
of delivering the same or greater therapeutic benefits as the products of the
Company. Further, there is no assurance that future forms of technology or
therapies for treating cardiac arrest will not render the Company's products
obsolete or uneconomical.
9
<PAGE>
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company believes that patent and trademark protection is valuable
to the Company as a barrier to market entry by others. The Company also believes
that its trade secrets, proprietary technology, early market entry and its
ability to develop a market for its AECD Products may be equally important.
However, there is no assurance that the Company's technology will not be copied
or duplicated by competitors.
On December 12, 1995, the U.S. Patent and Trademark Office issued to
the Company Patent No. 5,474,574 titled "Automatic External Cardioverter
Defibrillator". The inventors have assigned to the Company the rights under the
patent on a royalty-free basis. However, no assurances can be given that this
patent will be upheld if challenged, or that this patent will provide an
effective barrier to entry by other entities.
In December 1993, the Company obtained an exclusive license under
United States Patent No. 4,576,170, issued on March 18, 1986 and titled "Heart
Monitor and Defibrillator Device," to make, have made, use and sell products
covered by the patent. The Company believes that this patent relates to one or
more of the AECD Products. The Company is required to pay royalties, including
minimum annual royalties ($0 for the first year, $10,000 for the second year and
$20,000 per year thereafter until expiration of the Patent), based upon sales of
products covered by the patent. No assurance can be given that this patent would
be upheld if challenged, or that this patent will provide an effective barrier
to entry by other entities.
The United States Patent and Trademark Office has granted the Company a
registration of the "AECD", "POWERHEART" and "MDF" marks. The Company has filed
a trademark application with the United States Patent and Trademark Office for
the "AECD ELECTRODES" mark. Additionally, Great Britain, France, Japan and China
have granted the Company registration of the "AECD", "AECD ELECTRODES" and
"POWERHEART" marks. Applications are pending in certain other foreign countries
for the registration of these marks. There can be no assurance that any other
trademarks will be granted to the Company, or that any of the Company's
trademarks would be sustained in court if interfered with or challenged.
In 1992, the Company was assigned all of the right, title and interest
to any and all trade secret rights and technology concerning the manufacture of
defibrillator devices for the treatment of ventricular tachyarrhythmias such as
ventricular tachycardia, ventricular fibrillation and similar heart diseases,
held by Medstone International, Inc., a principal stockholder of the Company,
but excluding any such rights and technology to the extent they have been used
in the past or are presently being used in the manufacture of Medstone's
lithotripsy products, which are used for the non-invasive disintegration of
kidney stones in human patients.
Other patents in the field of the Company's technology are known to
exist. Although the Company does not believe that licenses are necessary under
the other patents of which the Company is aware, no assurances can be given that
the Company's technology will not be challenged as infringing upon the other
patents. Also, no assurances can be given that the Company's technology will not
be challenged as infringing upon other patents or proprietary rights of others
in the United States or worldwide of which the Company is not aware.
GOVERNMENTAL REGULATIONS
Clinical testing, manufacturing, packaging, labeling, promotion,
marketing, distribution, registration, listing, notification, recordkeeping,
reporting, clearance and approval of medical devices such as the AECD Products
in the United States generally are subject to regulation by the FDA. Medical
devices intended for human use are classified into three categories, subject to
varying degrees of regulatory control. Class III devices, which include the AECD
Products, are subject to the most stringent controls.
Class III devices, in general, may be commercially marketed only after
the grant of a Premarket Approval ("PMA"). The PMA process generally takes
several years and substantial financial resources to accomplish. Some Class III
devices may be marketed based upon the submission of a 510(k) Notification to
the FDA where the FDA does not require a PMA and the device is "substantially
equivalent" to a similar product which was commercially marketed in the United
States prior to May 28, 1976.
In October 1997 the Company received 510(k) clearance from the FDA to
market its Powerheart in the United States. The AECD Products will be subject to
FDA review of labeling, advertising and promotional materials, as well as record
keeping and reporting requirements. Failure to comply with any of the FDA's
requirements, or the discovery of a problem
10
<PAGE>
with any of the AECD Products, could result in FDA regulatory or enforcement
action. Further, any changes to the AECD Products or their labeling may
require additional FDA testing, review and approval.
Any financial interests in the Company held by investigators could also
be subject to future regulation. Congress recently enacted legislation providing
that the Department of Health and Human Services promulgate regulations defining
the circumstances that constitute financial interest in a project that may
create a bias for certain results. Such rules may require disclosure of, limit
or prohibit equity ownership by, individuals conducting research for the
Company.
YEAR 2000 ISSUE
In the next twelve months, many companies will face a potentially
serious information systems (computer) problem because many software
applications and operational programs written in the past may not properly
recognize calendar dates beginning in the Year 2000. This problem could force
computers to either shut down or provide incorrect information and could result
in an inability to process transactions or engage in normal business activities.
Based on a recent assessment, the Company believes that the software utilized by
the Company will not be impacted by the Year 2000 Issue. The Company believes
that its existing information systems equipment, primarily composed of personal
computers, will be minimally impacted by the Year 2000 Issue, as the Company
intends to replace those systems which may be affected by this problem by the
end of 1999 due to technological obsolescence. In addition, the Company's
initial products, the Powerheart, and its AECD Technology are not expected to
encounter any problems with the Year 2000 issue. The Company has initiated
communications with its vendors regarding the Year 2000 Issue. Costs spent to
date on the Year 2000 issue are minimal and the Company does not expect to incur
additional costs which would be considered material. If the Company determines a
particular vendor will be impacted by this problem, the Company may attempt to
identify additional or replacement vendors, which could delay accessibility of
the products and/or services provided by such vendors. Such a delay or failure
to identify an additional or replacement vendor could have a material adverse
effect on the Company's business, operating results and financial condition.
EMPLOYEES
The Company currently has 24 employees including 12 in research and
development, three in the regulatory and quality assurance department, five in
sales and marketing and four in administration which include Raymond W. Cohen,
President and CEO and Brett L. Scott, the CFO and Secretary.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB (and any other reports issued by the
Company from time to time) contains certain forward-looking statements made in
reliance upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements, including statements
regarding the Company's ability to improve patient care, increase survival
rates, and reduce patient care costs, are based on current expectations that
involve numerous risks and uncertainties. Actual results could differ materially
from those anticipated in such forward-looking statements as result of various
known and unknown factors including, without limitation, future economic,
competitive, regulatory, and market conditions, future business decisions, the
receipt of financing, market and clinical user acceptance of the Company's
products, development of and the ability to manufacture a commercial version of
the Company's products, and those factors discussed below under Management's
Discussion and Analysis or Plan of Operation. Words such as "believes,"
"anticipates," "expects," "intends," "may," and similar expressions are intended
to identify forward-looking statements, but are not the exclusive means of
identifying such statements. The Company undertakes no obligation to revise any
of these forward-looking statements.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently leases approximately 5,400 square feet in Irvine,
California, which is comprised of the Company's executive offices, an
engineering facility, and software and hardware laboratories. The monthly rental
is approximately $5,600.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
11
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
Since June 1992, the Common Stock has been traded on the NASD OTC
Bulletin Board under the symbol "DFIB". The following table sets forth for the
periods indicated the high and low bid quotations for the Common Stock as
reported on the OTC Bulletin Board. These quotations reflect inter-dealer prices
without retail mark-up, mark-down or commission, and are not necessarily
representative of actual transactions or of the value of the Company's
securities.
<TABLE>
<CAPTION>
PRICE RANGE
-----------------------------------
PERIOD HIGH LOW
------ ---------------- -------------
<S> <C> <C>
Year Ended December 31, 1998
First Quarter $ 2.38 $ 1.13
Second Quarter 2.38 1.75
Third Quarter 2.38 1.63
Fourth Quarter 2.50 1.63
Year Ended December 31, 1997
First Quarter $ 2.63 $ 1.26
Second Quarter 3.31 1.49
Third Quarter 2.75 1.14
Fourth Quarter 3.88 1.25
</TABLE>
The above prices have been adjusted to give retroactive effect to a
reverse stock split on September 8, 1997 (see Note 1 of the consolidated
financial statements, for all periods presented).
HOLDERS
As of March 16, 1999, there were approximately 710 holders of record of
Common Stock.
DIVIDENDS
The Company has never paid any cash dividends on the Common Stock. The
Company presently intends to retain earnings, if any, to finance its operations
and therefore does not anticipate paying any cash dividends in the foreseeable
future. The payment of any dividends will depend upon, among other things, the
Company's earnings, assets and general financial condition.
12
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and notes thereto set forth
elsewhere herein.
The Company is engaged in the development of non-invasive
fully-automatic external defibrillation ("AECD") devices (the "AECD Products")
for the treatment of arrhythmias that lead to cardiac arrest. The Company
commenced operations in May 1991. Until its acquisition of Diagnostic Monitoring
in April 1997, its operations have consisted primarily of research and
development activities and clinical FDA testing. Diagnostic Monitoring
manufactured PC-based Holter Electrocardiogram ("ECG") systems and Ambulatory
Holter recorders and distributed these products in over 40 countries. The
Company sold substantially all of the assets of Diagnostic Monitoring on
December 31, 1998 (see note 5 of the consolidated financial statements).
Cardiac arrest is the single largest cause of death in the United
States and Europe. The Company's mission is to increase the survival rate of
cardiac arrest victims and create a new standard of care through the development
and commercialization of its proprietary automatic defibrillation technology
(the "AECD Technology").
There are three AECD Products under development by Cardiac Science that
utilize the AECD Technology. The Company's initial product, the Powerheart, is a
bedside defibrillator-monitor designed for in-hospital use. The Powerheart
attaches prophylactically to patients for the purpose of providing
fully-automatic detection and treatment of life-threatening tachyarrhythmias
(abnormal rhythms of the heart), such as ventricular tachycardia (dangerously
rapid heart rate) and ventricular fibrillation (quivering of the heart), that
lead to cardiac arrest. The second AECD Product under development, the RHYTHMx
ECD module, is designed for integration into patient monitoring systems.
Functionally, the RHYTHMx ECD module extends patient monitoring systems beyond
diagnostics to provide patients with the added protection of automatic therapy
delivery without human intervention. The third AECD Product under development is
a fully-automatic public access defibrillator ("PAD") that can be used by first
responders and other non-technical individuals outside of the hospital
environment.
The Company believes the AECD Products are ideally suited for
hospitalized and non-hospitalized patients temporarily at risk (periods ranging
from days to months) of suffering cardiac arrest. Through its investment in
clinical research, the Company believes it has established competitive
functional and technological advantages in the development of AECD devices. The
Company has been issued one patent, has one additional patent under exclusive
license and is in the process of filing additional patents relating to its AECD
technology.
13
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Expenses for research and development increased to $2,209,524 for the
year ended December 31, 1998 compared to $756,936 for the year ended December
31, 1997. This increase was due to engineering and pre-production costs
associated with the commercialization of the Company's initial AECD product, the
Powerheart. Included in these costs were increases in personnel costs and
related fringes, and payments to independent engineering contractors and Zevex,
Inc., the Company's contract manufacturer.
Marketing expenses increased to $341,476 for the year ended December
31, 1998, compared to $251,777 for the year ended December 31, 1997. The
increase was a result of pre-marketing expenses related to the Powerheart and
the addition of personnel and related fringes.
General and administrative expenses increased to $1,170,551 for the
year ended December 31, 1998, compared to $766,991 for the year ended December
31, 1997. The increase was a result of expenditures incurred to support the
infrastructure necessary to commercialize the Powerheart and begin initial
preparations for market release. Expenses, which increased in 1998 as compared
to 1997, include personnel costs and related fringes, insurance premiums for
both product liability and directors and officers insurance, and professional
fees.
Net interest expense increased to $65,353 for the year ended December
31, 1998 as compared to $10,133 for the year ended December 31, 1997. The
increase was associated with the debt incurred as a result of the acquisition of
Diagnostic Monitoring, borrowings on the bank line of credit in 1998 and the
debt discount in connection with the issuance of warrants (see note 10 to the
consolidated financial statements).
Interest income was approximately the same at $6,470 for the year ended
December 31, 1998 as compared to $5,886 for the year ended December 31, 1997.
For the year ended December 31, 1998, the Company incurred a net loss
from continuing operations of $3,787,704, as compared to $1,780,751 for the year
ended December 31, 1997. The increased loss for the year ended December 31, 1998
primarily is attributable to the increases in operating expenses, which included
expenses incurred in the process of commercializing the Powerheart.
On December 31, 1998 the Company sold substantially all of the assets
of Diagnostic Monitoring ("DM"). The Company has restated its prior financial
statements to present the operating results of DM as a discontinued operation
(see note 5 of the consolidated financial statements). For the year ended
December 31, 1998, the Company incurred a net loss from discontinued operations
of $101,412 as compared to $43,847 for the year ended December 31, 1997. The
Company also recognized a loss on the sale of DM's assets of $549,618. This
non-cash loss primarily was attributable to the write off of goodwill associated
with the original purchase of DM.
INCOME TAXES
The Company has approximately $10,110,000 of federal net operating loss
carryforwards and $2,875,000 of California net operating loss carryforwards at
December 31, 1998 which will begin to expire in 2007 and 1999; respectively. The
Company had deferred tax assets of $4,181,335 at December 31, 1998. The Company
has established a valuation allowance to fully offset its deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash and cash equivalents and a
working capital deficit of $1,247,602 and $(549,898), respectively. From
inception, the Company's sources of funding for operations were derived from
equity placements aggregating approximately $11,200,000. The Company has
incurred losses of approximately $11 million since inception and expects to
incur substantial additional operating losses as a result of expenditures
related to the marketing and sales support functions, research and product
development activities and the completion and initiation of clinical trials for
future products. The timing and amounts of these expenditures will depend upon
many factors, some of which are beyond the Company's control, such as the
results of clinical trials, the requirements for and time required to obtain
approval of 510(k) applications or other regulatory approvals, the progress of
the Company's research and development programs, and market
14
<PAGE>
acceptance of the Company's products.
Additional capital will be needed to fulfill the Company's marketing,
research and product development goals. Successful completion of the Company's
development program for its AECD Products and its transition to attain
profitable operations is dependent upon achieving a level of revenues adequate
to support the Company's cost structure.
The Company raised $3,700,000 in a series of private placements during
the year ended December 31, 1998. In connection with these private placements
the Company paid certain fees and expenses. The Company also arranged for a
short term non-interest bridge loan of $100,000 in September 1998 that was
repaid in January 1999. In consideration for this loan the lender received
three-year warrants to purchase 50,000 shares of Common Stock at a per share
price of $2.00.
In 1998 the Company had net borrowings of $125,000 on a revolving line
of credit from a bank. The line of credit expired in November 1998 and was
restructured as a twelve-month term loan with monthly payments of $10,417 plus
interest beginning in January 1999.
The Company anticipates that its current cash balance will be
sufficient to meet the Company's cash requirements through the first calendar
quarter of 1999. Given the current applications of cash, the Company expects
that further capital additions will be necessary to sustain growth and
viability. In this respect, the Company is considering a number of
alternatives, including additional equity financings and corporate
partnerships. There can be no assurance that any such transactions will be
available at terms acceptable to the Company or that any financing
transaction will not be dilutive to current stockholders or that the Company
will have sufficient working capital to fund future operations. If the
Company is not able to raise additional funds, it may be required to
significantly curtail or cease its operating activities. The accompanying
financial statements have been prepared assuming that the Company will
continue as a going concern. Accordingly, the independent accountant's report
on the Company's financial statements has an explanatory paragraph addressing
the Company's ability to continue as a going concern.
15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
For an index to the financial statements and supplementary data, see
Item 13(a).
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Cardiac Science, Inc.
Irvine, California
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' deficit, and cash flows
present fairly, in all material respects, the financial position of Cardiac
Science, Inc. (the "Company") at December 31, 1998, and the results of its
operations and its cash flows for the years ended December 31, 1998 and 1997, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
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 the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
has suffered recurring losses from operations which raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
with regard to this matter are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
PricewaterhouseCoopers LLP
Newport Beach, California
February 17, 1999
16
<PAGE>
CARDIAC SCIENCE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,247,602
Prepaid expenses 30,129
-------------------
Total current assets 1,277,731
Equipment, net of accumulated depreciation of $97,979 117,710
Investment in unconsolidated affiliate 115,000
Other assets 45,266
-------------------
$ 1,555,707
-------------------
-------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of capital lease obligation $ 3,413
Accounts payable and accrued expenses 1,599,216
Notes payable 225,000
-------------------
Total current liabilities 1,827,629
-------------------
Long term portion of capital lease obligation 16,001
-------------------
Commitments and contingencies
Stockholders'deficit:
Preferred stock - $.001 par value; 1,000,000 shares authorized,
none issued or outstanding
Common stock - $.001 par value; 20,000,000 shares authorized,
7,014,738 issued and outstanding 7,015
Common stock subscribed 100,000
Additional paid-in capital 10,823,448
Accumulated deficit (11,218,386)
-------------------
Total stockholders' deficit (287,923)
-------------------
$ 1,555,707
-------------------
-------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
17
<PAGE>
CARDIAC SCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
(Restated-see Note 5)
-------------------- ---------------------
<S> <C> <C>
Operating expenses:
Research and development $ 2,209,524 $ 756,936
Marketing 341,476 251,777
General and administrative 1,170,551 766,991
-------------------- ---------------------
Loss from continuing operations (3,721,551) (1,775,704)
Interest expense, net (65,353) (4,247)
-------------------- ---------------------
Loss from continuing operations before provision
for income taxes (3,786,904) (1,779,951)
-------------------- ---------------------
Provision for income taxes 800 800
-------------------- ---------------------
Net loss from continuing operations (3,787,704) (1,780,751)
-------------------- ---------------------
Discontinued operations:
Loss from discontinued operations, net
of income taxes (101,412) (43,847)
Loss on sale of assets (549,618) ---
-------------------- ---------------------
Loss from discontinued operations (651,030) (43,847)
-------------------- ---------------------
Net loss $ (4,438,734) $ (1,824,598)
-------------------- ---------------------
-------------------- ---------------------
Basic and diluted loss per share:
Continuing operations $ (0.69) $ (0.46)
Discontinued operations (0.12) (0.01)
-------------------- ---------------------
Net loss per share $ (0.81) $ (0.47)
-------------------- ---------------------
-------------------- ---------------------
Weighted average number of shares used in the
computation of net loss per share 5,459,793 3,875,656
-------------------- ---------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
18
<PAGE>
CARDIAC SCIENCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock
Common Stock Preferred Stock Subscribed
--------------------- ------------------ --------------------
Number Amount Number Amount Number Amount
of of of
Shares Shares Shares
---------- -------- ------ --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 3,265,780 $ 3,266 --- $ --- 158,958 $ 268,000
Issuance of preferred stock
for the acquisition of
Diagnostic Monitoring 500 600,000
Issuance of common stock for
subscribed amount 158,958 159 (158,958) (268,000)
Conversion of preferred
stock into common stock 500,000 500 (500) (600,000)
Issuance of common stock
for cash at $2.00 per
share 1,000,000 1,000
Issuance costs (including
50,000 shares of common
stock at $2.00 per share) 50,000 50
Net loss
---------- -------- ------ --------- -------- ----------
Balance at December 31, 1997 4,974,738 4,975 --- --- --- ---
Issuance of common stock
for cash at $2.00 per
share (net of cost of
issuances of $829,896) 1,800,000 1,800
Issuance of common stock
warrants
Common stock warrants
exercised at $0.01 per
share 175,000 175
Common stock subscribed
at $2.00 per share
in cash 50,000 100,000
Issuance of common stock
for license fees and
services at $2.00 per
share 55,000 55
Issuance of common stock
for compensation at
$2.00 per share 10,000 10
Compensation related to fair
value of options granted
to non-employees
Net loss
----------- -------- ------ --------- -------- ----------
Balance at December 31, 1998 7,014,738 $ 7,015 --- $ --- 50,000 $ 100,000
----------- -------- ------ --------- -------- ----------
----------- -------- ------ --------- -------- ----------
<CAPTION>
Additional Accumulated
Paid-In Deficit Total
Capital
------------ ------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 4,952,981 $ (4,955,055) $ 269,192
Issuance of preferred stock
for the acquisition of
Diagnostic Monitoring 600,000
Issuance of common stock for
subscribed amount 267,841 ---
Conversion of preferred
stock into common stock 599,500 ---
Issuance of common stock
for cash at $2.00 per
share 1,999,000 2,000,000
Issuance costs (including
50,000 shares of common
stock at $2.00 per share) (347,215) (347,165)
Net loss (1,824,598) (1,824,598)
------------ ------------- -----------
Balance at December 31, 1997 7,472,107 6,779,653) 697,429
Issuance of common stock
for cash at $2.00 per
share (net of cost of
issuances of $829,896) 2,768,303 2,770,104
Issuance of common stock
warrants 433,416 433,416
Common stock warrants
exercised at $0.01 per
share 1,825 2,000
Common stock subscribed
at $2.00 per share
in cash 100,000
Issuance of common stock
for license fees and
services at $2.00 per
share 109,945 110,000
Issuance of common stock
for compensation at
$2.00 per share 19,990 20,000
Compensation related to fair
value of options granted
to non-employees 17,862 17,862
Net loss (4,438,734) (4,438,734)
------------ ------------- -----------
Balance at December 31, 1998 $ 10,823,4482 $(11,218,386) $ (287,923)
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
19
<PAGE>
CARDIAC SCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997
(Restated-
see Note 5)
------------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,438,734) $ (1,824,598)
Adjustments to reconcile net loss to net
cash used in operating activities from continuing operations:
Loss from discontinued operations 101,412 43,847
Loss on sale of assets 549,618 ---
Depreciation and amortization 35,114 20,762
Amortization of debt discount 44,785 ---
Compensation related to fair value of options granted to non-employees 17,862 ---
Expenses paid with common stock 130,000 ---
Changes in operating assets and liabilities,exclusive of Diagnostic
Monitoring:
Prepaid expenses --- (88,374)
Accounts payable and accrued expenses 137,505 536,180
------------------- ----------------
Net cash used in operating activities from continuing operations (3,422,438) (1,312,183)
------------------- ----------------
Net cash provided by (used) in discontinued operations 530,438 (239,489)
------------------- ----------------
Cash flows from investing activities:
Purchase of equipment (53,218) (64,700)
Decrease in other assets 4,012 ---
Cash acquired in Diagnostic Monitoring acquisition --- 43,223
------------------- ----------------
Net cash used by investing activities (49,206) (21,477)
------------------- ----------------
Cash flows from financing activities:
Proceeds (payment) on bank line of credit 125,000 (18,903)
Payments of note payable to stockholder (70,233) (12,743)
Proceeds from note payable 100,000 ---
Proceeds from sale of common stock 3,600,000 2,000,000
Proceeds from common stock subscribed 100,000 ---
Proceeds from exercise of common stock warrants 2,000 ---
Costs of equity issuances (229,310) (247,165)
------------------- ----------------
Net cash provided by financing activities 3,627,457 1,721,189
------------------- ----------------
Net increase in cash and cash equivalents 686,251 148,040
Cash and cash equivalents at beginning of year 561,351 413,311
------------------- ----------------
Cash and cash equivalents at end of year $ 1,247,602 $ 561,351
------------------- ----------------
------------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
20
<PAGE>
CARDIAC SCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND CAPITALIZATION OF THE COMPANY
Cardiac Science, Inc. (the "Company") was incorporated on May 20, 1991
to develop, manufacture and market software driven non-invasive (non-surgical)
Automatic External Cardioverter Defibrillator ("AECD") devices (the "Products")
to treat persons suffering from or at high risk of life-threatening arrhythmias.
The Products, all of which are still under development, are designed to
continuously monitor, quickly detect and then automatically, through
transmission of electrical energy charges to the patient's heart, terminate the
ventricular tachyarrhythmia (dangerously fast heart rate) and/or ventricular
fibrillation (quivering of the heart following tachyarrhythmia, which usually
results in death).
On April 11, 1997, the Company acquired Innovative Physician Services,
Inc. (d.b.a. Diagnostic Monitoring) ("DM") for 500 shares of the Company's
Series A Convertible Preferred Stock (the "Preferred Stock") plus a non-interest
bearing promissory note in the principal amount of $100,000 that was repaid
during 1998. On September 8, 1997, the Company effectuated a one-for-11.42857413
reverse stock split and the shares of Preferred Stock automatically converted
into 500,000 shares of common stock. All share and per share amounts have been
adjusted to give retroactive effect to the Reverse Split for all periods
presented. The Company sold substantially all of the assets of Diagnostic
Monitoring on December 31, 1998 (see notes 4 and 5).
2. CONTINUED EXISTENCE
Additional capital is needed to fulfill the Company's marketing,
research and product development goals. Through December 31, 1998, the Company
incurred losses of approximately $11 million. Recovery of the Company's assets
is dependent upon future events, the outcome of which is indeterminable.
Additionally, successful completion of the Company's development program and its
transition to attain profitable operations is dependent upon achieving a level
of revenues adequate to support the Company's cost structure. The Company
anticipates that its current cash balance will be sufficient to meet the
Company's cash requirements for at least the next three (3) months. Given the
current applications of cash, the Company expects that further capital additions
will be necessary to sustain growth and viability. In this respect, the Company
is considering a number of alternatives, including additional equity financings
and corporate partnerships. There can be no assurance that any such transactions
will be available at terms acceptable to the Company or that any financing
transaction will not be dilutive to current stockholders or that the Company
will have sufficient working capital to fund future operations. If the Company
is not able to raise additional funds, it may be required to significantly
curtail or cease its operating activities. The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and of its wholly-owned subsidiary, Diagnostic Monitoring. All
inter-company accounts and transactions have been eliminated in consolidation.
The Company accounts for its investment in Biosensor Corporation ("Biosensor")
under the equity method of accounting (see note 4).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to the
December 31, 1998 presentation.
21
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. The Company
maintained approximately $1,011,000 of its cash in a money market fund with one
major financial institution at December 31, 1998.
EQUIPMENT
Property and equipment is carried at cost. Depreciation of equipment is
provided on the straight-line method over estimated useful lives of five years.
Repairs and maintenance are expensed as incurred while renewals or betterments
are capitalized. Upon the sale or retirement of equipment, the accounts are
relieved of the cost and related accumulated depreciation and any resulting gain
or loss is included in operations.
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long lived assets in
accordance with Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
which requires long-lived assets and certain intangibles held and used by the
Company to be reviewed for impairment whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. The recoverability
test is to be performed at the lowest level at which undiscounted net cash flow
can be directly attributable to long-lived assets.
PER SHARE INFORMATION
The Company has adopted SFAS No. 128, EARNINGS PER SHARE. This
statement requires the presentation of basic and diluted earnings per share, as
defined, on the statement of operations for companies whose capital structure
includes convertible securities and options.
Net loss per share as presented in the accompanying statements of
operations is computed based on the weighted average number of common shares
outstanding and subscribed. Shares issuable upon exercise of outstanding stock
options and warrants are not included since the effects would be anti-dilutive.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
REVENUE RECOGNITION
Prior to the sale of substantially all the assets of DM, sales and
related costs of goods sold were recognized when goods were shipped to
customers. The majority of the Company's customers were distributors who sold
goods to third party end users. The Company is not contractually obligated to
repurchase any inventory from distributors.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option. Fair value of the stock
option is determined considering factors such as the exercise price, the
expected life of the option, the current price of the underlying stock, expected
dividends on the stock, and the risk-free interest rate for the expected term of
the option. Under the fair value based method, compensation cost is measured at
the grant date based on the fair value of the award and is recognized over the
service period. Pro forma disclosures are required for entities that elect to
continue to measure compensation cost under the intrinsic method provided by
Accounting Principles Board Opinion No. 25.
INCOME TAXES
The Company follows SFAS No. 109, ACCOUNTING FOR INCOME TAXES, which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences
22
<PAGE>
between the tax basis of assets and liabilities and their financial reporting
amounts at each year-end based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized. The
provision for income taxes represents the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE
On December 31, 1998, the Company acquired a 7.7% voting interest in
Biosensor as consideration for the sale of substantially all of the assets of DM
(see note 5). The Company accounts for this investment using the equity method
of accounting in accordance with Accounting Principles Board Opinion No. 18.
5. DISCONTINUED OPERATIONS
On December 31, 1998, the Company completed the sale of
substantially all of DM's assets to Biosensor, a Minnesota corporation,
pursuant to an Agreement for Purchase and Sale of Assets dated December 31,
1998. The Company received, in consideration of the sale, 1,440,000 shares of
common stock of Biosensor valued at $115,000. In addition, Biosensor assumed
certain liabilities amounting to approximately $107,000. The Company
recognized a loss of $549,618 on the sale of assets, consisting primarily of
the unamortized balance of goodwill, as the net book value of the net assets
sold exceeded the fair value of the consideration received.
The Company has restated its prior financial statements to present
the operating results of DM as a discontinued operation. Included in the loss
from discontinued opereations is amortization of $65,713 and $49,285 for 1998
and 1997, respectively. Operating results from discontinued operations are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
------------- --------------
<S> <C> <C>
Sales $ 1,437,499 $ 1,213,071
Cost of sales 941,732 753,693
Gross profit 495,767 459,378
Operating expenses:
Research and development 20,361 10,182
Selling 373,073 206,826
General and administrative 202,145 285,417
Loss from discontinued operations (99,812) (43,047)
Interest income (expense), net --- ---
Loss from discontinued operations before
provision for income taxes (99,812) (43,047)
Provision for income taxes 1,600 800
Net loss from discontinued operations $ (101,412) $ (43,847)
--------------- ----------------
--------------- ----------------
</TABLE>
6. NOTES PAYABLE
Notes payable consist of the following at December 31, 1998:
The Company entered into a Loan and Security Agreement with a bank
dated November 14, 1997. The agreement provided for a revolving line of credit
up to $200,000 collateralized by substantially all assets of the Company and
includes certain covenants. Through November 14, 1998 the Company had net
borrowings of $125,000. The Company restructured this loan as a term loan with
twelve equal installments of $10,417 plus interest at prime plus 2% payable
beginning in January 1999.
In September 1998, the Company borrowed $100,000 from an investor
which was repaid in January 1999. The loan was non-interest bearing, however
in consideration for the loan the Company issued three-year warrants to
purchase 50,000 shares of common stock at a per share price of $2.00. Such
warrants were assigned a fair value of $44,785 using a Black-Scholes model
and recorded as additional paid-in capital, resulting in a debt discount. The
debt discount was charged to interest expense during the year ended December
31, 1998 (see note 10).
23
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASE
The Company leases office equipment under a capital lease
agreement which expires during fiscal 2003. Future minimum lease payments
under this capital lease obligation for the years ending December 31 are as
follows:
<TABLE>
<S> <C>
1999 $ 5,471
2000 5,471
2001 5,471
2002 5,471
2003 3,192
---------------
25,076
Less amounts representing interest (5,662)
---------------
$ 19,414
---------------
---------------
</TABLE>
OPERATING LEASES
The Company leases office space and equipment under the terms of
operating lease agreements. Total rent expense for the years ended December 31,
1998 and 1997 was $65,082 and $55,664, respectively. The minimum lease payments
under the terms of these lease agreements are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
1999 $ 70,536
2000 25,624
2001 3,168
2002 1,320
-------------
$ 100,648
-------------
-------------
</TABLE>
8. INCOME TAXES
The Company's provision for income tax represents the current state
minimum taxes. There is no deferred income tax provision due to the valuation
allowance.
The temporary differences which give rise to the deferred tax provision
(benefit) consist of the following for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997
--------------- ------------
<S> <C> <C>
Property and equipment $ (3,273) $ (951)
Capitalized costs (124,181) (67,814)
Accrued liabilities (10,429) 3,937
Allowance for doubtful accounts 6,866 (6,866)
Inventory reserve 4,284 (4,284)
State income taxes (272) 272
Tax credit carryforwards 1,247 (68,089)
Net operating loss carryforwards (1,330,753) (639,508)
--------------- ------------
(1,456,511) (783,303)
Valuation allowance 1,456,511 783,303
--------------- ------------
$ 0 $ 0
--------------- ------------
--------------- ------------
</TABLE>
24
<PAGE>
The temporary differences which give rise to deferred income tax assets
and liabilities at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Property and equipment $ 4,980
Capitalized costs 222,583
Accrued liabilities 11,447
State income taxes 816
Tax credit carryforwards 197,367
Net operating loss carryforwards 3,744,142
----------------
4,181,335
Valuation allowance (4,181,335)
$ 0
----------------
----------------
</TABLE>
The provision for income taxes differs from the amount that would
result from applying the federal statutory rate for the year ended December 31,
as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Statutory regular federal income tax rate (34.0%) (34.0%)
Nondeductible expenses 5.0 0.2
State income taxes 0.1 0.1
Tax credits (0.3) (1.0)
Change in valuation allowance 29.3 34.8
-------- --------
0.1% 0.1%
-------- --------
-------- --------
</TABLE>
As of December 31, 1998, the Company has research and experimentation
credit carryforwards for federal and state purposes of approximately $124,000
and $73,000, respectively. These credits begin to expire in 2010 for federal and
state purposes. The Company also has approximately $10,110,000 and $2,875,000 of
federal and state net operating loss carryforwards which will begin to expire in
2007 and 1999, respectively.
The utilization of net operating loss and tax credit carryforwards may
be limited under the provisions of Internal Revenue Code Section 382 and similar
state provisions.
9. STOCK OPTIONS
1997 STOCK OPTION/STOCK ISSUANCE PLAN
In May 1998, the Company's 1997 Stock Option/Stock Issuance Plan (the
"1997 Plan") was approved by stockholders at the Annual Meeting of Stockholders.
All outstanding stock options under the Company's 1991 Stock Option Plan and
1993 Stock Option Plan were exchanged for stock options in the 1997 Plan. The
1997 Plan provides for the granting of stock options intended to qualify as
incentive stock options and stock options not intended to qualify as incentive
stock options ("non-statutory options") to employees of the Company, including
officers, and non-statutory stock options to employees, including officers and
directors of the Company, as well as to certain consultants and advisors.
The 1997 Plan is administered by a Compensation Committee (the
"Committee") which is comprised of three members appointed by the Company's
Board of Directors. The Committee may grant options to any officers, directors
or key employees of the Company or its subsidiaries and to any other individuals
whose participation in the 1997 Plan the Committee determines is in the
Company's best interest. Up to 705,000 shares of common stock may be issued
under the 1997 Plan, subject to adjustment upon the occurrence of certain
events, including, but not limited to, stock dividends, stock splits,
combinations, mergers, consolidations, reorganizations, reclassifications,
exchanges, or other capital adjustments. The 1997 Plan limits to $100,000 the
fair market value (determined at the time the option is granted) of the common
stock with respect to which incentive stock options are first exercisable by any
individual employee during any calendar year.
The 1997 Plan incorporates the federal tax law requirements for
incentive stock options. Among other such requirements, the per share exercise
price of an incentive stock option granted under the 1997 Plan must not be less
than 100% of the fair market value of a share of the common stock on the date of
grant and the option may not be exercised more than 10 years after its grant
date. If an incentive stock option is granted to an employee owning more than
10% of the total combined voting power of all classes of stock of the Company,
the exercise price may not be less than 110% of such fair
25
<PAGE>
market value and the option may not be exercised more than five years after
its grant date. Option grants under the 1997 Plan generally vest over a
period of four years.
Outstanding options may be terminated or accelerated in the event of
certain corporate acquisitions or other change of control events. An option
granted under the 1997 Plan will not be assignable or transferable by the
grantee other than by will or the laws of inheritance, except that a
non-statutory option will be transferable by the grantee pursuant to a qualified
domestic relations order as defined in the Code, Title I of the Employee
Retirement Income Security Act or the rules thereunder. Other vesting,
termination and payment provisions for incentive and non-statutory options may
be determined by the Committee.
Stock option activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ -------------
<S> <C> <C>
Outstanding, beginning of year 33,688 148,315
Granted 739,892 ---
Exercised --- ---
Canceled (68,688) (114,627)
------------ -------------
Outstanding, end of year 704,892 33,688
------------ -------------
------------ -------------
Exercisable, end of year 134,946 24,588
------------ -------------
------------ -------------
As of the end of the year:
Option price per share $1.88 - $2.00 $2.97 - $ 21.43
Weighted average option price
per share $1.99 $4.17
</TABLE>
At December 31, 1998 the number of shares reserved and available for
issuance under the 1997 Plan was 108. The weighted average remaining contractual
life as of December 31, 1998 is approximately 108 months.
The Board of Directors approved an amendment to the 1997 Plan which
increases the number of shares reserved and available for issuance under the
1997 Plan by 600,000 shares. This amendment to the 1997 Plan is subject to
stockholder approval at the Annual Meeting of Stockholders to be held in May
1999.
For stock options granted in 1998 to non-employees (consultants), the
Company has recognized compensation cost of $17,862 for the year ended December
31, 1998 using a Black-Scholes option pricing model.
PRO FORMA EFFECT OF STOCK-BASED COMPENSATION
In calculating pro forma information as required by SFAS No. 123, the
fair value was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions for the options on the Company's
common stock for the year ended December 31, 1998: risk free interest rate with
a range of 4.1% to 5.9%; dividend yield of 0%; volatility of the expected market
prices of the Company's common stock of 61.4%; and expected life of the options
of 4 years. There were no option grants in the year ended December 31, 1997.
For purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per share information):
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
---------- ----------
<S> <C> <C>
Pro forma net loss $ (4,573) $ (1,837)
Pro forma net loss per share $ (0.84) $ (0.47)
</TABLE>
26
<PAGE>
10. WARRANTS
Historically the Company has granted warrants in connection with fund
raising activities and as consideration for certain services. Warrants to
purchase 1,741,216 shares of common stock were outstanding and exercisable at
December 31, 1998. A summary follows:
<TABLE>
<CAPTION>
Number of Per Share Exercise Expiration
Grant Date Warrants Price Date
---------- ----------- ------------------ ----------
<S> <C> <C> <C>
1992 61,216 $4.57 2002
1994 875,000 $0.01 2004
1996 17,500 $2.00 2001
1997 100,000 $2.25 2007
1998 487,500 $2.00-$2.50 2001
1998 200,000 $3.00 1999
-----------
Total 1,741,216
-----------
-----------
</TABLE>
The Company granted 437,500 warrants in connection with a private
placement in 1998, 200,000 warrants to Medtronic-Physio Control pursuant to a
Distribution and License Agreement dated December 2 (Note 11), 1998, and
50,000 warrants in connection with a short term loan in 1998 (Note 6) for a
total of 687,500 warrants granted in 1998. These warrants were assigned a
fair value of $433,416 determined using a Black-Scholes model. Of this
amount, $339,251 was charged to equity as a cost of raising capital, $49,380
was recorded as an other asset and will be amortized over the five year life
of the Distribution and License Agreement and $44,785 was charged to interest
expense.
11. DISTRIBUTION AND LICENSE AGREEMENT
In December 1998, Cardiac Science entered into a five-year exclusive
distribution and licensing agreement with Medtronic Physio-Control, a
subsidiary of Medtronic Inc. Under the agreement, Medtronic Physio-Control
will market the Powerheart on an exclusive basis in the United States and
Canada. Medtronic Physio-Control also obtained a license to the AECD
Technology for integration into their in-hospital LIFEPAK-Registered
Trademark- defibrillator-monitor products. This license is non-exclusive
outside of the United States. The agreement also provides for Cardiac Science
to share profits from the sale of proprietary disposable defibrillator pads
that are used with the Powerheart as well as Physio-Control LIFEPAK
defibrillators that include the AECD Technology.
Pursuant to the agreement, Medtronic Physio-Control was granted
warrants to purchase 200,000 shares of Cardiac Science common stock at $3.00
per share. These warrants will expire in November 1999. Medtronic
Physio-Control also will receive warrants to purchase an additional 200,000
shares of common stock at $3.00 per share upon the sale of the 1,000th unit
by Medtronic Physio-Control.
27
<PAGE>
12. SUPPLEMENTAL CASH FLOW DISCLOSURES:
<TABLE>
<CAPTION>
1998 1997
------------ ----------------
<S> <C> <C>
Cash paid during the year for:
Income taxes $ 1,600 $ 1,600
Interest $ 27,038 $ 10,133
Supplemental schedule of noncash investing
and financing activities:
Conversion of preferred stock into common stock $ 600,000
Exchange of common stock subscribed for
Common stock $ 268,000
Purchase of equipment with a capital lease $ 19,414
Costs of equity issuances not yet paid $ 261,335
Costs of equity issuances associated with fair
value of warrants issued $ 339,251
Acquisition of Diagnostic Monitoring:
Fair value of noncash assets acquired $ 282,154
Liabilities assumed and incurred (382,515)
Intangible assets 657,138
Preferred stock issued (600,000)
-----------------
Cash acquired $ (43,223)
-----------------
-----------------
Sale of net assets of Diagnostic Monitoring:
Fair value of assets sold $ (222,172)
Liabilities assumed by purchaser 107,122
Fair value of stock received 115,000
-----------
Cash received $ -0-
-----------
-----------
</TABLE>
28
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by this item concerning the Company's
directors and executive officers is incorporated by reference from the
information to be provided under the caption "Election of Directors"
in the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held in 1999 (the "Proxy Statement").
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the information to be provided under the caption "Compensation of Executive
Officers" in the Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the information to be provided under the caption "Common Stock Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the information to be provided under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement.
ITEM 13 EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
1. Financial Statements Page
Report of Independent Accountants 16
Consolidated Balance Sheet at December 31, 1998 17
Consolidated Statements of Operations for the years ended 18
December 31, 1998 and 1997
Consolidated Statement of Stockholders' Equity 19
for the years ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended 20
December 31, 1998 and 1997
Notes to Consolidated Financial Statements 21
</TABLE>
(b) REPORTS ON FORM 8-K
The Company filed three reports on Form 8-K with the Commission during
the quarter ended December 31, 1998. Forms 8-K dated October 13, 1998 and
November 2, 1998 related to the sale of equity securities. Form 8-K dated
December 14, 1998 related to a five-year exclusive distribution and license
agreement entered into with Medtronic Physio-Control.
29
<PAGE>
(c) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Certificate of Incorporation (1)
3.2 Bylaws (1)
4.1 Warrant Certificates of A.R. Baron, Breslow & Walker, Howard K. Cooper, J. Donald
Hill, Fran Daniels and Medstone, Inc. (2)
10.1 Facility Lease dated May 1, 1997 for 1176 Main St, Bldg C, Irvine, CA(7)
10.2 1997 Stock Option/Stock Issuance Plan(6)
10.3 Agreement and Plan of Merger, dated April 9, 1997, by and among the Company,
Raymond W. Cohen, Innovative Physicians Service, Inc. d/b/a Diagnostic Monitoring
and CSI Merging Corporation(4)
10.4 Promissory Note, dated April 9, 1997 in principal amount of $100,000 payable to
Raymond W. Cohen.(4)
10.5 Employment Agreement, dated May 1, 1998 between the Company and Raymond Cohen
10.6 Employment Agreement, dated September 14, 1998 between the Company and Michael Gioffredi
10.7 Employment Agreement, dated July 1, 1998 between the Company and Dongping Lin
10.8 Employment Agreement, dated May 1, 1998 between the Company and Jeffery Blanton
10.9 Employment Agreement, dated May 1, 1998 between the Company and Brett L. Scott
10.10 Amended and Restated Loan and Security Agreement with Silicon Valley Bank, dated December 30, 1998
10.11 Development and Manufacturing Agreement with Zevex, Inc. dated August 21, 1998
10.12 Agreement for Purchase and Sale of Assets Between Innovative Physician Services, Inc.
(DBA Diagnostic Monitoring), and Biosensor Corporation, dated December 31, 1998
10.13+ Distribution and License Agreement with Medtronic Physio-Control Corporation dated December 2, 1998
23 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to Exhibits 3.1 and 3.2 to the Company's
Application for Registration on Form 10 dated October 2, 1991.
(2) Incorporated by reference to Exhibit 4.1 to the Company's Form 10-K for the
year ended December 31, 1993.
(3) Incorporated by reference to Exhibit 10.1 to Amendment No. 1, dated April
18, 1992, to Application For Registration on Form 10.
(4) Incorporated by reference to Exhibit 10.8 to Form 10-K for the year ended
December 31, 1996.
(5) Incorporated by reference to Exhibit 10.10 to Company's Form 10-QSB\A
No.1 for the quarter ended June 30, 1998
(6) Incorporated by reference to the Company's Definitive Proxy Statement for
the Annual Meeting of Stockholders held on May 12, 1998
(7) Incorporated by reference to Exhibit 10.4 to Form 10-K for the year ended
December 31, 1997.
+ Portions have been omitted pursuant to a request for confidential treatment
30
<PAGE>
SIGNATURES
IN ACCORDANCE WITH SECTION 13 OR 15(d) OF THE EXCHANGE ACT , THE
REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED.
CARDIAC SCIENCE, INC.
By: /s/ RAYMOND W. COHEN
---------------------------------
Raymond W. Cohen
President & Chief Executive Officer
By: /s/ BRETT L. SCOTT
---------------------------------
Brett L. Scott
Chief Financial Officer &
Secretary (Principal Financial and
Accounting Officer)
Date: March 30, 1999
IN ACCORDANCE WITH THE EXCHANGE ACT, THIS REPORT HAS BEEN SIGNED BELOW
BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ RAYMOND W. COHEN Director March 30, 1999
- ------------------------------------
Raymond W. Cohen
/s/ PAUL QUADROS Director March 30, 1999
- ------------------------------------
Paul Quadros
/s/ PETER CROSBY Director March 30, 1999
- ------------------------------------
Peter Crosby
/s/ HOWARD EVERS Director March 30, 1999
- ------------------------------------
Howard Evers
</TABLE>
31
<PAGE>
CARDIAC SCIENCE, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is dated as of May 1, 1998, by
and between RAYMOND W. COHEN ("EMPLOYEE") and CARDIAC SCIENCE INC., a Delaware
corporation (the "COMPANY").
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall have a term of twelve (12) months (the "ORIGINAL TERM"). This
Agreement may be terminated by either party, with or without cause, on ninety
(90) days' written notice to the other party. This Agreement shall continue
after the end of the Original Term unless either party shall give the other
written notice of termination. The Original Term and any 12 month period
commencing immediately after the end of any Term shall each be referred to as a
"TERM."
2. DUTIES.
(a) POSITION. Employee shall be employed as President & Chief
Executive Officer, and as such will have responsibility for the duties typically
associated with such positions and will report to the Company's Board of
Directors.
(b) OBLIGATIONS TO THE COMPANY. Employee agrees to the best of his
ability and experience that he will perform all of the duties and obligations
reasonably required of and from Employee pursuant to the express and implicit
terms hereof. During the term of Employee's employment relationship with the
Company, Employee further agrees that he will devote his business time and
attention to the business of the Company.
3. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as provided in
this Agreement. The rights and duties created by this Section 3 may not be
modified in any way except by a written agreement executed by the Company.
4. COMPENSATION. For the duties and services to be performed by Employee
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) SALARY. Employee shall receive a monthly salary of $10,000.00
for the month of May 1998, and commencing June 1, 1998 for each month thereafter
shall receive a monthly salary of $15,000. Employee's monthly salary will be
payable pursuant to the Company's normal payroll practices. In the event this
Agreement is extended beyond the Original Term, the base salary shall be
reviewed at the time of such extension by the Board of Directors, its
Compensation Committee of the Company, and any increase will be effective as of
the date determined appropriate by the Board, its Compensation Committee.
<PAGE>
(b) BONUSES. Employee's entitlement to incentive bonuses from the
Company is discretionary and shall be determined by the Board, its Compensation
Committee or the Chief Executive Officer of the Company in good faith based upon
the extent to which Employee's individual performance objectives and the
Company's profitability objectives and other financial and non-financial
objectives are achieved during the applicable bonus period. In the event of
Employee's Involuntary Termination (as defined below), death or Disability (as
defined below) during the term of this Agreement, the Company shall pay to
Employee or Employee's estate a pro rata portion of Employee's target bonus for
such year based on the portion of the year Employee worked for the Company.
(c) ADDITIONAL BENEFITS. Employee will be eligible to participate in
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will receive an automobile allowance of
$500 per month. Employee will receive four (4) weeks paid vacation, which shall
be taken at such times as are consistent with the needs of the Company and will
be eligible for sick leave in accordance with the policies in effect during the
term of this Agreement and will receive such other benefits as the Company
generally provides to its other employees of comparable position and experience.
(d) STOCK OPTIONS AND OTHER INCENTIVE PROGRAMS. Employee shall be
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.
REIMBURSEMENT OF EXPENSES. Employee shall be authorized to incur on
behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies.
5. CONFIDENTIAL INFORMATION
5.1 Employee acknowledges that, because of his employment hereunder,
he will be in a confidential relationship with the Company and will have access
to confidential information and trade secrets of the Company. Employee
acknowledges and agrees that the following constitutes confidential and/or trade
secret information belonging exclusively to Company (collectively "Confidential
Information"):
(a) all information related to customers including, without
limitation, customer lists, the identities of existing, past or prospective
customers, prices charged or proposed to be charged to customers, customer
contacts, special customer requirements and all related information;
(b) marketing plans, materials and techniques; and
(c) all know-how, devices, compilations of information, copyrightable
material and technology and technical information, relating to the business of
the Company.
<PAGE>
5.2 Employee agrees that except in the limited performance of his
duties under this Agreement, Employee shall not use for his own benefit or
disclose to any third-party Confidential Information acquired by reason of his
employment under this Agreement or his former status as officer of the Company.
5.3 This Section 5 shall survive termination of this Agreement.
6. COMPANY PROPERTY.
6.1 Any patents, inventions, discoveries, applications or processes,
software and computer programs devised, planned, applied, created, discovered or
invented by Employee in the course of his employment under this Agreement and
which pertain to any aspect of the business of the Company, or its subsidiaries,
affiliates or customers, shall be the sole and absolute property of the Company,
and Employee shall make prompt report thereof to the Company and promptly
execute any and all documents reasonably requested to assure the Company the
full and complete ownership thereof.
6.2 All records, files, lists, drawings, documents, equipment and
similar items relating to the Company's business which Employee shall prepare or
receive from the Company shall remain the Company's sole and exclusive property.
Upon termination of this Agreement, Employee shall return promptly to the
Company all property of the Company in his possession and Employee represents
that he will not copy, or cause to be copied, printed, summarized or compiled,
any software, documents or other materials originating with and/or belonging to
the Company. Employee further represents that he will not retain in his
possession any such software, documents or other materials in machine or human
readable forms.
6.3 This Section 6 shall survive termination of this Agreement.
7. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
(a) TERMINATION OF EMPLOYMENT. Employee's employment under this
Agreement shall terminate immediately upon a Change of Control (as defined
below) and may be terminated during the Original Term (or any subsequent Term)
upon the occurrence of any of the following events:
(i) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his employment with
the Company voluntarily ("VOLUNTARY TERMINATION");
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any reason or no reason ("TERMINATION WITHOUT
CAUSE");
<PAGE>
(iii) A change in Employee's status such that a Constructive
Termination (as defined below) has occurred;
(iv) The Company's reasonable, good faith determination that it
is terminating Employee for Cause (as defined below) ("TERMINATION FOR CAUSE");
or
(v) Following Employee's death or Disability.
(b) SEVERANCE BENEFITS. Employee shall be entitled to receive
severance benefits upon termination of employment only as set forth in this
Section 7(b):
(i) VOLUNTARY TERMINATION. If Employee's employment terminates
by Voluntary Termination, then Employee shall not be entitled to receive payment
of any severance benefits. Employee will receive payment for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.
(ii) INVOLUNTARY TERMINATION. If Employee's employment
terminates due to Termination Without Cause or Constructive Termination
(collectively, "INVOLUNTARY TERMINATION"), Employee will be entitled to receive
payment of severance benefits equal to Employee's regular monthly salary through
12 months following the date of such Involuntary Termination (the "SEVERANCE
PERIOD"). Such payment shall be made ratably over the Severance Period
according to the Company's standard payroll schedule. On the date of such
Involuntary Termination, Employee shall also receive the pro rata portion of
Employee's target bonus for such then current Term, based on the portion of the
current Term that Employee has worked. Health insurance benefits with the same
coverage provided to Employee prior to the termination (e.g. medical, dental,
optical, mental health) and in all other respects significantly comparable to
those in place immediately prior to the termination will be provided at the
Company's cost over the Severance Period. Any unvested stock options or shares
of restricted stock held by Employee as of the date of Employee's termination of
employment shall continue to vest through the end of the Severance Period
according to the vesting schedule set forth in any agreement between Employee
and the Company governing the issuance to Employee of such securities.
(iii) TERMINATION FOR CAUSE. If Employee's employment is
terminated for Cause, then Employee shall not be entitled to receive payment
of any severance benefits. Employee will receive payment for all salary and
unpaid vacation accrued as of the date of Employee's termination of
employment and Employee's benefits will be continued under the Company's then
existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination and in accordance with
applicable law.
(iv) TERMINATION BY REASON OF DEATH OR DISABILITY. In the event
that Employee's employment with the Company terminates as a result of Employee's
death or Disability (as defined below), Employee or Employee's estate or
representative will receive all salary and unpaid vacation accrued as of the
date of Employee's death or Disability and any other benefits payable under the
Company's then existing benefit plans and policies in
<PAGE>
accordance with such plans and policies in effect on the date of death or
Disability and in accordance with applicable law. In addition, Employee's
estate or representative shall also receive the pro rata portion of
Employee's target bonus for the current Term, based on the portion of the
current Term that Employee has worked.
(vi) CHANGE OF CONTROL. Notwithstanding the preceding clauses
of this Section 7(b), upon a Change of Control, Employee will be entitled to
receive payment of severance benefits equal to Employee's regular monthly salary
for a period of twelve (12) months following said Change of Control (the "CHANGE
OF CONTROL SEVERANCE PERIOD"). Such payment shall be made ratably over the
Change of Control Severance Period according to the Company's standard payroll
schedule. On the date of such Change of Control, Employee shall also receive the
pro rata portion of Employee's target bonus for the current Term, based on the
portion of the current Term that Employee has worked. Health insurance benefits
with the same coverage provided to Employee prior to the Change of Control (e.g.
medical, dental, optical, mental health) and in all other respects significantly
comparable to those in place immediately prior to the Change of Control will be
provided at the Company's cost over the Change of Control Severance Period. Any
unvested stock options or shares of restricted stock held by Employee as of the
date of Employee's termination of employment shall continue to vest through the
end of the Change of Control Severance Period according to the vesting schedule
set forth in any agreement between Employee and the Company governing the
issuance to Employee of such securities.
(v) NONCOMPETE. If Employee shall at any time during a
Severance Period or a Change of Control Severance Period, act as an owner
(other than a shareholder in a publicly traded company) or employee of a
business that directly competes with the business conducted by the Company as
conducted on the date of Employee's termination of employment, then,
effective upon Employee's commencement of such activities as a competeing
owner or employee, Employee shall not receive any severance payment or other
benefits under Sections 7(b)(ii) or (v) beyond what he would have received
had he been Terminated for Cause.
8. DEFINITIONS. For purposes of this Agreement,
(a) "CAUSE" for Employee's termination will exist at any time after
the happening of one or more of the following events:
(i) Employee's willful misconduct or gross negligence in
performance of his duties hereunder, including Employee's refusal to comply in
any material respect with the legal directives of the Company's Board of
Directors so long as such directives are not inconsistent with the Employee's
position and duties, and such refusal to comply is not remedied within fifteen
(15) working days after written notice from the Company, which written notice
shall state that failure to remedy such conduct may result in Termination for
Cause;
(ii) Dishonest or fraudulent conduct related and materially
adverse to the activities of the Company, a deliberate attempt to do a material
injury to the Company, or conduct that materially discredits the Company or is
materially detrimental to the reputation of the Company, including conviction of
a felony; or
<PAGE>
(iii) Employee's knowing and intentional material breach
(which can not be cured) of any element of the Company's Confidential
Information and Invention Assignment Agreement, including without limitation,
Employee's theft or other misappropriation of the Company's proprietary
information.
(b) "CONSTRUCTIVE TERMINATION" shall be deemed to occur if (i)(A)
there is a significant reduction in Employee's duties, positions or
responsibilities causing such position to be of reduced stature or
responsibility, (B) a reduction in Employee's base compensation or benefits, or
(C) Employee's refusal to relocate to a facility or location more than 30 miles
from the Company's current location; and (ii) within the 60-day period
immediately following such material change or reduction Employee elects to
terminate his employment voluntarily.
(c) "DISABILITY" shall mean that Employee has been unable to perform
his duties hereunder as the result of his incapacity due to physical or mental
illness, and such inability, which continues for at least 90 consecutive
calendar days or 120 calendar days during any consecutive twelve-month period,
if shorter, after its commencement, is determined to be total and permanent by
an independent and impartial physician selected by the Company and its insurers
and acceptable to Employee or to Employee's legal representative (with such
agreement on acceptability not to be unreasonably withheld).
(d) "CHANGE OF CONTROL" shall mean the occurrence of any of the
following events: (i) an acquisition of the Company by another entity by means
of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but excluding any merger
effected exclusively for the purpose of changing the domicile of the Company),
or (ii) a sale of all or substantially all of the assets of the Company
(collectively, a "MERGER"), so long as in either case (x) the Company's
stockholders of record immediately prior to such Merger will, immediately after
such Merger, hold less than 50% of the voting power of the surviving or
acquiring entity, or (y) the Company's stockholders of record immediately prior
to such Merger will, immediately after such Merger, hold less than 60% of the
voting power of the surviving or acquiring entity AND a majority of the members
of the Board of Directors of the surviving or acquiring entity immediately after
such Merger were NOT members of the Board of Directors of the Company
immediately prior to such Merger.
Notwithstanding the above, in the event that (i) Employee's employment is
terminated by the Company or a successor to the Company other than for Cause (as
defined below), or (ii) Employee's job duties, responsibilities and requirements
are materially reduced or changed such that they are inconsistent with
Employee's prior duties, responsibilities and requirements, in either case in
connection with, or as a result of, a Change of Control, 100% of the option that
has not yet become exercisable shall become exercisable on the effective date of
such termination, reduction or change.
9. SUCCESSORS. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to
<PAGE>
the same extent as the Company would be required to perform such obligations
in the absence of a succession. The terms of this Agreement and all of
Employee's rights hereunder shall inure to the benefit of, and be enforceable
by, Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that Employee may
receive from any other source.
(b) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties.
(c) SOLE AGREEMENT. This Agreement, including any Exhibits hereto,
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or 48 hours after being deposited in the U.S. mail as certified
or registered mail with postage prepaid, if such notice is addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(e) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(f) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(g) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
The parties have executed this Agreement the date first written above.
CARDIAC SCIENCE INC.
By:
-----------------------------
Title:
--------------------------
Address: 1176 Main Street
Building "C"
Irvine, CA 92614
Fax: (714) 587-0357
--------------------------------
Raymond W. Cohen
Address: 1026 Timberline Lane
Santa Ana, CA 92705
Fax: (714) 568-1771
<PAGE>
CARDIAC SCIENCE, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is dated as of September 14,
1998 by and between MICHAEL GIOFFREDI ("EMPLOYEE") and CARDIAC SCIENCE INC., a
Delaware corporation (the "COMPANY").
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall have a term of twelve (12) months (the "ORIGINAL TERM"). This
Agreement may be terminated by either party, with or without cause, on fifteen
(15) days' written notice to the other party. This Agreement shall continue
after the end of the Original Term unless either party shall give the other
written notice of termination. The Original Term and any 12 month period
commencing immediately after the end of any Term shall each be referred to as a
"TERM."
2. DUTIES.
(a) POSITION. Employee shall be employed as Vice President, Sales &
Marketing, and as such will have responsibility for the duties typically
associated with such positions and will report to the Chief Executive Officer.
(b) OBLIGATIONS TO THE COMPANY. Employee agrees to the best of his
ability and experience that he will perform all of the duties and obligations
reasonably required of and from Employee pursuant to the express and implicit
terms hereof. During the term of Employee's employment relationship with the
Company, Employee further agrees that he will devote his business time and
attention to the business of the Company.
3. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as provided in
this Agreement. The rights and duties created by this Section 3 may not be
modified in any way except by a written agreement executed by the Company.
4. COMPENSATION. For the duties and services to be performed by Employee
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) SALARY. Employee shall receive a monthly salary of $9,000.00 per
month and a commission of 1.5% on gross sales of Cardiac Scence's AECD
technology and products payable monthly on a W-2 basis. Employee's monthly
salary will be payable pursuant to the Company's normal payroll practices. In
the event this Agreement is extended beyond the Original Term, the base salary
shall be reviewed at the time of such extension by the Board of Directors, its
Compensation Committee or the Chief Executive Officer of the Company, and any
<PAGE>
increase will be effective as of the date determined appropriate by the
Board, its Compensation Committee or the Chief Executive Officer.
(b) BONUSES. Employee will be eligible to receive an incentive bonus
of $25,000 from the Company upon successful completion of certain marketing
objectives to be determined. Payment of said bonus amount will due and payable
at the end of the first year's employment term.
If Employee's employment terminates by "voluntary termination" the
Employee shall not be entitled to receive payment of any bonus. In the event of
Employee's Involuntary Termination (as defined below), death or Disability (as
defined below) or a Change of Control (as defined below) during the term of this
Agreement, the Company shall pay to Employee or Employee's estate a pro rata
portion of Employee's target bonus for such year based on the portion of the
year Employee worked for the Company.
(c) ADDITIONAL BENEFITS. Employee will be eligible to participate in
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will receive two (2) weeks paid
vacation and will be eligible for sick leave in accordance with the policies in
effect during the term of this Agreement and will receive such other benefits as
the Company generally provides to its other employees of comparable position and
experience.
(d) STOCK OPTIONS AND OTHER INCENTIVE PROGRAMS. Employee shall be
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company. Employee shall be granted
50,000 stock options under the terms and conditions of the 1997 Stock Option.
(e) REIMBURSEMENT OF EXPENSES. Employee shall be authorized to incur
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies. During the months September through December, these
expenses include hotel/housing costs in the Irvine area, weekly flights to and
from Park City, UT, and related parking/transportation expenses. Cardiac Science
agrees to pay for basic reasonable and customary moving costs associated with
your relocation from Park City, UT to Southern CA.
5. CONFIDENTIAL INFORMATION
5.1 Employee acknowledges that, because of his employment hereunder,
he will be in a confidential relationship with the Company and will have access
to confidential information and trade secrets of the Company. Employee
acknowledges and agrees that the following constitutes confidential and/or trade
secret information belonging exclusively to Company (collectively "Confidential
Information"):
<PAGE>
(a) all information related to customers including, without
limitation, customer lists, the identities of existing, past or prospective
customers, prices charged or proposed to be charged to customers, customer
contacts, special customer requirements and all related information;
(b) marketing plans, materials and techniques; and
(c) all know-how, devices, compilations of information, copyrightable
material and technology and technical information, relating to the business of
the Company.
5.2 Employee agrees that except in the limited performance of his
duties under this Agreement, Employee shall not use for his own benefit or
disclose to any third-party Confidential Information acquired by reason of his
employment under this Agreement or his former status as officer of the Company.
5.3 This Section 5 shall survive termination of this Agreement.
6. COMPANY PROPERTY.
6.1 Any patents, inventions, discoveries, applications or processes,
software and computer programs devised, planned, applied, created, discovered or
invented by Employee in the course of his employment under this Agreement and
which pertain to any aspect of the business of the Company, or its subsidiaries,
affiliates or customers, shall be the sole and absolute property of the Company,
and Employee shall make prompt report thereof to the Company and promptly
execute any and all documents reasonably requested to assure the Company the
full and complete ownership thereof.
6.2 All records, files, lists, drawings, documents, equipment and
similar items relating to the Company's business which Employee shall prepare or
receive from the Company shall remain the Company's sole and exclusive property.
Upon termination of this Agreement, Employee shall return promptly to the
Company all property of the Company in his possession and Employee represents
that he will not copy, or cause to be copied, printed, summarized or compiled,
any software, documents or other materials originating with and/or belonging to
the Company. Employee further represents that he will not retain in his
possession any such software, documents or other materials in machine or human
readable forms.
6.3 This Section 6 shall survive termination of this Agreement.
7. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
(a) TERMINATION OF EMPLOYMENT. Employee's employment under this
Agreement shall terminate immediately upon a Change of Control (as defined
below) and may be terminated during the Original Term (or any subsequent Term)
upon the occurrence of any of the following events:
<PAGE>
(i) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his employment with
the Company voluntarily ("VOLUNTARY TERMINATION");
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any reason or no reason ("TERMINATION WITHOUT
CAUSE");
(iii) A change in Employee's status such that a Constructive
Termination (as defined below) has occurred;
(iv) The Company's reasonable, good faith determination that it
is terminating Employee for Cause (as defined below) ("TERMINATION FOR CAUSE");
or
(v) Following Employee's death or Disability.
(b) SEVERANCE BENEFITS. Employee shall be entitled to receive
severance benefits upon termination of employment only as set forth in this
Section 7(b):
(i) VOLUNTARY TERMINATION. If Employee's employment terminates
by Voluntary Termination, then Employee shall not be entitled to receive payment
of any severance benefits. Employee will receive payment for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.
(ii) INVOLUNTARY TERMINATION. If Employee's employment
terminates due to Termination Without Cause or Constructive Termination
(collectively, "INVOLUNTARY TERMINATION"), Employee will be entitled to receive
payment of severance benefits equal to Employee's regular monthly salary through
the 3 months (90 days) following the date of such Involuntary Termination (the
"SEVERANCE PERIOD"). Such payment shall be made ratably over the Severance
Period according to the Company's standard payroll schedule. On the date of such
Involuntary Termination, Employee shall also receive the pro rata portion of
Employee's target bonus for such then current Term, based on the portion of the
current Term that Employee has worked. Health insurance benefits with the same
coverage provided to Employee prior to the termination (e.g. medical, dental,
optical, mental health) and in all other respects significantly comparable to
those in place immediately prior to the termination will be provided at the
Company's cost over the Severance Period. Any unvested stock options or shares
of restricted stock held by Employee as of the date of Employee's termination of
employment shall continue to vest through the end of the Severance Period
according to the vesting schedule set forth in any agreement between Employee
and the Company governing the issuance to Employee of such securities.
(iii) TERMINATION FOR CAUSE. If Employee's employment is
terminated for Cause, then Employee shall not be entitled to receive payment
of any severance benefits. Employee will receive payment for all salary and
unpaid vacation accrued as of the date of
<PAGE>
Employee's termination of employment and Employee's benefits will be
continued under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination
and in accordance with applicable law.
(iv) TERMINATION BY REASON OF DEATH OR DISABILITY. In the event
that Employee's employment with the Company terminates as a result of Employee's
death or Disability (as defined below), Employee or Employee's estate or
representative will receive all salary and unpaid vacation accrued as of the
date of Employee's death or Disability and any other benefits payable under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of death or Disability and in accordance with
applicable law. In addition, Employee's estate or representative shall also
receive the pro rata portion of Employee's target bonus for the current Term,
based on the portion of the current Term that Employee has worked.
(v) CHANGE OF CONTROL. Notwithstanding the preceding clauses
of this Section 7(b), upon a Change of Control, Employee will be entitled to
receive payment of severance benefits equal to Employee's regular monthly salary
for a period of three (3) months following said Change of Control. (the "CHANGE
OF CONTROL SEVERANCE PERIOD"). Such payment shall be made ratably over the
Change of Control Severance Period according to the Company's standard payroll
schedule. On the date of such Change of Control, Employee shall also receive the
pro rata portion of Employee's target bonus for the current Term, based on the
portion of the current Term that Employee has worked. Health insurance benefits
with the same coverage provided to Employee prior to the Change of Control (e.g.
medical, dental, optical, mental health) and in all other respects significantly
comparable to those in place immediately prior to the Change of Control will be
provided at the Company's cost over the Change of Control Severance Period. Any
unvested stock options or shares of restricted stock held by Employee as of the
date of Employee's termination of employment shall continue to vest through the
end of the Change of Control Severance Period according to the vesting schedule
set forth in any agreement between Employee and the Company governing the
issuance to Employee of such securities.
(vi) NONCOMPETE. If Employee shall at any time during a
Severance Period or a Change of Control Severance Period, act as an owner (other
than a shareholder in a publicly traded company) or employee of a business that
directly competes with the business conducted by the Company as conducted on the
date of Employee's termination of employment, then, effective upon Employee's
commencement of such activities as a competeing owner or employee, Employee
shall not receive any severance payment or other benefits under Sections
7(b)(ii) or (v) beyond what he would have received had he been Terminated for
Cause.
8. DEFINITIONS. For purposes of this Agreement,
(a) "CAUSE" for Employee's termination will exist at any time after
the happening of one or more of the following events:
(i) Employee's willful misconduct or gross negligence in
performance of his duties hereunder, including Employee's refusal to comply in
any material respect with the
<PAGE>
legal directives of the Company's Board of Directors so long as such
directives are not inconsistent with the Employee's position and duties, and
such refusal to comply is not remedied within fifteen (15) working days after
written notice from the Company, which written notice shall state that
failure to remedy such conduct may result in Termination for Cause;
(ii) Dishonest or fraudulent conduct related and materially
adverse to the activities of the Company, a deliberate attempt to do a material
injury to the Company, or conduct that materially discredits the Company or is
materially detrimental to the reputation of the Company, including conviction of
a felony; or
(iii) Employee's knowing and intentional material breach
(which can not be cured) of any element of the Company's Confidential
Information and Invention Assignment Agreement, including without limitation,
Employee's theft or other misappropriation of the Company's proprietary
information.
(b) "CONSTRUCTIVE TERMINATION" shall be deemed to occur if (i)(A)
there is a significant reduction in Employee's duties, positions or
responsibilities causing such position to be of reduced stature or
responsibility, (B) a reduction in Employee's base compensation or benefits, or
(C) Employee's refusal to relocate to a facility or location more than 30 miles
from the Company's current location; and (ii) within the 60-day period
immediately following such material change or reduction Employee elects to
terminate his employment voluntarily.
(c) "DISABILITY" shall mean that Employee has been unable to perform
his duties hereunder as the result of his incapacity due to physical or mental
illness, and such inability, which continues for at least 60 consecutive
calendar days or 90 calendar days during any consecutive twelve-month period, if
shorter, after its commencement, is determined to be total and permanent by an
independent and impartial physician selected by the Company and its insurers and
acceptable to Employee or to Employee's legal representative (with such
agreement on acceptability not to be unreasonably withheld).
(d) "CHANGE OF CONTROL" shall mean the occurrence of any of the
following events: (i) an acquisition of the Company by another entity by means
of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but excluding any merger
effected exclusively for the purpose of changing the domicile of the Company),
or (ii) a sale of all or substantially all of the assets of the Company
(collectively, a "MERGER"), so long as in either case (x) the Company's
stockholders of record immediately prior to such Merger will, immediately after
such Merger, hold less than 50% of the voting power of the surviving or
acquiring entity, or (y) the Company's stockholders of record immediately prior
to such Merger will, immediately after such Merger, hold less than 60% of the
voting power of the surviving or acquiring entity AND a majority of the members
of the Board of Directors of the surviving or acquiring entity immediately after
such Merger were NOT members of the Board of Directors of the Company
immediately prior to such Merger.
Notwithstanding the above, in the event that (i) Employee's employment is
terminated by the Company or a successor to the Company other than for Cause (as
defined below), or (ii) Employee's job duties, responsibilities and requirements
are materially reduced or changed such
<PAGE>
that they are inconsistent with Employee's prior duties, responsibilities and
requirements, in either case in connection with, or as a result of, a Change
of Control, 100% of the option that has not yet become exercisable shall
become exercisable on the effective date of such termination, reduction or
change.
9. SUCCESSORS. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that Employee may
receive from any other source.
(b) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties.
(c) SOLE AGREEMENT. This Agreement, including any Exhibits hereto,
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or 48 hours after being deposited in the U.S. mail as certified
or registered mail with postage prepaid, if such notice is addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(e) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(f) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
<PAGE>
(g) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
The parties have executed this Agreement the date first written above.
CARDIAC SCIENCE INC.
By:
-------------------------
Title:
----------------------
Address: 1176 Main Street
Building "C"
Irvine, CA 92614
Fax: (714) 587-0357
----------------------------
Michael Gioffredi
<PAGE>
CARDIAC SCIENCE, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is dated as of July 1, 1998
by and between DONGPING LIN ("EMPLOYEE") and CARDIAC SCIENCE INC., a Delaware
corporation (the "COMPANY").
1. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall have a term of twelve (12) months (the "ORIGINAL TERM").
This Agreement may be terminated by either party, with or without cause, on
thirty (30) days' written notice to the other party. This Agreement shall
continue after the end of the Original Term unless either party shall give
the other written notice of termination. The Original Term and any 12 month
period commencing immediately after the end of any Term shall each be
referred to as a "TERM."
2. DUTIES.
(a) POSITION. Employee shall be employed as Chief Technical
Officer, and as such will have responsibility for the duties typically
associated with such positions and will report to the Company's Chief
Executive Officer and Board of Directors.
(b) OBLIGATIONS TO THE COMPANY. Employee agrees to the best of
his ability and experience that he will perform all of the duties and
obligations reasonably required of and from Employee pursuant to the express
and implicit terms hereof. During the term of Employee's employment
relationship with the Company, Employee further agrees that he will devote
his business time and attention to the business of the Company.
3. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as provided in
this Agreement. The rights and duties created by this Section 3 may not be
modified in any way except by a written agreement executed by the Company.
4. COMPENSATION. For the duties and services to be performed by
Employee hereunder, the Company shall pay Employee, and Employee agrees to
accept, the salary, stock options, bonuses and other benefits described below
in this Section 4.
(a) SALARY. Employee shall receive a monthly salary of $10,416.00
per month. Employee's monthly salary will be payable pursuant to the
Company's normal payroll practices. In the event this Agreement is extended
beyond the Original Term, the base salary shall be reviewed at the time of
such extension by the Board of Directors, its Compensation Committee or the
Chief Executive Officer of the Company, and any increase will be effective as
of the date determined appropriate by the Board, its Compensation Committee
or the Chief Executive Officer.
<PAGE>
(b) BONUSES. Employee will receive an incentive bonus of $20,000
from the Company payable on September 30, 1998. Employee will be eligible to
receive and additional bonus of $25,000 upon successful completion of the
software component of the production model of the Powerheart-Registered
Trademark- AECD-Registered Trademark-. Payment of said bonus amount and is
anticipated to be payable at the end of the 1998 calendar year. Future
incentive bonuses will be determined by the Board, its Compensation Committee
or the Chief Executive Officer of the Company.
In the event of Employee's Involuntary Termination (as defined
below), death or Disability (as defined below) or a Change of Control (as
defined below) during the term of this Agreement, the Company shall pay to
Employee or Employee's estate a pro rata portion of Employee's target bonus
for such year based on the portion of the year Employee worked for the
Company.
(c) ADDITIONAL BENEFITS. Employee will be eligible to participate
in the Company's employee benefit plans of general application, including
without limitation, those plans covering medical, disability and life
insurance in accordance with the rules established for individual
participation in any such plan and under applicable law. Employee will
receive three (3) weeks paid vacation and will be eligible for sick leave in
accordance with the policies in effect during the term of this Agreement and
will receive such other benefits as the Company generally provides to its
other employees of comparable position and experience.
(d) STOCK OPTIONS AND OTHER INCENTIVE PROGRAMS. Employee shall be
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company. Employee shall be granted
30,000 stock options (in addition to options already issued to the employee)
under the terms and conditions of the 1997 Stock Option Plan which was
approved by the board of directors and by a vote of its shareholders in May
1998. Moreover, in the event that the Company issues additional shares of
common stock after July 1, 1998, employee shall receive additional stock
options in order maintain the employees overall percent of ownership in the
Company equal to a minimum of 1.5% based on the Company's outstanding shares
to be calculated on a fully diluted basis.
(e) REIMBURSEMENT OF EXPENSES. Employee shall be authorized to
incur on behalf and for the benefit of, and shall be reimbursed by, the
Company for reasonable expenses, provided that such expenses are
substantiated in accordance with Company policies.
5. CONFIDENTIAL INFORMATION
5.1 Employee acknowledges that, because of his employment
hereunder, he will be in a confidential relationship with the Company and
will have access to confidential information and trade secrets of the
Company. Employee acknowledges and agrees that the following constitutes
confidential and/or trade secret information belonging exclusively to Company
(collectively "Confidential Information"):
(a) all information related to customers including, without
limitation, customer lists, the identities of existing, past or prospective
customers, prices charged or
<PAGE>
proposed to be charged to customers, customer contacts, special customer
requirements and all related information;
(b) research and development plans, materials and techniques; and
(c) all know-how, devices, compilations of information,
copyrightable material and technology and technical information, relating to
the business of the Company.
5.2 Employee agrees that except in the limited performance of his
duties under this Agreement, Employee shall not use for his own benefit or
disclose to any third-party Confidential Information acquired by reason of
his employment under this Agreement or his former status as officer of the
Company.
5.3 This Section 5 shall survive termination of this Agreement.
6. COMPANY PROPERTY.
6.1 Any patents, inventions, discoveries, applications or
processes, software and computer programs devised, planned, applied, created,
discovered or invented by Employee in the course of his employment under this
Agreement and which pertain to any aspect of the business of the Company, or
its subsidiaries, affiliates or customers, shall be the sole and absolute
property of the Company, and Employee shall make prompt report thereof to the
Company and promptly execute any and all documents reasonably requested to
assure the Company the full and complete ownership thereof.
6.2 All records, files, lists, drawings, documents, equipment and
similar items relating to the Company's business which Employee shall prepare
or receive from the Company shall remain the Company's sole and exclusive
property. Upon termination of this Agreement, Employee shall return promptly
to the Company all property of the Company in his possession and Employee
represents that he will not copy, or cause to be copied, printed, summarized
or compiled, any software, documents or other materials originating with
and/or belonging to the Company. Employee further represents that he will
not retain in his possession any such software, documents or other materials
in machine or human readable forms.
6.3 This Section 6 shall survive termination of this Agreement.
7. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
(a) TERMINATION OF EMPLOYMENT. Employee's employment under this
Agreement shall terminate immediately upon a Change of Control (as defined
below) and may be terminated during the Original Term (or any subsequent
Term) upon the occurrence of any of the following events:
<PAGE>
(i) The effective date of a written notice sent to the
Company from Employee stating that Employee is electing to terminate his
employment with the Company voluntarily ("VOLUNTARY TERMINATION");
(ii) The Company's determination that it is terminating
Employee without Cause, which determination may be made by the Company at any
time at the Company's sole discretion, for any reason or no reason
("TERMINATION WITHOUT CAUSE");
(iii) A change in Employee's status such that a Constructive
Termination (as defined below) has occurred;
(iv) The Company's reasonable, good faith determination that
it is terminating Employee for Cause (as defined below) ("TERMINATION FOR
CAUSE"); or
(v) Following Employee's death or Disability.
(b) SEVERANCE BENEFITS. Employee shall be entitled to receive
severance benefits upon termination of employment only as set forth in this
Section 7(b):
(i) VOLUNTARY TERMINATION. If Employee's employment
terminates by Voluntary Termination, then Employee shall not be entitled to
receive payment of any severance benefits. Employee will receive payment for
all salary and unpaid vacation accrued as of the date of Employee's
termination of employment and Employee's benefits will be continued under the
Company's then existing benefit plans and policies in accordance with such
plans and policies in effect on the date of termination and in accordance
with applicable law.
(ii) INVOLUNTARY TERMINATION. If Employee's employment
terminates due to Termination Without Cause or Constructive Termination
(collectively, "INVOLUNTARY TERMINATION"), Employee will be entitled to
receive payment of severance benefits equal to Employee's regular monthly
salary through the 6 months following the date of such Involuntary
Termination (the "SEVERANCE PERIOD"). Such payment shall be made ratably
over the Severance Period according to the Company's standard payroll
schedule. On the date of such Involuntary Termination, Employee shall also
receive the pro rata portion of Employee's target bonus for such then current
Term, based on the portion of the current Term that Employee has worked.
Health insurance benefits with the same coverage provided to Employee prior
to the termination (e.g. medical, dental, optical, mental health) and in all
other respects significantly comparable to those in place immediately prior
to the termination will be provided at the Company's cost over the Severance
Period. Any unvested stock options or shares of restricted stock held by
Employee as of the date of Employee's termination of employment shall
continue to vest through the end of the Severance Period according to the
vesting schedule set forth in any agreement between Employee and the Company
governing the issuance to Employee of such securities.
(iii) TERMINATION FOR CAUSE. If Employee's employment is
terminated for Cause, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment for all salary and unpaid
vacation accrued as of the date of Employee's termination of employment and
Employee's benefits will be continued under the
<PAGE>
Company's then existing benefit plans and policies in accordance with such
plans and policies in effect on the date of termination and in accordance
with applicable law.
(iv) TERMINATION BY REASON OF DEATH OR DISABILITY. In the
event that Employee's employment with the Company terminates as a result of
Employee's death or Disability (as defined below), Employee or Employee's
estate or representative will receive all salary and unpaid vacation accrued
as of the date of Employee's death or Disability and any other benefits
payable under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of death or
Disability and in accordance with applicable law. In addition, Employee's
estate or representative shall also receive the pro rata portion of
Employee's target bonus for the current Term, based on the portion of the
current Term that Employee has worked.
(v) CHANGE OF CONTROL. Notwithstanding the preceding clauses
of this Section 7(b), upon a Change of Control, Employee will be entitled to
receive payment of severance benefits equal to Employee's regular monthly
salary for a period of six (6) months following said Change of Control. (the
"CHANGE OF CONTROL SEVERANCE PERIOD"). Such payment shall be made ratably
over the Change of Control Severance Period according to the Company's
standard payroll schedule. On the date of such Change of Control, Employee
shall also receive the pro rata portion of Employee's target bonus for the
current Term, based on the portion of the current Term that Employee has
worked. Health insurance benefits with the same coverage provided to Employee
prior to the Change of Control (e.g. medical, dental, optical, mental health)
and in all other respects significantly comparable to those in place
immediately prior to the Change of Control will be provided at the Company's
cost over the Change of Control Severance Period. Any unvested stock options
or shares of restricted stock held by Employee as of the date of Employee's
termination of employment shall continue to vest through the end of the
Change of Control Severance Period according to the vesting schedule set
forth in any agreement between Employee and the Company governing the
issuance to Employee of such securities.
(vi) NONCOMPETE. If Employee shall at any time during a
Severance Period or a Change of Control Severance Period, act as an owner
(other than a shareholder in a publicly traded company) or employee of a
business that directly competes with the business conducted by the Company as
conducted on the date of Employee's termination of employment, then,
effective upon Employee's commencement of such activities as a competing
owner or employee, Employee shall not receive any severance payment or other
benefits under Sections 7(b)(ii) or (v) beyond what he would have received
had he been Terminated for Cause.
8. DEFINITIONS. For purposes of this Agreement,
(a) "CAUSE" for Employee's termination will exist at any time
after the happening of one or more of the following events:
(i) Employee's willful misconduct or gross negligence in
performance of his duties hereunder, including Employee's refusal to comply in
any material respect with the legal directives of the Company's Board of
Directors so long as such directives are not
<PAGE>
inconsistent with the Employee's position and duties, and such refusal to
comply is not remedied within fifteen (15) working days after written notice
from the Company, which written notice shall state that failure to remedy
such conduct may result in Termination for Cause;
(ii) Dishonest or fraudulent conduct related and materially
adverse to the activities of the Company, a deliberate attempt to do a material
injury to the Company, or conduct that materially discredits the Company or is
materially detrimental to the reputation of the Company, including conviction of
a felony; or
(iii) Employee's knowing and intentional material breach
(which can not be cured) of any element of the Company's Confidential
Information and Invention Assignment Agreement, including without limitation,
Employee's theft or other misappropriation of the Company's proprietary
information.
(b) "CONSTRUCTIVE TERMINATION" shall be deemed to occur if (i)(A)
there is a significant reduction in Employee's duties, positions or
responsibilities causing such position to be of reduced stature or
responsibility, (B) a reduction in Employee's base compensation or benefits,
or (C) Employee's refusal to relocate to a facility or location more than 30
miles from the Company's current location; and (ii) within the 60-day period
immediately following such material change or reduction Employee elects to
terminate his employment voluntarily.
(c) "DISABILITY" shall mean that Employee has been unable to
perform his duties hereunder as the result of his incapacity due to physical
or mental illness, and such inability, which continues for at least 60
consecutive calendar days or 90 calendar days during any consecutive
twelve-month period, if shorter, after its commencement, is determined to be
total and permanent by an independent and impartial physician selected by the
Company and its insurers and acceptable to Employee or to Employee's legal
representative (with such agreement on acceptability not to be unreasonably
withheld).
(d) "CHANGE OF CONTROL" shall mean the occurrence of any of the
following events: (i) an acquisition of the Company by another entity by
means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation but excluding
any merger effected exclusively for the purpose of changing the domicile of
the Company), or (ii) a sale of all or substantially all of the assets of the
Company (collectively, a "MERGER"), so long as in either case (x) the
Company's stockholders of record immediately prior to such Merger will,
immediately after such Merger, hold less than 50% of the voting power of the
surviving or acquiring entity, or (y) the Company's stockholders of record
immediately prior to such Merger will, immediately after such Merger, hold
less than 60% of the voting power of the surviving or acquiring entity AND a
majority of the members of the Board of Directors of the surviving or
acquiring entity immediately after such Merger were NOT members of the Board
of Directors of the Company immediately prior to such Merger.
Notwithstanding the above, in the event that (i) Employee's employment
is terminated by the Company or a successor to the Company other than for
Cause (as defined below), or (ii) Employee's job duties, responsibilities and
requirements are materially reduced or changed such that they are
inconsistent with Employee's prior duties, responsibilities and requirements,
in
<PAGE>
either case in connection with, or as a result of, a Change of Control,
100% of the option that has not yet become exercisable shall become
exercisable on the effective date of such termination, reduction or change.
9. SUCCESSORS. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agrees expressly
to perform the obligations under this Agreement in the same manner and to the
same extent as the Company would be required to perform such obligations in
the absence of a succession. The terms of this Agreement and all of
Employee's rights hereunder shall inure to the benefit of, and be enforceable
by, Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that Employee may receive from any other source.
(b) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties.
(c) SOLE AGREEMENT. This Agreement, including any Exhibits
hereto, constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when
delivered personally or by a nationally-recognized delivery service (such as
Federal Express or UPS), or 48 hours after being deposited in the U.S. mail
as certified or registered mail with postage prepaid, if such notice is
addressed to the party to be notified at such party's address as set forth
below or as subsequently modified by written notice.
(e) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(f) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement,
(ii) the balance of the Agreement shall be interpreted as if such provision
were so excluded and (iii) the balance of the Agreement shall be enforceable
in accordance with its terms.
<PAGE>
(g) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
The parties have executed this Agreement the date first written above.
CARDIAC SCIENCE INC.
By:
----------------------------------
Raymond W. Cohen
Title:
-------------------------------
Chief Executive Officer
Address: 1176 Main Street
Building "C"
Irvine, CA 92614
Fax: (714) 587-0357
-------------------------------------
Dongping Lin
<PAGE>
CARDIAC SCIENCE, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is dated as of May 1, 1998 by
and between JEFFERY BLANTON ("EMPLOYEE") and CARDIAC SCIENCE INC., a Delaware
corporation (the "COMPANY").
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall have a term of twelve (12) months (the "ORIGINAL TERM"). This
Agreement may be terminated by either party, with or without cause, on fifteen
(15) days' written notice to the other party. This Agreement shall continue
after the end of the Original Term unless either party shall give the other
written notice of termination. The Original Term and any 12 month period
commencing immediately after the end of any Term shall each be referred to as a
"TERM."
2. DUTIES.
(a) POSITION. Employee shall be employed as Vice President,
Operations, and as such will have responsibility for the duties typically
associated with such positions and will report to the Company's Board of
Directors and Chief Executive Officer.
(b) OBLIGATIONS TO THE COMPANY. Employee agrees to the best of his
ability and experience that he will perform all of the duties and obligations
reasonably required of and from Employee pursuant to the express and implicit
terms hereof. During the term of Employee's employment relationship with the
Company, Employee further agrees that he will devote his business time and
attention to the business of the Company.
3. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as provided in
this Agreement. The rights and duties created by this Section 3 may not be
modified in any way except by a written agreement executed by the Company.
4. COMPENSATION. For the duties and services to be performed by Employee
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) SALARY. Employee shall receive a monthly salary of $8,750.00 per
month. Employee's monthly salary will be payable pursuant to the Company's
normal payroll practices. In the event this Agreement is extended beyond the
Original Term, the base salary shall be reviewed at the time of such extension
by the Board of Directors, its Compensation Committee or the Chief Executive
Officer of the Company, and any increase will be effective as of the date
determined appropriate by the Board, its Compensation Committee or the Chief
Executive Officer.
<PAGE>
(b) BONUSES. Employee will be eligible to receive an incentive bonus
of $50,000 from the Company upon successful completion of the first production
model of the Powerheart-Registered Trademark- AECD-Registered Trademark-.
Payment of said bonus amount will due and payable at the end of the first year's
employment term. In the event that the production of the Powerheart-Registered
Trademark- production model is not completed by December 31, 1998, the bonus
amount shall be reduced by $5,000 for each month's delay unless it is determined
by the Board, its Compensation Committee or the Chief Executive Officer of the
Company that the Employee's individual performance objectives warrant full
payment of the bonus amount.
In the event of Employee's Involuntary Termination (as defined below),
death or Disability (as defined below) or a Change of Control (as defined below)
during the term of this Agreement, the Company shall pay to Employee or
Employee's estate a pro rata portion of Employee's target bonus for such year
based on the portion of the year Employee worked for the Company.
(c) ADDITIONAL BENEFITS. Employee will be eligible to participate in
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will receive two (2) weeks paid
vacation and will be eligible for sick leave in accordance with the policies in
effect during the term of this Agreement and will receive such other benefits as
the Company generally provides to its other employees of comparable position and
experience.
(d) STOCK OPTIONS AND OTHER INCENTIVE PROGRAMS. Employee shall be
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company. Employee shall be granted
50,000 stock options under the terms and conditions of the 1997 Stock Option
Plan approved by the board of directors and subject to approval at The Company's
annual shareholders meeting scheduled for May 12, 1998.
(e) REIMBURSEMENT OF EXPENSES. Employee shall be authorized to incur
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies.
5. CONFIDENTIAL INFORMATION
5.1 Employee acknowledges that, because of his employment hereunder, he will be
in a confidential relationship with the Company and will have access to
confidential information and trade secrets of the Company. Employee
acknowledges and agrees that the following constitutes confidential and/or trade
secret information belonging exclusively to Company (collectively "Confidential
Information"):
(a) all information related to customers including, without
limitation, customer lists, the identities of existing, past or prospective
customers, prices charged or proposed to be charged to customers, customer
contacts, special customer requirements and all related information;
<PAGE>
(b) marketing plans, materials and techniques; and
(c) all know-how, devices, compilations of information, copyrightable
material and technology and technical information, relating to the business of
the Company.
5.2 Employee agrees that except in the limited performance of his
duties under this Agreement, Employee shall not use for his own benefit or
disclose to any third-party Confidential Information acquired by reason of his
employment under this Agreement or his former status as officer of the Company.
5.3 This Section 5 shall survive termination of this Agreement.
6. COMPANY PROPERTY.
6.1 Any patents, inventions, discoveries, applications or processes,
software and computer programs devised, planned, applied, created, discovered or
invented by Employee in the course of his employment under this Agreement and
which pertain to any aspect of the business of the Company, or its subsidiaries,
affiliates or customers, shall be the sole and absolute property of the Company,
and Employee shall make prompt report thereof to the Company and promptly
execute any and all documents reasonably requested to assure the Company the
full and complete ownership thereof.
6.2 All records, files, lists, drawings, documents, equipment and
similar items relating to the Company's business which Employee shall prepare or
receive from the Company shall remain the Company's sole and exclusive property.
Upon termination of this Agreement, Employee shall return promptly to the
Company all property of the Company in his possession and Employee represents
that he will not copy, or cause to be copied, printed, summarized or compiled,
any software, documents or other materials originating with and/or belonging to
the Company. Employee further represents that he will not retain in his
possession any such software, documents or other materials in machine or human
readable forms.
6.3 This Section 6 shall survive termination of this Agreement.
7. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
(a) TERMINATION OF EMPLOYMENT. Employee's employment under this
Agreement shall terminate immediately upon a Change of Control (as defined
below) and may be terminated during the Original Term (or any subsequent Term)
upon the occurrence of any of the following events:
(i) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his employment with
the Company voluntarily ("VOLUNTARY TERMINATION");
<PAGE>
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any reason or no reason ("TERMINATION WITHOUT
CAUSE");
(iii) A change in Employee's status such that a Constructive
Termination (as defined below) has occurred;
(iv) The Company's reasonable, good faith determination that it
is terminating Employee for Cause (as defined below) ("TERMINATION FOR CAUSE");
or
(v) Following Employee's death or Disability.
(b) SEVERANCE BENEFITS. Employee shall be entitled to receive
severance benefits upon termination of employment only as set forth in this
Section 7(b):
(i) VOLUNTARY TERMINATION. If Employee's employment terminates
by Voluntary Termination, then Employee shall not be entitled to receive payment
of any severance benefits. Employee will receive payment for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.
(ii) INVOLUNTARY TERMINATION. If Employee's employment
terminates due to Termination Without Cause or Constructive Termination
(collectively, "INVOLUNTARY TERMINATION"), Employee will be entitled to receive
payment of severance benefits equal to Employee's regular monthly salary through
the 6 months following the date of such Involuntary Termination (the "SEVERANCE
PERIOD"). Such payment shall be made ratably over the Severance Period
according to the Company's standard payroll schedule. On the date of such
Involuntary Termination, Employee shall also receive the pro rata portion of
Employee's target bonus for such then current Term, based on the portion of the
current Term that Employee has worked. Health insurance benefits with the same
coverage provided to Employee prior to the termination (e.g. medical, dental,
optical, mental health) and in all other respects significantly comparable to
those in place immediately prior to the termination will be provided at the
Company's cost over the Severance Period. Any unvested stock options or shares
of restricted stock held by Employee as of the date of Employee's termination of
employment shall continue to vest through the end of the Severance Period
according to the vesting schedule set forth in any agreement between Employee
and the Company governing the issuance to Employee of such securities.
(iii) TERMINATION FOR CAUSE. If Employee's employment is
terminated for Cause, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment for all salary and unpaid
vacation accrued as of the date of Employee's termination of employment and
Employee's benefits will be continued under the Company's then existing benefit
plans and policies in accordance with such plans and policies in effect on the
date of termination and in accordance with applicable law.
<PAGE>
(iv) TERMINATION BY REASON OF DEATH OR DISABILITY. In the event
that Employee's employment with the Company terminates as a result of Employee's
death or Disability (as defined below), Employee or Employee's estate or
representative will receive all salary and unpaid vacation accrued as of the
date of Employee's death or Disability and any other benefits payable under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of death or Disability and in accordance with
applicable law. In addition, Employee's estate or representative shall also
receive the pro rata portion of Employee's target bonus for the current Term,
based on the portion of the current Term that Employee has worked.
(v) CHANGE OF CONTROL. Notwithstanding the preceding clauses
of this Section 7(b), upon a Change of Control, Employee will be entitled to
receive payment of severance benefits equal to Employee's regular monthly salary
for a period of six (6) months following said Change of Control. (the "CHANGE OF
CONTROL SEVERANCE PERIOD"). Such payment shall be made ratably over the Change
of Control Severance Period according to the Company's standard payroll
schedule. On the date of such Change of Control, Employee shall also receive the
pro rata portion of Employee's target bonus for the current Term, based on the
portion of the current Term that Employee has worked. Health insurance benefits
with the same coverage provided to Employee prior to the Change of Control (e.g.
medical, dental, optical, mental health) and in all other respects significantly
comparable to those in place immediately prior to the Change of Control will be
provided at the Company's cost over the Change of Control Severance Period. Any
unvested stock options or shares of restricted stock held by Employee as of the
date of Employee's termination of employment shall continue to vest through the
end of the Change of Control Severance Period according to the vesting schedule
set forth in any agreement between Employee and the Company governing the
issuance to Employee of such securities.
(vi) NONCOMPETE. If Employee shall at any time during a
Severance Period or a Change of Control Severance Period, act as an owner (other
than a shareholder in a publicly traded company) or employee of a business that
directly competes with the business conducted by the Company as conducted on the
date of Employee's termination of employment, then, effective upon Employee's
commencement of such activities as a competeing owner or employee, Employee
shall not receive any severance payment or other benefits under Sections
7(b)(ii) or (v) beyond what he would have received had he been Terminated for
Cause.
8. DEFINITIONS. For purposes of this Agreement,
(a) "CAUSE" for Employee's termination will exist at any time after
the happening of one or more of the following events:
(i) Employee's willful misconduct or gross negligence in
performance of his duties hereunder, including Employee's refusal to comply in
any material respect with the legal directives of the Company's Board of
Directors so long as such directives are not inconsistent with the Employee's
position and duties, and such refusal to comply is not remedied
<PAGE>
within fifteen (15) working days after written notice from the Company, which
written notice shall state that failure to remedy such conduct may result in
Termination for Cause;
(ii) Dishonest or fraudulent conduct related and materially
adverse to the activities of the Company, a deliberate attempt to do a material
injury to the Company, or conduct that materially discredits the Company or is
materially detrimental to the reputation of the Company, including conviction of
a felony; or
(iii) Employee's knowing and intentional material breach
(which can not be cured) of any element of the Company's Confidential
Information and Invention Assignment Agreement, including without limitation,
Employee's theft or other misappropriation of the Company's proprietary
information.
(b) "CONSTRUCTIVE TERMINATION" shall be deemed to occur if (i)(A)
there is a significant reduction in Employee's duties, positions or
responsibilities causing such position to be of reduced stature or
responsibility, (B) a reduction in Employee's base compensation or benefits, or
(C) Employee's refusal to relocate to a facility or location more than 30 miles
from the Company's current location; and (ii) within the 60-day period
immediately following such material change or reduction Employee elects to
terminate his employment voluntarily.
(c) "DISABILITY" shall mean that Employee has been unable to perform
his duties hereunder as the result of his incapacity due to physical or mental
illness, and such inability, which continues for at least 60 consecutive
calendar days or 90 calendar days during any consecutive twelve-month period, if
shorter, after its commencement, is determined to be total and permanent by an
independent and impartial physician selected by the Company and its insurers and
acceptable to Employee or to Employee's legal representative (with such
agreement on acceptability not to be unreasonably withheld).
(d) "CHANGE OF CONTROL" shall mean the occurrence of any of the
following events: (i) an acquisition of the Company by another entity by means
of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but excluding any merger
effected exclusively for the purpose of changing the domicile of the Company),
or (ii) a sale of all or substantially all of the assets of the Company
(collectively, a "MERGER"), so long as in either case (x) the Company's
stockholders of record immediately prior to such Merger will, immediately after
such Merger, hold less than 50% of the voting power of the surviving or
acquiring entity, or (y) the Company's stockholders of record immediately prior
to such Merger will, immediately after such Merger, hold less than 60% of the
voting power of the surviving or acquiring entity AND a majority of the members
of the Board of Directors of the surviving or acquiring entity immediately after
such Merger were NOT members of the Board of Directors of the Company
immediately prior to such Merger.
Notwithstanding the above, in the event that (i) Employee's employment is
terminated by the Company or a successor to the Company other than for Cause (as
defined below), or (ii) Employee's job duties, responsibilities and requirements
are materially reduced or changed such that they are inconsistent with
Employee's prior duties, responsibilities and requirements, in either case in
connection with, or as a result of, a Change of Control, 100% of the option that
has
<PAGE>
not yet become exercisable shall become exercisable on the effective date of
such termination, reduction or change.
9. SUCCESSORS. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that Employee may
receive from any other source.
(b) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties.
(c) SOLE AGREEMENT. This Agreement, including any Exhibits hereto,
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or 48 hours after being deposited in the U.S. mail as certified
or registered mail with postage prepaid, if such notice is addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(e) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(f) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
<PAGE>
(g) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
The parties have executed this Agreement the date first written above.
CARDIAC SCIENCE INC.
By:
----------------------------------
Title:
-------------------------------
Address: 1176 Main Street
Building "C"
Irvine, CA 92614
Fax: (714) 587-0357
---------------------------------------
Jeffery Blanton
<PAGE>
CARDIAC SCIENCE, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is dated as of May 1, 1998, by
and between BRETT L. SCOTT ("EMPLOYEE") and CARDIAC SCIENCE INC., a Delaware
corporation (the "COMPANY").
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall have a term of twelve (12) months (the "ORIGINAL TERM"). This
Agreement may be terminated by either party, with or without cause, on fifteen
(15) days' written notice to the other party. This Agreement shall continue
after the end of the Original Term (the Original Term and any subsequent term
shall each be referred to as a "TERM") unless either party shall give the other
written notice prior to the end of such Term.
2. DUTIES.
(a) POSITION. Employee shall be employed as Chief Financial Officer
and Secretary, and as such will have responsibility for the duties typically
associated with such positions and will report to the Company's Board of
Directors and Chief Executive Officer.
(b) OBLIGATIONS TO THE COMPANY. Employee agrees to the best of his
ability and experience that he will perform all of the duties and obligations
reasonably required of and from Employee pursuant to the express and implicit
terms hereof. During the term of Employee's employment relationship with the
Company, Employee further agrees that he will devote his business time and
attention to the business of the Company.
3. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as provided in
this Agreement. The rights and duties created by this Section 3 may not be
modified in any way except by a written agreement executed by the Company.
4. COMPENSATION. For the duties and services to be performed by Employee
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) SALARY. Employee shall receive a monthly salary of $8,000.
Employee's monthly salary will be payable pursuant to the Company's normal
payroll practices. In the event this Agreement is extended beyond the Original
Term, the base salary shall be reviewed at the time of such extension by the
Board of Directors, its Compensation Committee or the Chief Executive Officer of
the Company, and any increase will be effective as of the date determined
appropriate by the Board, its Compensation Committee or the Chief Executive
Officer.
<PAGE>
(b) BONUSES. Employee's entitlement to incentive bonuses from the
Company is discretionary and shall be determined by the Board, its Compensation
Committee or the Chief Executive Officer of the Company in good faith based upon
the extent to which Employee's individual performance objectives and the
Company's profitability objectives and other financial and non-financial
objectives are achieved during the applicable bonus period. In the event of
Employee's Involuntary Termination (as defined below), death or Disability (as
defined below) during the term of this Agreement, the Company shall pay to
Employee or Employee's estate a pro rata portion of Employee's target bonus for
such year based on the portion of the year Employee worked for the Company.
(c) ADDITIONAL BENEFITS. Employee will be eligible to participate in
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will receive two (2) weeks paid
vacation and will be eligible for sick leave in accordance with the policies in
effect during the term of this Agreement and will receive such other benefits as
the Company generally provides to its other employees of comparable position and
experience.
(d) STOCK OPTIONS AND OTHER INCENTIVE PROGRAMS. Employee shall be
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.
(e) REIMBURSEMENT OF EXPENSES. Employee shall be authorized to incur
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies.
5. CONFIDENTIAL INFORMATION
5.1 Employee acknowledges that, because of his employment hereunder,
he will be in a confidential relationship with the Company and will have access
to confidential information and trade secrets of the Company. Employee
acknowledges and agrees that the following constitutes confidential and/or trade
secret information belonging exclusively to Company (collectively "Confidential
Information"):
(a) all information related to customers including, without
limitation, customer lists, the identities of existing, past or prospective
customers, prices charged or proposed to be charged to customers, customer
contacts, special customer requirements and all related information;
(b) marketing plans, materials and techniques; and
(c) all know-how, devices, compilations of information, copyrightable
material and technology and technical information, relating to the business of
the Company.
<PAGE>
5.2 Employee agrees that except in the limited performance of his
duties under this Agreement, Employee shall not use for his own benefit or
disclose to any third-party Confidential Information acquired by reason of his
employment under this Agreement or his former status as officer of the Company.
5.3 This Section 5 shall survive termination of this Agreement.
6. COMPANY PROPERTY.
6.1 Any patents, inventions, discoveries, applications or processes,
software and computer programs devised, planned, applied, created, discovered or
invented by Employee in the course of his employment under this Agreement and
which pertain to any aspect of the business of the Company, or its subsidiaries,
affiliates or customers, shall be the sole and absolute property of the Company,
and Employee shall make prompt report thereof to the Company and promptly
execute any and all documents reasonably requested to assure the Company the
full and complete ownership thereof.
6.2 All records, files, lists, drawings, documents, equipment and
similar items relating to the Company's business which Employee shall prepare or
receive from the Company shall remain the Company's sole and exclusive property.
Upon termination of this Agreement, Employee shall return promptly to the
Company all property of the Company in his possession and Employee represents
that he will not copy, or cause to be copied, printed, summarized or compiled,
any software, documents or other materials originating with and/or belonging to
the Company. Employee further represents that he will not retain in his
possession any such software, documents or other materials in machine or human
readable forms.
6.3 This Section 6 shall survive termination of this Agreement.
7. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
(a) TERMINATION OF EMPLOYMENT. Employee's employment under this
Agreement shall terminate immediately upon a Change of Control (as defined
below) and may be terminated during the Original Term (or any subsequent Term)
upon the occurrence of any of the following events:
(i) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his employment with
the Company voluntarily ("VOLUNTARY TERMINATION");
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any reason or no reason ("TERMINATION WITHOUT
CAUSE");
(iii) A change in Employee's status such that a Constructive
Termination (as defined below) has occurred;
<PAGE>
(iv) The Company's reasonable, good faith determination that it
is terminating Employee for Cause (as defined below) ("TERMINATION FOR CAUSE");
or
(v) Following Employee's death or Disability.
(b) SEVERANCE BENEFITS. Employee shall be entitled to receive
severance benefits upon termination of employment only as set forth in this
Section 7(b):
(i) VOLUNTARY TERMINATION. If Employee's employment terminates
by Voluntary Termination, then Employee shall not be entitled to receive payment
of any severance benefits. Employee will receive payment for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.
(ii) INVOLUNTARY TERMINATION. If Employee's employment
terminates due to Termination Without Cause or Constructive Termination
(collectively, "INVOLUNTARY TERMINATION"), Employee will be entitled to receive
payment of severance benefits equal to Employee's regular monthly salary through
the earlier of (A) 6 months following the date of such Involuntary Termination
or (B) end of the then current Term (the "SEVERANCE PERIOD"). Such payment
shall be made ratably over the Severance Period according to the Company's
standard payroll schedule. On the date of such Involuntary Termination, Employee
shall also receive the pro rata portion of Employee's target bonus for such
Term, based on the portion of the current Term that Employee has worked. Health
insurance benefits with the same coverage provided to Employee prior to the
termination (e.g. medical, dental, optical, mental health) and in all other
respects significantly comparable to those in place immediately prior to the
termination will be provided at the Company's cost over the Severance Period.
Any unvested stock options or shares of restricted stock held by Employee as of
the date of Employee's termination of employment shall continue to vest through
the end of the Severance Period according to the vesting schedule set forth in
any agreement between Employee and the Company governing the issuance to
Employee of such securities.
(iii) TERMINATION FOR CAUSE. If Employee's employment is
terminated for Cause, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment for all salary and unpaid
vacation accrued as of the date of Employee's termination of employment and
Employee's benefits will be continued under the Company's then existing benefit
plans and policies in accordance with such plans and policies in effect on the
date of termination and in accordance with applicable law.
(iv) TERMINATION BY REASON OF DEATH OR DISABILITY. In the event
that Employee's employment with the Company terminates as a result of Employee's
death or Disability (as defined below), Employee or Employee's estate or
representative will receive all salary and unpaid vacation accrued as of the
date of Employee's death or Disability and any other benefits payable under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of death or Disability and in accordance with
applicable law. In addition, Employee's estate or representative shall also
<PAGE>
receive the pro rata portion of Employee's target bonus for such Term, based on
the portion of the current Term that Employee has worked.
(v) CHANGE OF CONTROL. Notwithstanding the preceding clauses of
this Section 7(b), upon a Change of Control, Employee will be entitled to
receive payment of severance benefits equal to Employee's regular monthly salary
for a period of six (6) months following said Change of Control. (the "CHANGE OF
CONTROL SEVERANCE PERIOD"). Such payment shall be made ratably over the Change
of Control Severance Period according to the Company's standard payroll
schedule. On the date of such Change of Control, Employee shall also receive the
pro rata portion of Employee's target bonus for such Term, based on the portion
of the current Term that Employee has worked. Health insurance benefits with the
same coverage provided to Employee prior to the Change of Control (e.g. medical,
dental, optical, mental health) and in all other respects significantly
comparable to those in place immediately prior to the Change of Control will be
provided at the Company's cost over the Change of Control Severance Period. Any
unvested stock options or shares of restricted stock held by Employee as of the
date of Employee's termination of employment shall continue to vest through the
end of the Change of Control Severance Period according to the vesting schedule
set forth in any agreement between Employee and the Company governing the
issuance to Employee of such securities.
8. BONUS SHARES. In the event of a Change of Control of the Company at
any time: (a) during any Term of this Agreement; or (b) within six (6) months
following any discontinuation of Employee's employment with the Company (other
than Voluntary Termination or Termination for Cause);
(a) Employee shall be treated as having been Terminated Without Cause
and shall receive the payments, benefits and other provisions set forth in
Section 5(b)(ii).
(b) The Company shall grant, pay, issue and deliver to Employee
50,000 shares of the Company's Common Stock (as adjusted for dividends, stock
dividends, stock splits and other similar changes). Such shares shall:
constitute compensation for services previously rendered by Employee to Company;
shall be duly authorized, validly issued, fully paid and nonassessable; shall be
fully vested, not subject to repurchase by the Company and not be subject to any
other restrictions (other than under the Securities Law of 1933, as amended, and
any applicable state securities laws); shall be issued immediately prior to such
Change of Control, and upon such Change of Control shall be treated in the same
manner as all other outstanding shares of Common Stock of the Company.
9. DEFINITIONS. For purposes of this Agreement,
(a) "CAUSE" for Employee's termination will exist at any time after
the happening of one or more of the following events:
(i) Employee's willful misconduct or gross negligence in
performance of his duties hereunder, including Employee's refusal to comply in
any material respect with the legal directives of the Company's Board of
Directors so long as such directives are not
<PAGE>
inconsistent with the Employee's position and duties, and such refusal to
comply is not remedied within fifteen (15) working days after written notice
from the Company, which written notice shall state that failure to remedy
such conduct may result in Termination for Cause;
(ii) Dishonest or fraudulent conduct related and materially
adverse to the activities of the Company, a deliberate attempt to do a material
injury to the Company, or conduct that materially discredits the Company or is
materially detrimental to the reputation of the Company, including conviction of
a felony; or
(iii) Employee's knowing and intentional material breach
(which can not be cured) of any element of the Company's Confidential
Information and Invention Assignment Agreement, including without limitation,
Employee's theft or other misappropriation of the Company's proprietary
information.
(b) "CONSTRUCTIVE TERMINATION" shall be deemed to occur if (i)(A)
there is a significant reduction in Employee's duties, positions or
responsibilities causing such position to be of reduced stature or
responsibility, (B) a reduction in Employee's base compensation or benefits, or
(C) Employee's refusal to relocate to a facility or location more than 30 miles
from the Company's current location; and (ii) within the 60-day period
immediately following such material change or reduction Employee elects to
terminate his employment voluntarily.
(c) "DISABILITY" shall mean that Employee has been unable to perform
his duties hereunder as the result of his incapacity due to physical or mental
illness, and such inability, which continues for at least 60 consecutive
calendar days or 90 calendar days during any consecutive twelve-month period, if
shorter, after its commencement, is determined to be total and permanent by an
independent and impartial physician selected by the Company and its insurers and
acceptable to Employee or to Employee's legal representative (with such
agreement on acceptability not to be unreasonably withheld).
(d) "CHANGE OF CONTROL" shall mean the occurrence of any of the
following events: (i) an acquisition of the Company by another entity by means
of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but excluding any merger
effected exclusively for the purpose of changing the domicile of the Company),
or (ii) a sale of all or substantially all of the assets of the Company
(collectively, a "MERGER"), so long as in either case (x) the Company's
stockholders of record immediately prior to such Merger will, immediately after
such Merger, hold less than 50% of the voting power of the surviving or
acquiring entity, or (y) the Company's stockholders of record immediately prior
to such Merger will, immediately after such Merger, hold less than 60% of the
voting power of the surviving or acquiring entity AND a majority of the members
of the Board of Directors of the surviving or acquiring entity immediately after
such Merger were NOT members of the Board of Directors of the Company
immediately prior to such Merger.
Notwithstanding the above, in the event that (i) Employee's employment is
terminated by the Company or a successor to the Company other than for Cause (as
defined below), or (ii) Employee's job duties, responsibilities and requirements
are materially reduced or changed such that they are inconsistent with
Employee's prior duties, responsibilities and requirements, in
<PAGE>
either case in connection with, or as a result of, a Change of Control, 100%
of the option that has not yet become exercisable shall become exercisable on
the effective date of such termination, reduction or change.
10. SUCCESSORS. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
11. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that Employee may
receive from any other source.
(b) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties.
(c) SOLE AGREEMENT. This Agreement, including any Exhibits hereto,
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or 48 hours after being deposited in the U.S. mail as certified
or registered mail with postage prepaid, if such notice is addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(e) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(f) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
<PAGE>
(g) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]<PAGE>
<PAGE>
The parties have executed this Agreement the date first written above.
CARDIAC SCIENCE INC.
By:
-----------------------------
Title:
--------------------------
Address: 1176 Main Street
Building "C"
Irvine, CA 92614
Fax: (714) 587-0357
-------------------------------
Brett L. Scott
<PAGE>
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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
CARDIAC SCIENCE, INC.
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
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1 ACCOUNTING AND OTHER TERMS . . . . . . . . . . . . . . . . . . . . . 4
2 LOAN AND TERMS OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . 4
2.1 Credit Extensions . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Interest Rate, Payments . . . . . . . . . . . . . . . . . . . 4
2.3 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3 CONDITIONS OF LOANS. . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Conditions Precedent to Initial Credit Extension. . . . . . . 5
4 CREATION OF SECURITY INTEREST. . . . . . . . . . . . . . . . . . . . 5
4.1 Grant of Security Interest. . . . . . . . . . . . . . . . . . 5
5 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 5
5.1 Due Organization and Authorization. . . . . . . . . . . . . . 5
5.2 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.3 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.4 No Material Adverse Change in Financial Statements. . . . . . 6
5.5 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.6 Regulatory Compliance . . . . . . . . . . . . . . . . . . . . 6
5.7 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 6
5.8 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . 6
6 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 Government Compliance . . . . . . . . . . . . . . . . . . . . 6
6.2 Financial Statements, Reports, Certificates . . . . . . . . . 7
6.3 Inventory; Returns. . . . . . . . . . . . . . . . . . . . . . 7
6.4 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.6 Primary Accounts. . . . . . . . . . . . . . . . . . . . . . . 7
6.7 Registration of Intellectual Property Rights. . . . . . . . . 7
6.8 Further Assurances. . . . . . . . . . . . . . . . . . . . . . 8
7 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Dispositions. . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 Changes in Business, Ownership, Management or
Business Locations. . . . . . . . . . . . . . . . . . . . . 8
7.3 Mergers or Acquisitions . . . . . . . . . . . . . . . . . . . 8
7.4 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . 8
7.5 Encumbrance . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.6 Distributions; Investments. . . . . . . . . . . . . . . . . . 9
7.7 Transactions with Affiliates. . . . . . . . . . . . . . . . . 9
7.8 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . 9
7.9 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . 9
8 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1 Payment Default . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Covenant Default. . . . . . . . . . . . . . . . . . . . . . . 9
8.3 Material Adverse Chance . . . . . . . . . . . . . . . . . . . 9
8.4 Attachment. . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
2
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<TABLE>
<S> <C>
8.5 Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.6 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . 10
8.7 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.8 Misrepresentations. . . . . . . . . . . . . . . . . . . . . . 10
9 BANK'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . 10
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . 10
9.2 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . 11
9.3 Accounts Collection . . . . . . . . . . . . . . . . . . . . . 11
9.4 Bank Expenses . . . . . . . . . . . . . . . . . . . . . . . . 11
9.5 Bank's Liability for Collateral . . . . . . . . . . . . . . . 11
9.6 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . 12
9.7 Demand Waiver . . . . . . . . . . . . . . . . . . . . . . . . 12
10 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11 CHOICE OF LAW VENUE AND JURY TRIAL WAIVER . . . . . . . . . . . . . 12
12 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 12
12.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . 12
12.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . 12
12.3 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . 13
12.4 Severability of Provision. . . . . . . . . . . . . . . . . . 13
12.5 Amendments in Writing, Integration . . . . . . . . . . . . . 13
12.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 13
12.7 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.8 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 13
12.9 Effect of Amendment and Restatement. . . . . . . . . . . . . 13
12.10 Attorneys' Fees. Costs and Expenses . . . . . . . . . . . . 13
13 DEFINITIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
3
<PAGE>
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated
December 30, 1998, between SILICON VALLEY BANK ("Bank"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 with a loan production
office located at 18872 MacArthur Blvd, Ste. 100, Irvine, California 92612
and CARDIAC SCIENCE, INC. ("Borrower"), whose address is 1176 Main Street,
Irvine, California 92614.
RECITALS
Bank and Borrower are parties to that certain Loan and Security
Agreement, dated November 14, 1997, as amended (collectively, the "Original
Agreement"). Pursuant to the Original Agreement, Bank made line of credit
available to Borrower in the original principal amount of $200,000. With this
Agreement, Borrower and Bank desire to set forth their agreement to amortize
the line of credit pursuant to a term loan and to amend and restate in its
entirety without novation the Original Agreement in accordance with the
provisions herein.
AGREEMENT
The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP.
The term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed
to impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit
Extensions.
2.1.1 TERM LOAN.
(a) Borrower will pay the Term Loan in 12 equal installments of
principal of $10,417 plus interest (the "Term Loan Payment"). Each Term Loan
Payment is payable on the last day of each month during the term of the loan,
beginning with the month ending January 31, 1999. Borrower's final Term Loan
Payment, due on December 30, 1999, includes all outstanding Term Loan
principal and accrued interest.
2.2 INTEREST RATE, PAYMENTS.
(a) Interest Rate. The Term Loan accrues interest at a per annum rate
of 2 percentage points above the Prime Rate. After an Event of Default,
Obligations accrue interest at 5 percent above the rate effective immediately
before the Event of Default. The interest rate increases or decreases when
the Prime Rate changes. Interest is computed on a 360 day year for the actual
number of days elapsed.
(b) Payments. Borrower will pay the Term Loan Payments as described in
Section 2.1.1. Bank may debit any of Borrower's deposit accounts including
Account Number ___________________ for principal and interest payments or
any amounts Borrower owes Bank. Bank will notify Borrower when it debits
Borrower's accounts. These debits are not a set-off. Payments received after
12:00 noon Pacific time are considered received at the opening of business on
4
<PAGE>
the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
2.3 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of
$1,250 due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in
good standing in, any state in which the conduct of its business or its
ownership of property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have
been duly authorized, and do not conflict with Borrower's formation
documents, nor constitute an event of default under any material agreement by
which Borrower is bound. Borrower is not in default under any agreement to
which or by which it is bound in which the default could cause a Material
Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. All Inventory is in all material respects of good and marketable quality,
free from material defects. Borrower is the sole owner of the Intellectual
Property, except for non-exclusive licenses granted to its customers in the
ordinary course of business. Each Patent is valid and enforceable and no part of
the Intellectual Property has been judged invalid or unenforceable, in whole or
in part, and no claim Has been made that any part of the Intellectual Property
violates the rights of any third party.
5
<PAGE>
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any
Subsidiary, delivered to Bank fairly present in all material respects
Borrower's consolidated financial condition and Borrower's consolidated
results of operations. There has not been any material deterioration in
Borrower's consolidated financial condition since the date of the most recent
financial statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by
an "investment company" under the Investment Company Act. Borrower is not
engaged as one of its important activities in extending credit for margin
stock (under Regulations G, I and U of the Federal Reserve Board of
Governors). Borrower has complied with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of
which could cause a Material Adverse Change. None of Borrower's or any
Subsidiary's properties or assets has been used by Borrower or any Subsidiary
or, to the best of Borrower's knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other
than legally. Borrower and each Subsidiary has timely filed all required tax
returns and paid, or made adequate provision to pay, all taxes, except those
being contested in good faith with adequate reserves under GAAP. Borrower and
each Subsidiary has obtained all consents, approvals and authorizations of,
made all declarations or filings with, and given all notices to all
government authorities that are necessary to continue its business as
currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could have a material adverse
effect on Borrower's business or operations. Borrower will comply and have each
6
<PAGE>
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 5 days of filing with the Securities and Exchange Commission,
copies of all statements, reports and notices made available to Borrower's
security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8K; (ii) as soon as available, but no later than 30 days
after the last day of each month, for the months where there is no filing
with the Securities and Exchange Commission, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible
Officer acceptable to Bank; (iii) a prompt report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of $100,000 or more; (iv)
budgets, sales projections, operating plans or other financial information
Bank requests; and (v) prompt notice of any material change in the
composition of the Intellectual Property, including any subsequent ownership
right of Borrower in or to any Copyright, Patent or Trademark not shown in
any intellectual property security agreement between Borrower and Bank or
knowledge of an event that materially adversely affects the value of the
Intellectual Property.
(b) Bank has the right to audit Borrower's Collateral at Borrower's
expense, if an Event of Default has occurred and is continuing.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its
account debtors will follow Borrower's customary practices as they exist at
execution of this Agreement. Borrower must promptly notify Bank of all
returns, recoveries, disputes and claims, that involve more than $50,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments and will
deliver to Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository and operating accounts
with Bank.
6.7 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
Borrower will register with the United States Patent and Trademark Office
or the United States Copyright Office Intellectual Property rights on Exhibits
A, B, C, and D to the Intellectual Property Security
<PAGE>
Agreement within 30 days of the date of this Agreement, and additional
Intellectual Property rights developed or acquired including revisions or
additions with any product before the sale or licensing of the product to any
third party.
Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in
writing of material infringements and (ii) not allow any Intellectual
Property to be abandoned, forfeited or dedicated to the public without Bank's
written consent.
6.8 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part
of its business or property, other than Transfers (i) of Inventory in the
ordinary course of business; (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in
the ordinary course of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or
add any new offices or business locations.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement or result in a decrease of more than 25% of Tangible Net Worth; or
(ii) merge or consolidate a Subsidiary into another Subsidiary or into
Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or
permit any Collateral not to be subject to the first priority security
interest granted here.
<PAGE>
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of
its Subsidiaries to do so. Pay any dividends or make any distribution or
payment or redeem, retire or purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with
any Affiliate except transactions that are in the ordinary course of
Borrower's business, on terms less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document
relating to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake
as one of its important activities extending credit to purchase or carry
margin stock, or use the proceeds of any Advance for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with
the Federal Fair Labor Standards Act or violate any other law or regulation,
if the violation could have a material adverse effect on Borrower's business
or operations or cause a Material Adverse Change, or permit any of its
Subsidiaries to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or
cannot be cured after Borrower's attempts within 10 day period, and the
default may be cured within a reasonable time, then Borrower has an
additional period (of not more than 30 days) to attempt to cure the default.
During the additional time, the failure to cure the default is not an Event
of Default (but no Credit Extensions will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower's financial
condition has materially deteriorated.
<PAGE>
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of
its business or if a judgment or other claim becomes a Lien on a material
portion of Borrower's assets, or if a notice of lien, levy, or assessment is
filed against any of Borrower's assets by any government agency and not paid
within 10 days after Borrower receives notice. These are not Events of
Default if stayed or if a bond is posted pending contest by Borrower (but no
Credit Extensions will be made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made
before any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Advances
will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower
will assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
<PAGE>
maintain possession of any part of the Collateral, and pay, purchase,
contest, or compromise any Lien which appears to be prior or superior to its
security interest and pay all expenses incurred. Borrower grants Bank a
license to enter and occupy any of its premises, without charge, to exercise
any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to
make similar payments in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable for
(a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act
or default of any carrier, warehouseman, bailee, or other person. Borrower
bears all risk of loss, damage or destruction of the Collateral.
<PAGE>
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right
or remedy is not an election, and Bank's waiver of any Event of Default is
not a continuing waiver. Bank's delay is not a waiver, election, or
acquiescence. No waiver is effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by
an overnight delivery service, by certified mail, postage prepaid, return
receipt requested, or by telefacsimile to the addresses set forth at the
beginning of this Agreement. A Party may change its notice address by giving
the other Party written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive
jurisdiction of the State and Federal courts in Orange County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.
THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or
any rights under it without Bank's prior written consent which may be granted
or withheld in Bank's discretion. Bank has the right, without the consent of
or notice to Borrower, to sell, transfer, negotiate, or grant participation
in all or any part of, or any interest in Bank's obligations, rights and
benefits under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
<PAGE>
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into
this Agreement and the Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until
all statutes of limitations for actions that may be brought against Bank have
run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or
affiliates in connection with their business with Borrower, (ii) to
prospective transferees or purchasers of any interest in the Loans, (iii) as
required by law, regulation, subpoena, or other order, (iv) as required in
connection with Bank's examination or audit and (v) as Bank considers
appropriate exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in Bank's possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (b) is disclosed to Bank by third
party, if Bank does not know that the third party is prohibited from
disclosing the information.
12.9 EFFECT OF AMENDMENT AND RESTATEMENT.
This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and shall continue to be
outstanding under this Agreement. All security interests granted under the
Original Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Agreement.
12.10 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys fees and other costs and expenses incurred, in addition
to any other relief to which it may be entitled.
<PAGE>
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all
merchandise returned or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is
under common control with the Person, and each of that Person's senior
executive officers, directors, partners and, for any Person that is a limited
liability company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs
or any equipment containing the information.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on EXHIBIT A.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, or that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an
obligation directly or indirectly guaranteed, endorsed, co-made, discounted
or sold with recourse by that Person, or for which that Person is directly or
indirectly liable; (ii) any obligations for undrawn letters or credit for the
account of that Person; and (iii) all obligations from any interest rate,
currency or commodity swap agreement, interest rate cap or collar agreement,
or other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
but "Contingent Obligation" does not include endorsements in the ordinary
course of business. The amount of a Contingent Obligation is the stated or
determined amount of the primary obligation for which the Contingent
Obligation is made or, if not determinable, the maximum reasonably
anticipated liability for it determined by the Person in good faith; but the
amount may not exceed the maximum of the obligations under the guarantee or
other support arrangement.
"COPYRIGHTS" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"CREDIT EXTENSION" is each Term Loan or any other extension of credit by
Bank for Borrower's benefit.
<PAGE>
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations
for surety bonds and letters of credit, (b) obligations evidenced by notes,
bonds, debentures or similar instruments, (c) capital lease obligations and
(d) Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created,
acquired or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims or damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody
or possession or in transit and including returns on any accounts or other
proceeds (including insurance proceeds) from the sale or disposition of any
of the foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or
future agreement between Borrower and/or for the benefit of Bank in
connection with this Agreement, all as amended, extended or restated.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
<PAGE>
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned
to Bank.
"ORIGINAL AGREEMENT" has the meaning set forth in recital paragraph A.
"PATENTS" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard &
Poor's Corporation or Moody's Investors Service, Inc., and (iii) Bank's
certificates of deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority
over any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment,
or (ii) existing on equipment when acquired, IF the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a
lessor, licensor or under any lease or license, IF the leases, subleases,
licenses and sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any
extension, renewal or replacement Lien must be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
may not increase.
<PAGE>
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller or Borrower.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates
of the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries MINUS, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, AND (ii) Total Liabilities plus Subordinated Debt.
"TERM LOAN" a loan of $125,000.
"TERM LOAN MATURITY DATE" is December 30, 1999.
"TERM LOAN PAYMENT" is described in Section 2.1.1.
"TRADEMARKS" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the
entire goodwill of the business of Assignor connected with the trademarks.
BORROWER:
CARDIAC SCIENCE, INC.
By: /s/ [illegible]
--------------------------------
Title: CFO
-----------------------------
BANK:
SILICON VALLEY BANK
By: /s/ [illegible]
--------------------------------
Title: Vice President
-----------------------------
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design rights,
income tax refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates or deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
<PAGE>
[LOGO]
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
<TABLE>
<CAPTION>
<S> <C> <C>
BORROWER: CARDIAC SCIENCE, INC.
LOAN OFFICER: Kevin Lynch
DATE: December 30, 1998
Term Loan Fee $1,250.00
UCC Filing Fee 20.00
Documentation Fee 750.00
TOTAL FEE DUE $2,020.00
------------- =========
</TABLE>
Please indicate the method of payment:
( ) A check for the total amount is attached.
( ) Debit DDA #______________________for the total amount.
( ) Loan proceeds
Borrower:
By: /s/ Brett Scott
- ------------------------------------
(Authorized Signer)
/s/ [illegible] 12-30-98
- ------------------------------------
Silicon Valley Bank (Date)
Account Officer's Signature
<PAGE>
CORPORATE BORROWING RESOLUTION
BORROWER: CARDIAC SCIENCE, INC. BANK: Silicon Valley Bank
1176 Main Street 18872 MacArthur Blvd,
Irvine, CA 92614 Ste. 100 Irvine, CA 92612
I, the undersigned Secretary or Assistant Secretary of CARDIAC SCIENCE, INC.
("Borrower"), HEREBY CERTIFY that Borrower is a corporation duly organized
and existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held,
at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that any one (1) of the following named officers, employees,
or agents of Borrower, whose actual signatures are shown below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
RAYMOND W. COHEN CEO /s/ Raymond W. Cohen
- -------------------------------------------------------------------------------
BRETT L. SCOTT CFO /s/ Brett L. Scott
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
acting for and on behalf of Borrower and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment should be
borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan documents
of Borrower, on Bank's forms, at such rates of interest and on such terms
as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of Borrower to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the loan documents, or
any portion of the loan documents.
GRANT SECURITY. To grant a security interest to Bank in any of Borrower's
assets, which security interest shall secure all of Borrower's obligations
to Bank.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts, trace
acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to Borrower or in which Borrower may have an interest, and
either to receive cash for the same or to cause such proceeds to be
credited to the account of Borrower with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
<PAGE>
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as, in
the judgment or the officer or officers herein authorized.
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital stock,
for such class, series and number, and on such terms, as an officer of
Borrower shall deem appropriate.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements, INCLUDING AGREEMENTS WAIVING THE RIGHT TO A TRIAL BY JURY, as
they may in their discretion deem reasonably necessary or proper in order
to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full
force and effect and Bank may rely on these Resolutions until written notice
of their revocation shall have been delivered to and received by Bank. Any
such notice shall not affect any of Borrower's agreements or commitments in
effect at the time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of the
Borrower and occupy the positions set opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Borrower,
and that they are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on December 30, 1998 and
attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ [illegible]
----------------------------------------------
*Secretary or Assistant Secretary
X
----------------------------------------------
* NOTE. In case the Secretary or other certifying officer is designated by
the foregoing resolutions as one of the signing officers, this resolution
should also be signed by a second Officer or Director of Borrower.
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
December 30, 1998 by and between SILICON VALLEY BANK ("Bank") and Cardiac
Science, Inc. ("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between
Bank and Grantor dated December 30, 1998 (as the same may be amended,
modified or supplemented from time to time, the "Loan Agreement"; capitalized
terms used herein are used as defined in the Loan Agreement). Bank is willing
to make the Loans to Grantor, but only upon the condition, among others, that
Grantor shall grant to Bank a security interest in certain Copyrights,
Trademarks, Patents, and Mask Works to secure the obligations of Grantor
under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest,
whether presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and intending to be legally bound, as collateral
security for the prompt and complete payment when due of its obligations
under the Loan Agreement, Grantor hereby represents, warrants, covenants and
agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents, Trademarks and Mask Works
listed on Schedules A, B, C, and D hereto), and including without limitation
all proceeds thereof (such as, by way of example but not by way of
limitation, license royalties and proceeds of infringement suits), the right
to sue for past, present and future infringements, all rights corresponding
thereto throughout the world and all re-issues, divisions continuations,
renewals, extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Bank as a matter of law or equity.
Each right, power and remedy of Bank provided for herein or in the Loan
Agreement or any of the Loan Documents, or now or hereafter existing at law
or in equity shall be cumulative and concurrent and shall be in addition to
every right, power or remedy provided for herein and the exercise by Bank of
any one or more of the rights, powers or remedies provided for in this
Intellectual Property Security Agreement, the Loan Agreement or any of the
other Loan Documents, or now or hereafter existing at law or in equity, shall
not preclude the simultaneous or later exercise by any person, including Bank,
of any or all other rights, powers or remedies.
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IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly
authorized as of the first date written above.
GRANTOR:
Address of Grantor: Cardiac Science, Inc.
1176 Main St Bldg "C" By: /s/ Brett Scott
- ------------------------------ ------------------------------
Irving, CA 92614
- ------------------------------
Title: CFO
---------------------------
Attn: Brett Scott
-------------------------
BANK:
SILICON VALLEY BANK
Address of Bank:
By: /s/ [illegible]
- ------------------------------ ------------------------------
- ------------------------------
Title: Vice President
---------------------------
Attn:
-------------------------
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DEVELOPMENT AND MANUFACTURING AGREEMENT
This Development and Manufacturing Agreement dated August 21, 1998,
is entered into by ZEVEX Incorporated, a corporation organized and existing
under the laws of the State of Delaware with its principal business address
at 4314 ZEVEX Park Lane Salt Lake City, UT 84123 ("ZEVEX") and Cardiac
Science, a corporation organized and existing under the laws of the State of
Delaware with its principal place of business located at 1176 Main Street,
Bldg. C, Irvine, CA 92614, ("Cardiac Science"), each of whom is individually
referred to as a "Party" and both of whom are sometimes collectively referred
to as "Parties."
RECITALS:
A. Cardiac Science is engaged in the business, INTER ALIA, of
inventing medical devices, including the device described herein. ZEVEX has
experience and expertise in the design, engineering, and manufacture of medical
devices for the health care industry.
B. Upon and subject to the terms and conditions of this Agreement,
Cardiac Science desires to retain ZEVEX's services for a two-phase project:
(i) to provide development services for the development of a heart monitor
and defibrillator device (the "Product") and to fabricate prototypes of the
Product for verification testing and clinical validation; and (ii) if the
prototypes pass the System Verification Requirements (as defined below), to
manufacture the Product for delivery to Cardiac Science.
ARTICLE I
1.1 SCOPE OF WORK AND DEVELOPMENT. ZEVEX shall (a) complete the
electronic design of the Product in accordance with the specifications set
forth in the Product Specifications set forth in Appendix II attached hereto
and by reference made a part hereof (the "Product Specification"), (b)
accomplish System Verification Testing on the entire instrument as set forth
in the Statement of Work as set forth in Appendix III attached hereto and by
reference made a part hereof (the "Statement of Work"), and (c) acknowledge
and agree that, pursuant to purchase orders numbered 98010 and 98021 (the
"Purchase Orders"), ZEVEX has already commenced the engineering and
development efforts contemplated by this Agreement. Both the Parties agree
that the Purchase Orders are valid and binding and are attached hereto as
Appendix I and by reference made a part hereof.
1.2 DEVELOPMENT MILESTONES. ZEVEX shall develop Alpha units and Beta
units and verification testing in accordance with the Statement of Work set
forth in Appendix III. ZEVEX will
<PAGE>
diligently pursue completion of the work and will allocate sufficient staff and
technical resources and use its best efforts to meet the deadlines and complete
the work described herein. The parties shall cooperate to reach the market as
quickly as possible with a quality product.
1.3 DESIGN AND DEVELOPMENT -- REVIEW AND CHANGES. ZEVEX will hold
regular design reviews in accordance with its standard development operating
procedures, which procedures call for reviews of at least preliminary design
review, pre-product review, engineering release design review, and
post-design review. Cardiac Science shall be informed of the dates of these
design review meetings at least one week in advance. If Cardiac Science does
not attend, it will be required to sign off or provide comments on the
minutes of that review within two working days of actual receipt. Change in
project scope or specifications during development will be by mutual consent
and will be quoted separately by ZEVEX if necessary. ZEVEX agrees to use its
best efforts to accommodate Cardiac Science on such changes in scope and/or
specifications as may be reasonably requested by Cardiac Science with
appropriate changes in the purchase orders. Cardiac Science shall interface
with ZEVEX personnel as requested by ZEVEX.
1.4 SYSTEM VERIFICATION TESTING. For all sub-systems designed by
ZEVEX as defined in the Statement of Work, ZEVEX shall draft appropriate
verification protocol and perform the testing in Accordance with that
protocol. Cardiac Science shall author the system verification protocol and
Cardiac Science shall accomplish software verification and clinical
validation of the Product ("System Verification Testing"). Cardiac Science
has written the system protocol and ZEVEX shall test the system in accordance
with that protocol. Regulatory Standards Testing shall be managed by ZEVEX.
Third party testing shall be approved in advance by Cardiac Science and shall
be paid by Cardiac Science. Test materials shall be the exclusive property of
Cardiac Science and ZEVEX will not use them except as needed to perform
hereunder.
1.5 REJECTION OF WORK. Should Cardiac Science determine, in the
exercise of its reasonable good faith judgment, that any verification or
testing of ZEVEX's work (including, without limitation, testing does not
conform to applicable specifications, then Cardiac Science shall (i) notify
ZEVEX of such problems; and (ii) permit ZEVEX a reasonable opportunity to
make any necessary corrections. ZEVEX shall resubmit to Cardiac Science
revised testing or other work corrected to meet the relevant specifications
within thirty (30) days of notice to ZEVEX. Cardiac Science shall have
thirty (30) days after such resubmittal within which to notify ZEVEX in
writing of Cardiac Science's approval of the corrected work or of Cardiac
Science's discovery of any additional discrepancies between that work and the
relevant specifications.
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1.6 TOOLING AND FIRST ARTICLE SAMPLES. ZEVEX has estimated
circuit board tooling in Appendix IV attached hereto and by reference made a
part hereof (the "Deliverables.") Firm pricing will be provided once the
circuit design and layout are complete. Tooling will be approved by Cardiac
Science and invoiced by ZEVEX at cost as those costs are incurred. Design
and procurement of tooling for injection molded plastic parts is the
responsibility of Cardiac Science. Cardiac Science will utilize ZEVEX's
established vendors when possible, provided that pricing and quality are
competitive and approved by Cardiac Science. ZEVEX is responsible to qualify
all vendors per their system requirements. Cardiac Science can request a
requote of components.
1.7 COMPENSATION FOR PRODUCT DEVELOPMENT. In consideration for the
services rendered by ZEVEX for Product Development, ZEVEX shall be paid as
follows: 90,000 shares of Cardiac Science common stock (the "Shares") to be
issued as follows: 30,000 shares at the time of placement of the purchase
order, 30,000 shares at the time of acceptance of the Alpha units, and 30,000
shares at the time of completion of verification testing. In addition, ZEVEX
shall also be paid $339,360 as follows: $10,000 each upon placement of each
of the Purchase Orders, $129,480 upon Cardiac Science's acceptance of the
Alpha units, and $129,480 upon completion of verification testing. The
balance of $60,400 for outside laboratory testing and CPU circuit board
tooling shall be paid when incurred. The fact that Cardiac Science makes the
foregoing payments shall not imply Cardiac Science's acknowledgment that a
particular event or milestone has been achieved.
1.8 INVESTMENT REPRESENTATIONS. ZEVEX represents and warrants
that it is an "accredited investor" as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended, by
reason of being a corporation, not formed for the specific purpose of
requiring the Shares, with total assets in excess of $5,000,000. ZEVEX
further acknowledges that the Shares shall be restricted securities and
represents that the Shares are being acquired for its own account, for
investment and not for distribution or resale to others. ZEVEX acknowledges
receipt from Cardiac Science of the Annual Report on Form 10-KSB of Cardiac
Science for the year ended December 31, 1997, and the Quarterly Report on
Form 10-QSB of Cardiac Science for the quarter ended March 31, 1998, and all
other information regarding Cardiac Science which it has requested or desired
to know; that all documents which could reasonably be provided have been made
available for inspection and review and that ZEVEX has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of Cardiac Science concerning Cardiac
Science and an investment therein and any additional information which it has
requested.
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1.9 CONFIDENTIALITY AGREEMENT. Prior to execution of this agreement,
the parties have executed the Confidentiality Agreement attached hereto as
Appendix IV (the "Confidentiality Agreement.") In the event there is a conflict
between the terms of the Confidentiality Agreement and this Agreement, this
Agreement shall govern.
1.10 TECHNOLOGY OWNERSHIP. The parties agree as follows:
(a) Cardiac Science shall own all "Project Technology" which
shall be defined as: all inventions, improvements, discoveries,
designs, data, concepts, ideas, processes, methods, techniques,
now-how, and information respecting the Products conceived, made or
produced by ZEVEX during the course of performing design, engineering,
fabrication or manufacturing services under this Agreement, or made or
produced as the result of the joint efforts of ZEVEX and Cardiac
Science pursuant to this Agreement. The term "Project Technology"
shall exclude any of ZEVEX's proprietary processes used in the
manufacture of the Product.
(b) ZEVEX shall retain all of its "Technology and Manufacturing
Processes" which shall be defined as follows: its proprietary
electronic technology and processes and know-how and assembly and
manufacturing processes and technology and know-how, including such
technology and know-how concerning (i) developed or acquired by ZEVEX
prior to the exercise of this agreement or (ii) developed or acquired
by ZEVEX after such date where such development or acquisition is not
within the scope of the product or is not embodied in the Product.
(c) Nothing in this Agreement shall be deemed to prevent ZEVEX
from engaging in the design, engineering, fabrication or manufacture
of products embodying or using ZEVEX's Technology and Manufacturing
Processes; provided that such products do not embody or use any of
Cardiac Science's Confidential Information; and further provided that
such design, engineering, fabrication or manufacture of such products
would not otherwise constitute a breach of, or default under, this
Agreement.
1.11 PRIORITY AMONG CONTRACT DOCUMENTS. The whole of this Agreement
and Appendixes attached hereto are to be taken together so as to give effect to
every part thereof to the maximum extent practicable, with each document helping
to interpret the other. In the event of any conflict or inconsistency between
the terms of this Agreement and the terms of any other document, the terms of
this Agreement shall prevail.
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<PAGE>
ARTICLE 2
MANUFACTURING OBLIGATIONS
2.1 MANUFACTURING. During the term of this Agreement, ZEVEX shall
timely manufacture the Product in compliance with the Product Specifications
described in Appendix II (the "Manufacturing Services"). Both during the term
and following termination of this Agreement, ZEVEX shall not supply the Product
(or any prototype thereof) to any third party whatsoever. All Products shall be
produced with Cardiac Science's logo imprinted or molded thereon, as the
relevant Product Specifications may require.
2.2 PURCHASE ORDERS. Cardiac Science shall provide a six-month
rolling forecast which shall be updated at the end of each calendar month. The
first three months of this forecast will be a firm commitment for ZEVEX to
deliver and for Cardiac Science to accept deliveries. Cardiac Science shall
issue a purchase order for each lot of product purchased. The parties shall
cooperate to purchase long lead items and obtain quantity discounts beyond the
three-month rolling forecast described in Paragraph 2.1.
2.3 SHIPMENT. The delivery of each Purchase Order shall be within
the time specified in the Purchase Order. All deliveries to Cardiac Science are
F.O.B. Salt Lake City, Utah, at point of manufacture using ZEVEX's standard
carriers unless a preferred carrier is identified in writing by Cardiac Science.
All risk of loss after delivery to shipper is borne by Cardiac Science.
2.4 PURCHASE ORDER CANCELLATION. In the event Cardiac Science
cancels a Purchase Order and ZEVEX has complied with its obligations under this
Agreement, Cardiac Science shall be responsible for the next three months of
production identified in the rolling forecast plus any extended inventory
ordered in excess of that three-month requirement and mutually agreed upon by
the parties as set forth in accordance with Paragraph 2.2.
2.5 PRICING. Cardiac Science shall pay for production and testing
of the Product at 1.8 times the total cost of material (hereafter the "Costed
Bill of Materials"). Such prices do not include freight, insurance, state or
local taxes. The Costed Bill of Materials will be compiled from vendor
quotations approved by Cardiac Science. Engineering or vendor changes which
significantly impact (plus or minus 10%) the Costed Bill of Materials will be
grounds for adjusting production pricing prior to the completion of one full
production year. Pricing will remain fixed for a period of one year (subject
to significant changes as previously stated) and will be reviewed and
requoted annually.
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2.6 PAYMENT. Cardiac Science shall pay ZEVEX within 30 days of
receipt of ZEVEX's invoice.
2.7 WARRANTY. ZEVEX warrants and represents that it shall strictly
adhere to the Product Specification set forth in Appendix III attached hereto
and by reference made a part hereof. ZEVEX warrants and represents that it has
the requisite and necessary experience, all necessary licenses and permits,
equipment, facilities and personnel to properly perform the Manufacturing
Services, and further warrants and represents that it is not a party to any
other agreement that would in any way conflict with, or restrict, its ability to
perform the Manufacturing Services.
2.8 DEFECTIVE PRODUCTS. ZEVEX warrants for a period of 15 months
from shipment that all Products sold to Cardiac Science shall be free from any
defects in ZEVEX design, materials, workmanship and shall conform to Product
Specification, excluding software. Warranty and non-warranty repair services
shall be provided at ZEVEX's Salt Lake City facilities F.O.B. ZEVEX will use
its best efforts to repair defective products as quickly as possible with
"turnaround time" to be four (4) weeks from receipt at the ZEVEX facility.
Non-warranty service pricing shall be negotiated in good faith at such time as
those services can be identified and the associated parts and labor costs are
known by the parties. ZEVEX hereby excludes all warranties not herein stated,
whether express or implied by operation of law, course of dealing, trade usage,
representation, statement or otherwise.
2.9 PRODUCTION TOOLING AND FIXTURES. Cardiac Science shall pay for
and retain title to any production tooling. ZEVEX shall be responsible for
periodic maintenance costs associated with tooling. Should any tooling require
replacement, ZEVEX shall receive approval from Cardiac Science to replace the
tooling and Cardiac Science shall be responsible for cost of placement.
2.10 DESIGN CHANGES AFTER PRODUCTION. Any required changes in design
will be negotiated. Any charges for obsolete parts shall be paid by Cardiac
Science.
2.11 CHANGE OF CONTROL. In the event that Cardiac Science is
acquired or merges with another organization, whereby, directly or indirectly,
control in excess of 50% of the Company or all or substantially all of its
business or assets is acquired by a third party in a sale or exchange of stock,
merger or consolidation, sale of assets or other similar transaction and the
successor corporation desires to be released from this contract, the following
shall apply: (a) Cardiac Science or the successor corporation may elect to
terminate this Agreement, without cost except as set forth in this paragraph,
(b) the successor corporation shall be responsible for the three guaranteed
months of firm product deliveries and parts specified in paragraph 2.2, and (c)
ZEVEX will, at that time, be awarded up to ninety thousand
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<PAGE>
(90,000) shares (the "Termination Shares") of Cardiac Science common stock (as
adjusted for splits or combinations). ZEVEX will then be free to approach the
new organization and negotiate the possible continuation of manufacturing
business. If this Agreement is so terminated during the first two years of the
Agreement, ZEVEX will be entitled to 100% of the Termination Shares. After the
end of two years, the number of Termination Shares decreases to 70% of the
Termination Shares; and at the end of three years, the amount decreases another
30% to 40%; and at the end of four years, the amount decreases another 30% to
10%, then decreases to 0% at the end of the fifth year.
ARTICLE 3
REGULATORY RESPONSIBILITY; TRADEMARKS
3.1 REGULATORY APPROVALS. Cardiac Science shall undertake and be
responsible for the procurement of any and all regulatory approvals and/or
registrations and customs approval necessary for sale of the Product. Cardiac
Science shall be responsible for complying with the U.S. Food, Drug and Cosmetic
Act, Medical Device Amendments and the regulations promulgated thereunder for
sale of the Products under Cardiac Science's private label in the United States
("FDA Approval"). ZEVEX shall aid and cooperate with, where appropriate,
Cardiac Science in fulfilling the responsibilities set forth in this paragraph.
3.2 ZEVEX'S QUALIFICATIONS. ZEVEX is an FDA registered instrument
manufacturer and is ISO 9001 and EN 46001 certified and shall notify Cardiac
Science of any change in that status during the term of this agreement. Should
ZEVEX lose its status as an FDA registered instrument manufacturer or lose its
ISO 9001 and EN 46001 certification, it shall have a period of 30 days to have
the certification reinstated and if not reinstated within this cure period,
Cardiac Science shall have the right to terminate this contract in accordance
with paragraph 5.3.
3.3 TRADEMARKS. Cardiac Science shall have the sole right to
prepare, file, prosecute and maintain trademark applications or registrations
with respect to the Product. All such applications and registrations shall be
at Cardiac Science's expense. Cardiac Science shall retain ownership of these
applications and registrations throughout the term of this Agreement and
thereafter. ZEVEX shall from time to time, as Cardiac Science may deem
appropriate, execute and deliver to Cardiac Science any documents of transfer or
assignment relating to the Product and cooperate fully in obtaining whatever
approval or product protection that Cardiac Science may deem desirable or
appropriate.
3.4 PUBLIC RELEASE OF INFORMATION. Any public statement, verbal or
written, regarding the other party shall be approved by the other party in
advance. Cardiac Science approves
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<PAGE>
the use of images of the Product by ZEVEX advertising, including printed
advertising materials, Internet web page, trade show booth exhibits and
broadcast media. The foregoing shall not prevent either party from issuing a
press release or making a public filing where required by law.
ARTICLE 4
PRODUCT LIABILITY
4.1 NOTICE OF PRODUCT LIABILITY CLAIMS. Each Party shall notify the
other promptly in writing of any product liability claim brought with respect to
the Product based on alleged defects in the design, manufacture, packaging, or
labeling of the Product or other adverse claim regarding the Product. Upon
receiving such written notice, Cardiac Science shall assume and have sole
control of the defense of any such claim, including the power to conduct and
conclude any and all negotiations, compromises or settlements. ZEVEX shall
promptly comply with all reasonable requests from Cardiac Science for
information, materials or assistance with respect to the conduct of such
defense.
4.2 NOTICE OF INVESTIGATION. ZEVEX and Cardiac Science shall
promptly notify each other of any potential or actual investigation or
governmental activity relating to the Product.
4.3 PRODUCT LIABILITY INSURANCE. During the term of this Agreement,
both parties, at their individual expense, shall maintain in force and effect
product liability insurance at a minimum liability limit of four (4) million
dollars covering the Product.
ARTICLE 5
TERM AND TERMINATION; FORCE MAJEURE
5.1 INITIAL TERM. Unless terminated sooner pursuant to the further
provisions of this Article, this Agreement shall expire five years from the date
hereof.
5.2 EXTENSIONS. Cardiac Science has three successive options to
extend the term of Agreement for a period of one (1) additional year (an
"Extension Period"). Cardiac Science's right to exercise each option to extend
the Agreement for another year is expressly conditioned upon Cardiac Science not
being in default under this Agreement at the time the option is exercised and
not being in default between the time the option is exercised and the start of
the Extension Period.
5.3 TERMINATION BY CARDIAC SCIENCE. Cardiac Science shall have the
right to terminate this agreement if ZEVEX fails to
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perform in accordance with this agreement and its appendices and fails to cure
such default within 90 days of written notice.
5.4 TERMINATION BY ZEVEX. ZEVEX shall have the optional right to
terminate this Agreement on written notice to Cardiac Science if Cardiac Science
(a) has failed to make any payments required by this Agreement in the time
provided therefor and (b) following fourteen (14) days' notice of such failure
from ZEVEX, Cardiac Science does not pay all delinquent sums in full.
5.5 TERMINATION BY EITHER PARTY. In addition to their respective
rights set forth in paragraphs 5.3 and 5.4, either party shall have the right to
terminate this agreement on written notice to the other party under the
following circumstances:
(a) by mutual agreement;
(b) if the other party materially defaults in the performance
of any material obligation hereunder (including failing to meet a
milestone on a timely basis as set forth in the Statement of Work and
such default continues for more than thirty (30) business days after
receiving written notice from the other party of such default;
provided, however, there shall be no default under this provision if
the defaulting party has cured the default within sixty (60) business
days after the giving of notice;
(c) in the event that the other party is declared insolvent, or
bankrupt by a court of competent jurisdiction, or a voluntary petition
of bankruptcy is filed in any court of competent jurisdiction by such
other party, or such other party shall make or execute an assignment
for the benefit of creditors, or a receiver is appointed by a court of
competent jurisdiction over all or a substantial portion of the other
party's assets and such receivership is not dismissed within 30 days
of appointment, or
(d) in the event of the issuance of a final order, decree or
other action by any competent judicial authority or governmental
agency which restrains, enjoins or prohibits the sale or introduction
into interstate commerce of the System and such restraint, injunction
or prohibition is not vacated within 30 days thereafter.
5.6 SURVIVAL. The termination or expiration of this Agreement shall
be without prejudice (a) to the rights of any party to receive upon its request
all payments accrued and unpaid, or all documents, data and deliverables not
delivered, as of the date of such expiration or termination; (b) the rights and
remedies of either party with respect to any previous breach or
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default under any representation, warranty or covenant herein contained; and
(c) rights under any other provision of this agreement which expressly and
necessarily calls for performance after expiration or termination.
5.7 FORCE MAJEURE. If the performance of this Agreement or of any
obligation hereunder is prevented, or restricted or interfered with by reason of
any event of Force Majeure, the Party so affected, upon prompt notice to the
other Party, shall be excused from performance, but only for the duration of
such inability, provided that the Party so affected shall use its best effort to
avoid or remove such causes of nonperformance, and shall continue performance
hereunder with the utmost dispatch whenever such causes are removed.
ARTICLE 6
PRODUCT LIABILITY
6.1 ZEVEX INDEMNITY. ZEVEX agrees to indemnify, defend and hold
harmless Cardiac Science or any of their respective customers, against any claim
arising out of or relating to any loss or damage, including bodily injury or
death, incurred by reason of or resulting from a defect in the product
proximately caused by ZEVEX's design, engineering, fabrication, manufacture,
packaging or labeling thereof; provided that the Product is used for its
intended purpose.
6.2 CARDIAC SCIENCE'S INDEMNITY. Cardiac Science shall indemnify,
defend and hold ZEVEX harmless against any claim arising out of or relating to
any loss or damage, including bodily injury or death, incurred by reason or
resulting from any defect in the Product, which is not caused by reason of or
resulting from a defect in the Product proximately caused by ZEVEX's design,
engineering, fabrication, manufacture, packaging or labeling thereof, provided
that the Product is used for its intended purpose.
ARTICLE 7
MISCELLANEOUS
7.1 NOTICES. Any notices required or permitted to be given to a
Party hereunder:
(a) shall be in writing;
(b) shall be delivered or sent to such Party at its address
given below:
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(i) if to ZEVEX:
ZEVEX, INC.
4314 ZEVEX Park Lane
Salt Lake City, UT 84123
Attn: Mr. Dean Constantine
Telephone: (801) 264-1001
Facsimile: (801) 264-1051
(ii) if to Cardiac Science:
Cardiac Science
1176 Main Street, Building C
Irvine, CA 92614
Attn: Raymond W. Cohen
Telephone: (949) 587-0357
Facsimile: (949) 951-3715
or such other address as such Party may hereafter specify; and
(c) shall be deemed given (i) when personally delivered to such
Party; (ii) when transmitted by telecopy and receipt of such
transmission is confirmed by telecopy; (iii) 24 hours after dispatch
via an established overnight courier service; or (iv) three (3) days
after mailing by prepaid first class, certified mail with return
receipt requested.
7.2 ATTORNEYS' FEES. In the event of any litigation, arbitration,
judicial reference or other legal proceeding involving the Parties to this
Agreement to enforce any provision of this Agreement, to enforce any remedy
available upon default under this Agreement, or seeking a declaration of the
rights of either Party under this Agreement, the prevailing Party shall be
entitled to recover from the other such attorneys' fees and costs as may be
reasonably incurred, including the costs of reasonable investigation,
preparation and professional or expert consultation incurred by reason of such
litigation, arbitration, judicial reference, or other legal proceeding.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Utah, without regard to the
principles of conflicts of laws of such State.
CARDIAC SCIENCE ZEVEX INCORPORATED
a Delaware corporation a Delaware corporation
By: [ILLEGIBLE] By: [ILLEGIBLE]
------------------------ ------------------------
Its: CEO/Secretary Its: CEO
-------------------- --------------------
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<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
BETWEEN
INNOVATIVE PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING),
AND
BIOSENSOR CORPORATION
DATED DECEMBER 31, 1998
<PAGE>
Schedule 1.1.6 Records Transferred
Schedule 2.1 Assumed Liabilities
Schedule 4.3(i) Real Property
Schedule 4.3(ii) Executory Contracts
Schedule 4.3(iii) Intangible Property Rights
Schedule 4.3(iv) Permits
Schedule 4.3(v) Contracts, Agreements, Leases Requiring Consent
Schedule 4.3(vi) Personal Property
Schedule 4.3(vii) Inventory
Schedule 4.3(viii) Accounts Receivable
Schedule 4.3(ix) Accounts Payable and Accrued Expenses
Schedule 4.3(x) Equipment
Schedule 4.13 Environmental Matters
Schedule 5.5 Capitalization
<PAGE>
LIST OF EXHIBITS
Exhibit A Condensed Balance Sheet
<PAGE>
AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS
This Agreement for Purchase and Sale of Assets is made December 31, 1998
by and between Innovative Physician Services, Inc. (DBA Diagnostic
Monitoring), a Nevada corporation ("Seller"), and Biosensor Corporation, a
Minnesota corporation ("Purchaser").
RECITALS:
A. Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, on the terms and subject to the conditions set forth in
this Agreement, a product line (collectively, the "Product Line")
consisting of certain assets and operations conducted on the date
hereof by Seller under the name "Diagnostic Monitoring" (including,
without limitation, the distribution of certain medical monitoring
devices).
NOW, THEREFORE, in consideration of the premises, the respective covenants
and commitments of Seller and Purchaser set forth in this Agreement, and
other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties agree as follows:
1.0. PURCHASE AND SALE OF ASSETS
1.1 ASSETS: In reliance on the representations, warranties and
covenants contained in this Agreement, on the Closing Date, but with effect
as and from 11:59:00 p.m. local time in Columbia, S.C. on December 31,
1998, Seller shall sell, assign, deliver and transfer to Purchaser, and
Purchaser agrees to purchase and acquire from Seller, free and clear of all
Encumbrances and on the terms and subject to the conditions set forth in
this Agreement, those certain assets set forth below in this Section 1.1,
and including those assets identified on Schedules prepared in accordance
with Section 4.3, owned by Seller and used in the manufacture and
distribution of the Product Line distributed by Seller under the name
Diagnostic Monitoring (the "Assets"). The parties acknowledge that the
Assets totaled approximately $251,000 on November 30,1998.
1.1.1. INVENTORIES, PURCHASE CONTRACTS; All inventories of supplies, raw
materials, parts, finished goods, work-in-process, product labels and
packaging materials, all third party manufacturers' warranties applicable
to the inventories, all orders or contracts for the purchase of
inventories, raw materials, parts, or supplies ordered by Seller in the
ordinary course of business under the name Diagnostic Monitoring prior to
the Closing Date;
1.1.2. MACHINERY, TOOLING; All machinery, equipment, fixtures and other
fixed assets used by Seller in manufacturing, procuring, testing or
distributing the Product Line.
1.1.3. ENGINEERING AND PRODUCTION DATA. All blueprints, drawings, forms,
raw material specifications, manufacturing specifications, quality
assurance specifications, engineering data, production data, development
data, design data, formulae, plans, and other data owned by Seller and used
in connection with the Product Line, whether such properties are located on
the site at which business is being conducted or on the business premises
of Seller's suppliers;
1.1.4 EXECUTORY CONTRACTS. To the extent assignable, all executory
licenses, contracts, agreements, sales orders, purchase orders and
commitments relating to the Product Line including, without limitation,
those listed on Schedule 4.3(ii) and (v) to this Agreement, with such
additions
<PAGE>
and deletions as may hereafter arise in the ordinary course of business,
excluding, however, all facility leases;
1.1.5. INTANGIBLE PROPERTY RIGHTS. All intangible property rights used
in connection with the Product Line, including patents, patent
applications, copyrights, copyright applications, trade names (including
the name "Diagnostic Monitoring" and any and all other names similar to the
foregoing), trade dress, goodwill, trademarks or service marks, registered
or unregistered and applications therefor, logos, processes, computer
programs and software, inventions, trade secrets, discoveries,
improvements, drawings, designs, patterns, know-how, manufacturing
standards and procedures, computer software, data bases, product names, Web
page, internet domain names and other intellectual property rights listed
on Schedule 4.3 (iii) to this Agreement, with such additions and deletions
as may hereafter arise in the ordinary course of business (collectively,
the "Intangible Property Rights");
1.1.6. BOOKS AND RECORDS. Originals (or, where appropriate, copies) of
all books, accounting records, records and other documents and information
relating to the Assets and the Product Line as specified on Schedule 1.1.6,
including, without limitation, all customer, prospect, dealer and
distributor lists, sales literature, inventory records, purchase orders and
invoices, sales orders and sales order log books, customer information,
commission records, correspondence, outstanding proposals, product data,
price lists, product demonstrations, quotes and bids, catalogues and
brochures of every kind and nature;
1.1.7. ACCOUNTS RECEIVABLE. All accounts receivable owing to Seller on
the Closing Date, as a result of sales of the Product Line prior to the
Closing Date, listed on Schedule 4.3 (viii) to this Agreement, with such
additions and deletions as may hereafter arise in the ordinary course of
business (collectively, the "Accounts Receivables");
1.1.8. TELEPHONE LISTINGS. Seller's current telephone listings for
Diagnostic Monitoring and the right to use the telephone numbers currently
being used at the principal offices and at any sales, warehouse, or
distribution facilities of the Product Line;
1.1.9. PERMITS. To the extent assignable, all permits, licenses and
other approvals (including Food and Drug Administration approvals) relating
to the Product Line as listed on Schedule 4.3(iv) to this Agreement, with
such additions and deletions as may hereafter arise in the ordinary course
of business;
1.1.10. PREPAID EXPENSES AND DEPOSITS. All prepaid expenses and deposits
required for the operation of the Product Line or relating to the Assets;
1.1.11. GOODWILL. All goodwill associated with or attributable to the
Product Line;
1.1.12. CLAIMS. All of the Seller's right, title and interest to claims
and causes of action relating to the Assets or the Product Line;
1.1.13. RIGHTS. Seller's rights under all supply agreements, customer
agreements, licenses, and other contracts relating to Diagnostic Monitoring
to which it is a party; but not including any facility leases;
1.1.14 OTHER All other assets that are related to or used in connection
with Seller's business and that are owned by Seller, or by any affiliate of
Seller.
<PAGE>
1.2 EXCLUDED ASSETS: Assets do not include any books and records of
account of Seller, cash, and personal property or equipment other than
those identified on Schedules 1.1.6 and 4.3(x).
2.0 ASSUMPTION OF LIABILITIES.
2.1 OBLIGATIONS TO BE ASSUMED BY PURCHASER. Purchaser agrees to assume
and to pay, perform and discharge in accordance with their respective
terms, from and after the Closing Date, each of the following obligations
or commitments of Seller (the "Assumed Liabilities"):(A) trade accounts
payable and accrued expenses incurred in the normal course of business and
directly associated with the Product Line sold under the name Diagnostic
Monitoring (excluding employment and travel expenses incurred by Victor
Bravo through the Closing Date), to be agreed upon by Purchaser and Seller
prior to Closing and a complete schedule of which is attached as Schedule
2.1, and (B) warranty obligations accrued in the ordinary course of
business for Seller, but solely with respect to 1/0 board patient recorders
which have been sold or delivered prior to the Closing Date, but only if
and to the extent the same have not been paid or discharged prior to the
Closing Date. The parties acknowledge that the foregoing liabilities and
obligations, excluding warranty obligations, if any, referred to in (B)
above, totaled approximately $110,000 as of November 30, 1998. Assets
less Assumed Liabilities ("Net Book Value") shall not be less than
$100,000. Any special obligations or liabilities, if any, to employees, or
ex-employees of Seller are not assumed by Purchaser.
The assumption by Purchaser of the Assumed Liabilities shall not enlarge
any rights of any person under contracts or arrangements with Seller.
Nothing contained herein shall prevent Purchaser from contesting in good
faith any of the Assumed Liabilities with any third party obligee.
3.0 PURCHASE PRICE
The purchase price for the Assets shall equal the aggregate of (i) the
Assumed Liabilities, and (ii) 1,440,000 shares of common stock of
Purchaser (this amount represents the "Initial Purchase Price"), subject to
the post closing adjustments provided in Section 3.1. On the Closing Date,
Purchaser shall (I) assume the Assumed Liabilities, and (II) issue to
Seller 1,440,000 shares of its common stock. Seller acknowledges that
Purchaser has proposed a one share for six reverse stock split that is
pending shareholder approval, and upon approval of same the consideration
hereunder shall represent 240,000 shares, all as described in Purchaser's
Preliminary Proxy Statement filed with the Securities and Exchange
Commission on December 4, 1998. Following the reverse stock split (A) there
will be a total of approximately 3,125,000 shares of Purchaser's common
stock outstanding, (B) no preferred stock issued and outstanding, and (C)
options, warrants, convertible securities and other commitments for an
additional ________ shares of its common stock outstanding. Seller
acknowledges that the most recent price paid by new investors of
Purchaser's common stock was in May of 1998, and was the equivalent of
$2.08 per share (on a post-reverse stock split basis).
3.1 POST CLOSING ADJUSTMENT. The Initial Purchase Price is based on the
assumption that the Net Book Value of the Business will be at least
$100,000 as of the Closing Date. Within twenty (20) days after the Closing
Date, Seller shall cause to be prepared and delivered to Purchaser an
unaudited list of Assets and Assumed Liabilities for the Product Line as of
the close of business on the Closing Date (the "Closing Balance Sheet") and
a computation of the Net Book Value of the Product Line as of the Closing
Date. The Closing Balance Sheet shall be prepared in conformity with
generally accepted accounting principles ("GAAP"), applied on a basis
consistent with Seller's Financial Statements and shall present fairly the
Assets and Assumed Liabilities of Seller as of that date; provided that
there shall not be included in the Closing Balance Sheet any asset which is
an Excluded Asset.
<PAGE>
Within ten (10) days after the delivery of the Closing Balance Sheet,
Purchaser may notify Seller in writing of any objections or changes to the
Closing Balance Sheet or computation of Net Book Value, specifying in
reasonable detail any such objections or changes, and the parties shall
attempt in good faith to resolve any such dispute. If the parties cannot
resolve such dispute within a period of twenty (20) days commencing from
Seller's receipt of the Purchaser's notification, the parties shall submit
the matter to McGladrey Pullen, LLP (the "Accountant") whose decision with
respect to the disputed matter shall be binding on the parties. The
prevailing party shall be entitled to receive from the other party its
costs and expenses, including reasonable attorneys fees in connection with
its objection or defense to the calculation of Net Book Value. The fees
and expenses of the Accountant shall be paid by the party against whom a
decision is rendered. The prevailing party shall be the party whose
proposed Net Book Value is closest to the Net Book Value finally determined
by the Accountant.
If the Net Book Value as of the Closing Date, as finally determined as
provided in this Section 3.1, is less than $100,000, the Seller shall pay
to Purchaser the amount of the deficit in cash; and if the Net Book Value
is greater than $100,000, Purchaser shall pay to Seller the amount of the
excess in additional shares of common stock based on a pre-reverse split
value of $0.3472 per share, not to exceed 210,000 additional shares (or
35,000 shares post reverse stock split).
3.2 UNREGISTERED SHARES All shares of common stock of the Purchaser
issued to the Seller will not have been registered under the Securities Act
of 1933, as amended (the "Act"), on the basis that (i) this transaction is
exempt under the Act and such shares shall have the status of securities
acquired under Section 4(2) of the Act, as not involving any public
offering, and (ii) in the view of the Securities and Exchange Commission
(the "SEC"), the statutory basis for the exemption would not be present,
if, notwithstanding the forgoing, the Seller has a present intention to
dispose of such shares or any portion thereof.
3.3 PIGGYBACK REGISTRATION RIGHTS All of the shares of common stock of
the Purchaser issued to the Seller shall have "piggy back" registration
rights to be included in the next registration statement filed by the
Purchaser with the Securities and Exchange Commission. Purchaser has a
current intention to file an S-4 Registration Statement during the first
calendar quarter of 1999, but no assurance can be given that any
Registration Statement will be filed, or if filed, whether it will become
effective. If registered under the Act, Seller's shares of Purchaser's
stock shall also be registered under such state securities laws as Seller
may reasonably request.
3.4 SELLER'S RELIANCE ON PURCHASER'S FINANCIAL AND OTHER INFORMATION
PUBLICLY ON FILE. In determining the value of the securities to be
issued in exchange for the Assets purchased, Seller acknowledges that it is
relying solely on the financial and other information regarding the
Purchaser's financial condition, operating results and business and other
matters that is on file with the Securities and Exchange Commission (Forms
10-KSB, 10-QSB, 8-K and Preliminary Proxy Statements). Such financial
information has been prepared in accordance with GAAP, is audited where
appropriate, and to the best of the Purchaser's belief is current as
regards SEC filing requirements. Seller further acknowledges that
Purchaser has not made and is not making any representations or warranties
with respect to itself other than as expressly set forth in this Agreement
and for the information contained in its materials filed with the
Securities and Exchange Commission.
4.0 REPRESENTATIONS AND WARRANTIES OF SELLER.
As a material inducement to Purchaser to enter into this Agreement and with
the understanding that Purchaser will be relying thereon in consummating
the transactions contemplated by this Agreement, Seller represents and
warrants to Purchaser as follows:
<PAGE>
4.1 CORPORATE AUTHORIZATION. Seller has full corporate power and
authority to enter into this Agreement and to sell the Assets and the
Product Line in accordance with the terms of this Agreement. The
execution, delivery and performance of this Agreement by Seller, and all
other agreements or instruments to be executed by Seller pursuant to this
Agreement, have been duly and effectively authorized by its board of
directors and its sole shareholder, and no other corporate proceedings on
its part are necessary to authorize this Agreement or the transactions
contemplated by this Agreement. This Agreement constitutes, and such other
agreements or instruments will constitute, the legal, valid and binding
obligations of Seller and Cardiac Science, Inc. ("CSI"), enforceable in
accordance with their respective terms, except as enforcement may be
limited by bankruptcy, insolvency, or other similar laws affecting the
enforcement of creditors' rights in general, moratorium laws or by general
principles of equity.
4.2 NO LIENS OR ENCUMBRANCES. Seller has, and on the Closing Date will
transfer and convey to Purchaser, good, marketable and insurable title to
the Assets, and, except as set forth in this Agreement and the Schedules
hereto, the Assets shall be free and clear of all mortgages, liens,
claims, charges, encumbrances, leases, security interests, pledges, and
title retention agreements of any kind or nature (collectively,
"Encumbrances")
4.3 SCHEDULES. Each of the following schedules, which have been
furnished to Purchaser by Seller and which are incorporated into this
Agreement by reference, is complete and the information contained in the
schedules is correct in all material respects as of the date of this
Agreement:
SCHEDULE 4.3(i) This Schedule contains a description of each
lease of real property of Seller with respect to the Product Line.
SCHEDULE 4.3(ii) This Schedule lists the following executory
agreements, whether oral or written, to which Seller is a party,
that relate to the Product Line:
(1) Each contract with any dealer, distributor, broker, agent or
sales representative;
(2) Each contract, agreement, or commitment for delivery by Seller
of its products or services for more than $___________ or over a
period of more than thirty (30) days from the date of this
Agreement.
SCHEDULE 4.3(iii): This Schedule lists all Intangible Property
Rights owned by Seller and used or useful in the manufacture and
distribution of the Product Line.
SCHEDULE 4.3(iv): This Schedule lists all permits, licenses and
other approvals (including Food and Drug Administration approvals)
and authorizations including, without limitation, those required
under the Environmental Laws, issued to the Seller related to the
Product Line, and sets forth the title, issuing agency and expiration
date thereof.
SCHEDULE 4.3(v): This Schedule lists all contracts, agreements,
leases, documents, permits, and licenses relating to the Product Line
required to be listed on any of the Schedules described in this
Section 4.3 (including governmental and regulatory bodies and
agencies) requiring the consent or approval of a third party to
Seller's sale or assignment and Purchaser's assumption of such
contracts, agreements, leases, documents, permits and licenses
on the Closing Date.
SCHEDULE 4.3(vi): This Schedule lists all personal property owned
by any third party (whether a customer, supplier or other person)
relating to the operation of the business of the Product Line for
which the Seller is responsible.
<PAGE>
SCHEDULE 4.3(vii): This Schedule lists all inventory relating to the
Product Line which will include cost, location and item.
SCHEDULE 4.3(viii):This Schedule lists all trade accounts receivable
relating to the Product Line which will include customer name, invoice
number, and amount due.
SCHEDULE 4.3(ix): This Schedule will list all accounts payable and accrued
expenses relating to the Product Line which will include vendor name,
invoice number and amount due.
SCHEDULE 4.3(x): This Schedule will list all equipment relating to the
Product Line which will include a brief description, cost and location.
4.4 SELLER AS AN INVESTOR IN THE PURCHASER'S SECURITIES Seller
acknowledges that in accepting Purchaser's common stock as payment for the
Assets, Seller becomes an investor in the common stock of the Purchaser, and
in that capacity Seller represents and warrants to and with Purchaser as
follows:
4.4.1 HIGH DEGREE OF RISK Seller acknowledges that investment in
Purchaser's stock is speculative and involves a high degree of risk and the
possible loss of its entire investment.
4.4.2 REVIEW OF AVAILABLE FINANCIAL INFORMATION Seller is familiar with
the operations of the Purchaser, has evaluated the merits and risks of this
transaction, has made its independent judgment as to the value of the
securities to be issued in exchange for the Assets purchased by reviewing
the financial and other information regarding the Purchaser that is
publicly available and on file with the Securities and Exchange Commission
(Forms 10-KSB, 10-QSB, 8-K and Preliminary Proxy Statements). Seller has
had the opportunity to request additional information and to ask questions
and receive answers concerning the business operations of Purchaser, and is
satisfied with the results of it investigation of the Purchaser.
4.4.3 ACQUIRED SHARES FOR INVESTMENT Seller is acquiring the
Purchaser's shares in good faith for the purpose of investment in the
Purchaser and not for the purpose of distributing or publicly selling the
shares to others, reselling, assigning, pledging or hypothecating the
shares, or dividing its participation in ownership of the shares with
others, except that Seller may transfer the shares to its parent company,
CSI.
4.4.4. UNREGISTERED SHARES. Seller understands and acknowledges that it
has been advised by the Purchaser that shares of the common stock of
Purchaser will not have been registered under the Act, on the basis that
(i) this transaction is exempt under the Act and the shares shall have the
status of securities acquired under Section 4(2) of the Act, as not
involving any public offering, and (ii) in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for the exemption
would not be present, if, notwithstanding the forgoing, the Seller has a
present intention to dispose of such shares or any portion thereof. Seller
acknowledges that the Purchaser is relying on the statutory exemption from
the registration requirements under the Minnesota Securities Act, basing
its reliance in part on the Seller's representations set forth in this
agreement.
4.4.5. [INTENTIONALLY OMITTED]
4.4.6. NO ASSURANCE OF LIQUIDITY Seller recognizes that the Purchaser
may not comply in the future with the requirements which would permit it to
sell the shares of Purchaser pursuant to Rule 144. As such, Seller agrees
that such shares may have to be held for an indeterminate period of time.
Seller understands that the certificates representing the shares shall be
stamped with a legend in substantially the following form:
<PAGE>
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933 or
under applicable state securities laws and may not be sold,
transferred, or pledged in the absence of such registration,
unless pursuant to an exemption from the registration
requirements of the Securities Act of 1933 and applicable state
securities laws. The Company reserves the right to require on
opinion of counsel satisfactory to it before effecting any
transfer of the shares."
Purchaser's shares cannot be expected to be readily liquidated,
if at all. Seller is aware that there is currently a very limited
public market for the shares of Purchaser and that there is no
assurance that a more liquid market will develop.
4.4.7 FORWARD LOOKING STATEMENTS NOT INDICATIVE Seller acknowledges
that the available financial statements and forecasts cannot be
relied upon as an indication of future results. Future operations of
Purchaser will be dependent, in part, on the market acceptance of its
products, "Health Care Reform" legislation, health insurance
reimbursement policies, the status of the economy and its effect on
the market for diagnostic health care products, competition, changes
in demographic characteristics of the market or shifts in emphasis
regarding health care, and on management's ability to control
operating expenses. Many of these factors cannot be controlled by
Purchaser. No representation had been made that actual results of
operations will conform to historical results or forecasted results.
4.5 LAWSUITS; PROCEEDINGS; ETC. Seller is not engaged in any legal
action or other proceedings before any court or administrative agency.
Seller is not a party to any action or proceeding, nor has Seller been
threatened with any such action or proceeding, nor, to the Knowledge of
Seller, does there exist any basis therefor, which will or could have a
material adverse effect on the condition, financial or otherwise, of the
Assets or the Product Line. No order, writ, injunction or decree has been
issued by, or requested of, any court or governmental agency which does or
may result in any material adverse change in the Assets or in the selling
or servicing of the Product Line.
4.6 ASSETS. All of the tangible Assets, whether or not reflected on the
Balance Sheet, are being acquired by Purchaser on an "as-is, where is"
basis. Except as otherwise set forth in this Agreement, SELLER MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO ANY SUCH ASSETS ACQUIRED BY
PURCHASER HEREUNDER, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. The Assets constitute
all of the operating assets and properties that have been used by Seller in
the manufacturing and distribution of the Product Line and comprise all
those properties, assets and rights of Seller necessary to operate the
Product Line under the name Diagnostic Monitoring in the ordinary course of
business.
4.7 INVENTORY: All inventories reflected on Schedule 4.3 (vii) are stated
at the lower of cost or market value determined using the first-in,
first-out ("FIFO") method of accounting. All inventories reflected on such
Schedule shall be stated at the lower of cost or market determined using
the FIFO method of accounting. All inventories reflected on such Schedule
are used in the manufacture and distribution of the Product Line, regularly
offered from current price lists. All inventories are being acquired by
Purchaser on an "as-is, where is" basis. Except as otherwise set forth in
this Agreement, SELLER MAKES NO WARRANTIES, EXPRESS OR IMPLIED, WITH
RESPECT TO ANY INVENTORIES, WORK IN PROGRESS OR RAW MATERIALS ACQUIRED BY
PURCHASER HEREUNDER, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
4.8 COMPLIANCE WITH LAWS; PERMITS. Seller has complied in all material
respects with all applicable statutes, regulations, orders, ordinances and
other laws of the United States of America, all state, local
<PAGE>
and foreign governments and other governmental bodies and authorities,
and agencies of any of the foregoing to which they are subject in
connection with the operation of the Product Line under the name
Diagnostic Monitoring. Seller has not received any notice to the effect
that, or otherwise been advised that, Seller is not in compliance with
any of such statutes, regulations and orders, ordinances, other laws or
undertakings as they might relate to any manner whatsoever to the Product
Line.
4.9 INTANGIBLE PROPERTIES. The Intangible Property Rights listed on
Schedule 4.3 (iii) to this Agreement are all those used by or useful to the
Product Line and are valid and in full force and effect. All patents,
copyrights and trademarks have been duly registered or filed in the United
States Patent and Trademark Office, and such registrations have been
properly maintained and renewed in accordance with all applicable laws,
rules and regulations.
Seller has good and marketable title to and owns or exclusively holds all
rights to use, free and clear of all liens, claims, restrictions, and
infringements, the Intangible Property Rights. The Intangible Property
Rights are valid, subsisting, enforceable and in full force and effect.
There is no infringement or other adverse claim pending against any of the
Intangible Property Rights. In connection with the operation of the
Business, Seller is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees or otherwise with respect to
third-party patents, trademarks, copyrights or other intellectual property
in connection with the conduct of the Business.
4.10 CHANGES IN CUSTOMERS OR SUPPLIERS. Seller has not received any
notice that any major customer or supplier of the Product Line intends to
terminate, limit or reduce its business relations with Seller either
currently or following the consummation of the transactions contemplated by
this Agreement. No customer or supplier which was material to the Product
Line in the past twelve month period has terminated, materially reduced or,
to the knowledge of Seller, threatened to terminate or materially reduce
its purchases from or provision of products or services to the Product
Line.
4.11 BROKERS OR FINDERS. No person, firm or corporation has or will
have, as a result of any act or omission of the Seller, any right, interest
or valid claim against Purchaser for any commission, fee or other
compensation as a finder or broker in connection with the transactions
contemplated by this Agreement.
4.12 ACCOUNTS AND NOTES RECEIVABLE. The accounts receivable of Seller
that are part of the Assets being transferred hereby (i) have and shall
have arisen only from bona fide transactions in the ordinary course of
business, and (ii) represent and will represent valid and binding
obligations of the account debtors, not subject to defense or offset to
which such receivables relate.
4.13 ENVIRONMENTAL MATTERS. Schedule 4.13 to this Agreement contains a
complete list of all permits, consents, licenses and authorizations related
to the Product Line obtained by Seller under the Environmental Laws. The
Seller is in compliance with all terms and conditions of the permits,
consents, licenses, approvals, and authorizations listed on Schedule 4.13
to this Agreement.
There is no civil, criminal, or administrative action, suit, demand, claim,
hearing, notice or demand letter, notice of violation, investigation, or
proceeding pending or, to the Knowledge of Seller, threatened against
Seller, the Assets, or the operations and properties currently or
previously owned, leased, or used with respect to the Product Line relating
in any way to the Environmental Laws.
With respect to the Product Line, and any currently or previously owned,
leased, or used properties or operations, there are no past or present
events, conditions, circumstances, activities, practices, incidents,
actions, or plans that interfere with or prevent compliance or continued
compliance with the Environmental Laws or which may give rise to any
liability (whether statutory or common law) or otherwise form the basis of
any claim, action, demand, suit, proceeding, hearing, notice of violation,
<PAGE>
study, or investigation arising under any Environmental Law or otherwise
based on or related to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or
the release into the workplace, the community, or the environment of any
contaminant.
No environmental lien has attached to any Asset.
4.14 NO OTHER AGREEMENTS TO SELL THE ASSETS OR THE PRODUCT LINE. Seller
has no legal obligation, absolute or contingent, to any other person or
firm to sell the Assets or the Product Line (other than sales of inventory
in the ordinary course of business).
4.15 DISCLOSURE. Seller has not withheld from Purchaser any material
facts relating to the Assets, or the operations of the Product Line. No
representation or warranty of Seller in this Agreement contains any untrue
statement of material fact required to be stated herein to make the
statement not misleading.
4.16 NO BREACHES; ETC. Neither Seller nor CSI is in violation of, and
the execution, delivery and performance of this Agreement by Seller or the
other agreements contemplated by this Agreement and the consummation of the
transactions contemplated by this Agreement does not and will not result in
any breach or acceleration of, any of the terms or conditions of their
articles of incorporation or by-laws, or of any mortgage, bond, indenture,
contract, agreement, license or other instrument or obligation to which
Seller or CSI is a party or by which the Assets are bound. The execution,
delivery and performance of this Agreement or the other agreements
contemplated by this Agreement will not result in the violation of any
statute, regulation, judgment, writ, injunction or decree of any court, nor
require the consent, approval, permission or other authorization of any
court, arbitrator or governmental, administrative or self-regulatory
authority or any other third party.
4.17 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller have been made with the Knowledge and expectation that Purchaser is
relying on them, and such representations and warranties shall survive the
Closing Date in accordance with Section 9.1.
5.0 REPRESENTATIONS AND WARRANTIES OF PURCHASER
As a material inducement to Seller to enter into this Agreement and with
the understanding that Seller will be relying thereon in consummating the
transactions contemplated by this Agreement, Purchaser represents and
warrants to Seller as follows:
5.1 ORGANIZATION AND STANDING. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Minnesota, and has all requisite corporate power and capital assets to
carry on its business as it is now being conducted.
5.2 CORPORATE AUTHORIZATION. Purchaser has the full corporate power and
authority to enter into this Agreement and purchase the Assets and Product
Line in accordance with the terms of this Agreement. The execution,
delivery and performance of this Agreement by Purchaser pursuant to this
Agreement have been duly and effectively authorized by the board of
directors of Purchaser and no other corporate proceedings on the part of
Purchaser are necessary to authorize this Agreement or the transactions
contemplated by this Agreement. This Agreement constitutes, and such other
agreements and instruments will constitute, the legal, valid and binding
obligations of Purchaser which are, or will be, enforceable against
Purchaser in accordance with their respective terms, except as enforcement
may be limited by bankruptcy, insolvency, or other similar laws affecting
the enforcement of creditors rights in general, moratorium laws or by
general principles of equity.
<PAGE>
5.3 FULLY PAID AND VALIDLY ISSUED SHARES. Purchaser's shares, when
issued and delivered to Seller, shall be deemed to be, and shall be, fully
paid and validly issued shares of stock of Purchaser and Seller shall not
be liable to any further call or assessment thereon, and any holder of said
shares of stock shall not be liable for any further payment in respect
thereto.
5.4 RELIABLE FINANCIAL INFORMATION. The audited fiscal year financial
statements and the unaudited quarterly and pro forma combined financial
statements filed by the Purchaser with the SEC in Forms 8-K, 10-KSB, 10-QSB
and the Preliminary Proxy Statement, were prepared in accordance with GAAP
and fairly present Purchaser's financial position and results of operations
for the covered periods.
5.5 CAPITALIZATION. The current capitalization of Purchaser, and the pro
forma capitalization of Purchaser giving effect to the contemplated reverse
stock-split, is set forth in Schedule 5.5 hereto. Such capitalization
shall include the authorized and issued and outstanding shares of common
and preferred stock of Purchaser, the terms of the preferred stock and the
options, warrants, and convertible securities (and the like) of Purchaser,
including the terms thereof.
5.6 NO BREACHES; ETC. Purchaser is not in violation of, and the
execution, delivery, and performance of this Agreement or the other
agreements contemplated by this Agreement and the consummation of the
transactions contemplated by this Agreement do not and will not result in
any breach or acceleration of, any of the terms or conditions of its
articles of incorporation or by-laws, or of any mortgage, bond, indenture,
contract, agreement, license or other instrument or obligation to which
Purchaser is a party. The execution, delivery and performance of this
Agreement or the other agreements contemplated by this Agreement will not
result in the material violation of any statute, regulation, judgment,
writ, injunction or decree of any court, threatened or entered in a
proceeding or action in which Purchaser is, was or may be bound.
5.7 NO BROKERS OR FINDERS. No person, firm or corporation has or will
have, as a result of any act or omission of Purchaser, any right, interest
or valid claim against Seller for any commission, fee or other compensation
as a finder or broker in connection with the transactions contemplated by
this Agreement.
5.8 DISCLOSURE. No representation or warranty of Purchaser in this
Agreement contains any untrue statement of material fact required to be
stated herein to make the statement not misleading. The Forms 10-KSB,
10-QSB and 8-K, and the Preliminary Proxy Statement of Purchaser do not
contain any untrue statement of material fact, or omit to state any
material fact required to be stated therein.
5.9 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Purchaser have been made with the Knowledge and expectation that Seller is
relying on them, and such representations and warranties shall survive the
Closing Date in accordance with Section 9.1.
6.0 POST-CLOSING AGREEMENT. Seller hereby covenants and agrees with
Purchaser as follows:
6.1 NON-COMPETITION. In consideration of the benefits to Seller
hereunder and in order to induce Purchaser to enter into this Agreement,
Seller hereby covenants and agrees that for a period of two (2) years after
the Closing Date, Seller shall not, and Seller shall cause each corporation
or other entity, controlling, controlled by or under common control with,
Seller to not, directly or indirectly, anywhere in the world where the
Product Line is currently produced, marketed, sold or used, as a
proprietor, partner, stockholder, director, officer, employee, joint
venturer, investor, lender, guarantor or in any other capacity own, engage
in, conduct, manage, operate or control, or participate in, be associated
with or be connected in any manner whatsoever in the ownership,
management, operation or control
<PAGE>
of, any business which, directly or indirectly, is competitive with the
Product Line, except that this non-competition obligation shall not apply
as follows:
(i) Ownership by Seller or any of its affiliates, in the aggregate,
of less than five (5%) percent of the outstanding shares of
capital stock of any corporation with one (1) or more classes
of its capital stock listed on a national securities exchange
or publicly traded in the over-the-counter market shall not
constitute a violation of this Section 6.1; and
(ii) The provisions of this Section 6.1 shall not preclude Seller or
any of its affiliates from acquiring control of an entity which
has a portion of its business which competes with the Business
(the "Competing Business"), provided the Competing Business
does not represent more than five (5%) percent of the total
business conducted by such entity.
(a) Seller hereby covenants and agrees that for a period of two (2) years
after the Closing Date, Seller shall not, and Seller shall cause each
person, corporation or other entity related to, controlling or
controlled by, directly or indirectly, Seller to not, without the
prior written consent of Purchaser, (A) solicit or employ any employee
of Purchaser (i.e.: Victor Bravo) at any time on or after the date
hereof to become an officer, director, employee, agent, consultant or
otherwise affiliated with Seller, or any entity in which Seller owns
an equity or debt interest or has the power to direct management or
(B) solicit at any time on or after the date hereof any employee of
Purchaser (i.e.: Victor Bravo) to terminate his or her relationship
with the Purchaser.
(b) Seller will not at any time from and after the Closing Date divulge,
furnish to or make accessible to anyone any knowledge or information
with respect to confidential or secret processes, inventions,
discoveries, improvements, formulae, plans, material, devices or ideas
or know-how, whether patentable or not, with respect to any
confidential or secret aspects of the Product Line (including, without
limitation, customer lists, supplier lists and pricing arrangements
with customers or suppliers) (collectively, "Confidential
Information"). Any portion of such information and only such portion,
which (i) at or prior to the time of disclosure was generally
available to the public through no breach of this covenant, (ii) was
available to the public on a non-confidential basis prior to its
disclosure, or (iii) is required to be disclosed by law or by order of
a court of competent jurisdiction, shall not be deemed Confidential
Information for purposes of this Agreement, and the undertakings in
this covenant with respect to Confidential Information shall not apply
thereto.
(c) Seller hereby covenants and agrees that, for a period of two (2) years
after the Closing Date, Seller shall not, and Seller shall cause each
person, corporation or other entity related to, controlling or
controlled by, directly or indirectly, Seller to not solicit or
attempt to solicit any of the current customers, clients or accounts
with respect to the Product Line and such other customers, clients or
accounts to whom Seller, directly or indirectly, sold goods or
services in the Product Line during the 24 month period immediately
preceding the Closing Date, with the intent or purpose to perform for
such customer, client or account the same or similar services sold by
Seller or to sell to such customer, client or account the same or
similar goods or services which was performed by Seller for or sold to
such customer, client or account.
(d) In the event a court of competent jurisdiction deems any provision in
this Section 6.1 to be unreasonable, unenforceable or invalid, then
such provision(s) shall be interpreted as broadly as may be
considered reasonable by such court and this Section 6.1 shall be
deemed amended to the maximum scope of business, duration or
geographic scope as such court determines to be reasonable and , as so
amended, shall be enforced.
<PAGE>
The parties acknowledge and agree that the breach of the provisions of this
Section 6.1 could not be adequately compensated with monetary damages and
would irreparably injure Purchaser, and, accordingly, that injunctive
relief and specific performance shall be appropriate remedies to enforce
the provisions of this Section, and the parties waive (a) any claim or
defense that there is an adequate remedy at law for such breach, and (b)
the necessity of posting a bond or similar security; PROVIDED, HOWEVER,
that nothing contained herein shall limit the remedies, legal, or
equitable, otherwise available to Purchaser, and all remedies of the
parties herein are in addition to any remedies available to the parties at
law or otherwise.
6.2 ACCESS TO BOOKS AND RECORDS.
(a) Seller shall afford to Purchaser and Purchaser's auditing staff,
accountants and other authorized representatives, upon reasonable
notice, full access to the books and records of the Product Line not
acquired by Purchaser hereunder pertaining to the Product Line
operations prior to the Closing Date for a period of three (3) years
following the Closing Date in connection with tax and accounting
matters and other reasonable business purposes. Purchaser shall
reimburse Seller for all out-of-pocket costs incurred in complying
with this Section 6.2 other than with respect to the storage of
records.
For a period of three (3) years after the Closing Date, Purchaser shall
allow Seller, its affiliates and their auditing staffs, accountants and
other authorized representatives, at Seller's expense, and during normal
business hours upon reasonable notice to Purchaser, to inspect and copy any
records of the Product Line with respect to periods prior to the Closing
Date for the purposes of (a) preparing and /or defending tax returns for
any period prior to the Closing Date, (b) obtaining information relating to
claims arising from the conduct of the business of the Product Line prior
to the Closing Date, or (c) for such other purposes as Seller may
reasonably request. During such three (3)-year period, Purchaser shall
make the records available to Seller and shall not destroy or discard such
financial records without giving Seller thirty (30) days prior written
notice of its intentions and giving Seller the right, at its expense, to
remove from Purchaser's premises any such financial records. Seller shall
reimburse Purchaser for all out-of-pocket costs incurred in complying with
this Section 6.2, other than with respect to the storage of records.
6.3 COLLECTION OF RECEIVABLES. After the Closing Date, all cash, checks
or other proceeds received by Seller or its banks that relate to the
accounts receivable of Seller purchased by Purchaser shall be paid to
Purchaser within five (5) days after receipt by Seller, which payments
shall be accompanied by a statement identifying the payee, the amount of
the payment and the related invoice number. Seller agrees to endorse and
Purchaser shall have the right to endorse the name of Seller on any such
checks or proceeds (whether received directly by Purchaser or received from
Seller or its banks) and shall deposit such checks and other proceeds in
bank accounts maintained in Purchaser's name. From and after the Closing
Date, Seller shall cooperate with, and provide reasonable assistance to,
Purchaser in collecting such accounts.
7.0 [INTENTIONALLY OMITTED]
7.1 [INTENTIONALLY OMITTED]
8.0 CLOSING
8.1 TIME AND PLACE. The Closing shall take place at 9:00 o'clock a.m. on
December 31, 1998 by facsimile transmission (and overnight mailing) of the
signature pages to this Agreement and all
<PAGE>
ancillary agreements. As soon as practicable following the Closing,
Seller shall cause to be delivered to Purchaser and its counsel an
original set of the closing documents.
8.2 DELIVERIES AT THE CLOSING:
(a) Seller shall execute and deliver to Purchaser such bills of
sale, assignments and other good and sufficient instruments of
conveyance and transfer, in form and substance reasonably
satisfactory to Purchaser, as are effective to transfer the Assets.
(b) Purchaser shall execute and deliver to Seller such documents of
assumption, in form and substance reasonably satisfactory to Seller,
as are effective to assume the Assumed Liabilities.
(c) Purchaser shall issue to Seller, in accordance with Section 3.0
of this Agreement, shares of fully paid, non assessable Common Stock
of Purchaser.
(d) The parties shall each deliver to the other such other
documentation, such as Board of Director and Shareholder
resolutions, as the other party shall reasonably request.
9.0 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; IDENTIFICATION
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. All representations and
warranties of the parties made in this Agreement or as provided in
this Agreement shall survive the Closing Date for a period of two (2)
years thereafter notwithstanding any investigation at any time made by
or on behalf of the other party ("Survival Period"). All
representations and warranties related to any specific claim asserted
in writing prior to the expiration of the Survival Period shall
survive until such claim shall be resolved and payment in respect
thereof, if any is owing, shall be made.
9.2 INDEMNIFICATION.
(a) Seller will fully indemnify and hold harmless Purchaser, its officers,
directors, employees and affiliates against and in respect of any and
all liabilities, losses, damages, deficiencies, costs, or expenses
(including, without limitation, the reasonable fees and expenses of
investigation and counsel) (collectively, "Losses") resulting from:
(i) any misrepresentation or breach of any representation,
warranty, covenant or agreement by Seller made in this
Agreement;
(ii) any claims, proceedings, actions or investigations made or
brought by third parties based on or arising from acts,
omissions or states of fact relating to Seller, the Assets or
the Product Line and occurring or in existence prior to the
Closing Date, except to the extent they constitute an Assumed
Liability;
(iii) the failure of Seller to timely pay any taxes relating to or
resulting from the operation of the Product Line for any and
all periods through and including the Closing Date (except
where an Assumed Liability); or
(iv) the noncompliance with any Bulk Sales Law.
(b) Purchaser will fully indemnify and hold harmless the Seller,
its officers, directors, shareholders, employees and affiliates
against and in respect of any and all Losses resulting from:
<PAGE>
(i) any misrepresentation or breach of any representation,
warranty, covenant or agreement by Purchaser made in this
Agreement (including, without limitation, the certificates
delivered under this Agreement) or as provided in this
Agreement;
(ii) the failure by Purchaser to pay, perform or discharge when due
any Assumed Liability; or
(iii) any claims, proceedings, actions or investigations made or
brought by third parties based on or arising from acts,
omissions or states of fact relating to Purchaser, the Assets
or the Product Line and occurring after the Closing Date.
(c) Any indemnification claim of a party must be asserted prior to
the expiration of the Survival Period. Following the
expiration of the Survival Period, a party may not assert any
claims for indemnification under this Section 9.2.
(d) Each parties' responsibility shall not apply to the first
$1,000 of Losses, and is subject to a maximum responsibility of
$500,000.
9.3 PROCEDURE FOR INDEMNIFICATION. Any person entitled to
indemnification under this Agreement shall (i) give prompt
notice to the indemnifying party of any third party claim with
respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party;
PROVIDED, that any person entitled to indemnification under
this Agreement shall have the right to employ separate counsel
and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such
person.
10.0 MISCELLANEOUS.
10.1 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of and be enforceable against the parties and
their respective successors and permitted assigns. Nothing in
this Agreement, express or implied, is intended to, or shall
confer on, any person other than any of the parties hereto any
rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
10.2 GOVERNING LAW. This Agreement shall in all respects be
governed by, and enforced and interpreted in accordance with
the laws of the State of Minnesota without giving effect to
choice of law principles.
10.3 NOTICES. All notices, consents, requests, demands,
instructions or other communications provided for in this
Agreement shall be in writing and shall be deemed validly
given, made and served when delivered personally, or sent by
certified or registered mail, postage prepaid, overnight
courier or by telephone facsimile, pending the designation of
another address, addressed as follows:
If to Seller: Cardiac Science Inc.
1176 Main Street Bldg. "C"
Irvine, Ca 92614
Attn: Mr. Raymond Cohen
Fax No. (949) 951-7315
With a copy to: Breslow & Walker
767 Third Avenue
New York, New York 10017
Attn: Mr. Howard Breslow
<PAGE>
Fax No. (212) 888-4955
If to Purchaser: Biosensor Corporation
6 Woodcross Drive
Columbia, SC 29212
Attn: Ronald G. Moyer
Fax No. (803) 407-1967
With a copy to: Blanco, Tackabery, Combs &
Matamoros
P.O. Drawer 25000
Winston-Salem, NC 27114-5000
Attn: Brian L. Herndon
Fax No. (910) 761-1530
10.4 ENTIRE AGREEMENT AND COUNTERPARTS. This Agreement and the
attached Exhibits and Schedules evidence the entire agreement
among the Seller and Purchaser relating to the purchase and
sale of the Assets and the Product Line and supersede in all
respects any and all prior oral or written agreements or
understandings. This Agreement shall be amended or modified
only by written instrument signed by Seller and Purchaser.
This Agreement may be executed in counterparts.
10.5 HEADINGS. Section and article headings used in this Agreement
have no legal significance and are used solely for convenience
of reference.
10.6 EXPENSES. Each party shall pay for its own legal, accounting
and other similar expenses incurred in connection with the
transactions contemplated by this Agreement, whether or not
such transactions are consummated.
10.7 BULK SALES LAWS. Purchaser and Seller waive compliance with
the provisions of any bulk sales laws, including Article 6 of
the Uniform Commercial Code as it may be in effect in any
applicable jurisdiction ("Bulk Sales Laws").
10.8 TAXES. Any sales, use or excise taxes payable in connection
with these transactions shall be shared equally by Seller and
Purchaser. Each party agrees to execute all of the documents
and to take such other action or corporate proceedings as may
be necessary or desirable to structure the transaction which is
the subject of this Agreement as an "exempt occasional sale"
under applicable tax law, to obtain the relevant tax exemption
certificates and to provide copies of such certificates to the
other parties hereto.
10.9 SEVERABILITY. Each and every provision of this Agreement
shall be deemed valid, legal and enforceable in all
jurisdictions to the fullest extent possible. Any provision of
this Agreement that is determined to be invalid, illegal or
enforceable in any jurisdiction shall, as to that jurisdiction,
be adjusted and reformed rather than voided, if possible, in
order to achieve the intent of the parties. Any provision of
this Agreement that is determined to be invalid, illegal or
unenforceable in any jurisdiction which cannot be adjusted and
reformed shall for the purposes of that jurisdiction, be
voided. Any adjustment, reformation or voidance of any
provision of this Agreement shall only be effective in the
jurisdiction requiring such adjustment or voidance, without
affecting in any way the remaining provisions of this Agreement
in such jurisdiction or adjusting, reforming, voiding or
rendering that provision or any other provision of this
Agreement invalid, illegal or unenforceable in any other
jurisdiction.
<PAGE>
10.10 INTERPRETIVE PROVISION. Whenever used in this Agreement "to
the Knowledge of" or similar language shall mean the actual
knowledge, after reasonable inquiry, of any person who, on the
date hereof is an officer of Seller.
IN WITNESS WHEREOF, each of the parties hereto have
executed this Agreement as of the date set forth in the first paragraph.
INNOVATIVE PHYSICIAN SERVICES, INC.
d/b/a Diagnostic Monitoring
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
Date:
------------------------------------------
BIOSENSOR CORPORATION
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
Date:
------------------------------------------
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 1.1.6
Records Transferred:
- - Inventory Records: Copies of original invoices and or receiving documents.
- - Distributor Agreements - Copies
- - Customer list - hard copy and electronic version in Excel format
- - Supplier list - hard copy and electronic version in Excel format
- - Accounts Payable - hard copy of all outstanding A/P invoices as well as
list in hard copy and electronic version
- - Accounts Receivable - hard copy of all outstanding customer invoices as
well as list in hard copy and electronic version
- - Historical Invoicing records - 2 sets of hard copies of the last (approx.)
5 years of invoices. One set sorted by invoice date and other set by
customer name
- - Dealer/Customer Files - duplication set of certain file records selected by
V Bravo from key dealers files
- - Operation Manuals for Products - Win P-V, DM-400, etc will be provided in
both hard copy originals as well as electronic form (Zip disks) - ACTION
ITEM FOR RAUL
- - Shipping Logs
- - Production Logs, Production Test documents and Test reports
- - 510(k)s, FDA Correspondence, SE Letters, etc.
- - DM 400 Holter Tape Recorder Technical File
- - Service reports, call reports, in-process failure reports, complaint files
- - Drawings and Work Instructions
- - Standard Operating Procedures (SOP)s
- - Revision Change documentation
- - ECN/DCNs
- - Approved Vendor files
- - Calibration and ESD Reports
- - International Translation documentation for Labels and Manuals
- - OEM Specification file
- - Win P-V Holter documentation
- - Ambulatory Blood Pressure documentation
- - Dealer Database - Database in MS Access format containing 118 records
representing 110 active distributors
- - Dealer Propsect database - Database in MS Access format containing 898
records of interested dealers
- - End-User Prospect database - Database in MS Access format containing 2167
records of end users who have responded to some type of advertisment
- - Brochures - various quantities of literature
- - Diagnostic Monitoring Web site - www.diagnosticmonitoring.com will have all
changes made and the revised site will be ready for uploading on 1/4/99.
Certain decisions require input from Biosensor.
- - Email addresses - all relevant email addresses to be forward to
[email protected]
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 2.1
Assumed Liabilities - See Schedule 4.3(ix)
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(i)
Leased Real Property - None.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(ii)
Executory Contracts -
(1) Dealer, distributor, broker, agent or sales representative:
a. Meditech Distributor Agreement dated April 3, 1998.
b. Magna Medical Distributor Agreement dated November 1, 1996
c. Meditronik BRNO Distributor Agreement dated March 1, 1997
d. Medimar Ltd.STI Distribution Agreement dated May 7, 1997
e. Technum S.R.O. Distribution Agreement dated June 9, 1997
f. Hanlim Technology Co., Ltd Distribution Agreement dated
January 3, 1997
g. Oral Agreement with I.M.M. Tunisia to translate the WINPV
software into French for a fee of $2,400.
h. Biomedical Systems Corporation dated June 19, 1997 ( the parties
agree that this agreement is not being assigned to Purchaser nor
is Purchaser bound by the terms of this agreement).
(2) None
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(iii)
Intangible Property Rights -
DIAGNOSTIC MONITORING - REGULATORY PAPERWORK DESCRIPTIVE INFORMATION
510(k) SUBMISSION:
Full title: ORIGINAL PREMARKET 510(K) NOTIFICATION
Device: DM-400 510(k) Holter ECG Cassette Recorder
Date: January 24, 1997
FDA Number - K970298
510(k) APPROVAL:
Full title: FDA SUBSTANTIAL EQUIVALENCE LETTER
Device: DM-400 510(k) Holter ECG Cassette Recorder
Date: August 20, 1997
FDA Number - K970298
CURRENT FDA REGISTRATION INFORMATION:
Document Title: ANNUAL REGISTRATION OF DEVICE ESTABLISHMENT
Registration No.: 2030901
Expiration Date: 2/28/99
Registered Establishment: Diagnostic Monitoring ,1176 Main St.,
Suite C
Irvine, CA 92614
Official Correspondent Listed: Mr. Raymond W. Cohen
Owner / Operator: Diagnostic Monitoring
Establisment Type: Manufacturor,Initial Distributor
TRADEMARK INFORMATION:
Trademark NOT registered for DM 400 Holter ECG Recorder
Trademark symbol used (exclusively): DM 400 -TM-
FDA EXPORT CERTIFICATES:
Application Paperwork Mailed: 2/6/98
Device: DM-400 510(k) Holter ECG Cassette Recorder
Certificate No. 1306-02-1998
Certificate Notary Date: February 25, 1998
Certificate Expires: February 25, 2001
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(iv)
Permits, Licenses and other Approvals - See Schedule 4.3(iii)
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(v)
Contracts, Agreements, Leases Requiring Consent -None
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(vi)
Personal Property owned by a third party -None
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(vii) (PAGE 1)
Inventory
Inventory located at IPS site, Irvine, Calif.
<TABLE>
<CAPTION>
ITEM NUMBER/DESCRIPTION UNIT COST ON HAND UNIT Total Cost
<S> <C> <C> <C> <C>
CASE-CC-BLACK 9.85 95 EA 935.75
CASE-CC-BLANK 9.85 118 EA 1,162.30
CASE-CC-DM 9.85 205 EA 2,019.25
DECK-P4CD350I 674 1 EA 674.00
DECK-P5SYS350E 1,303.00 1 EA 1,303.00
EREC-CARDIOVU 1000 1 EA 1,000.00
EREC-ER310 240 5 EA 1,200.00
EREC-ERJB 169 1 EA 169.00
FC -10MB 99 11 EA 1,089.00
FC -20MB 139 2 EA 278.00
FC -PCMCIAREAD 99 4 EA 396.00
FCPC-MCIA PROTEGE 99 3 EA 297.00
HKIT-350ENCL 73 3 EA 219.00
HKIT-P5SOFT 3.71 44 EA 163.24
HKIT-PLUS KEY 1,696.00 7 EA 11,872.00
HKIT-PREPHOOK 2.79 27 EA 75.33
HKIT-REDKEY 1,272.00 5 EA 6,360.00
HKIT-SMARTKIT 2,375.00 3 EA 7,125.00
HREC-DL250 343 1 EA 343.00
HREC-DL700 525 14 EA 7,350.00
HREC-DM21501 10.85 162 EA 1,757.70
HREC-DM21701 11.5 23 EA 264.50
HREC-DM4005 460 20 EA 9,200.00
HREC-DM4007 460 39 EA 17,940.00
HREC-DP3C 36.75 3 EA 110.25
HREC-RZ21501 10.85 3 EA 32.55
HREC-RZ21701 11.5 1 EA 11.50
SPRO-220FADAPT 35 5 EA 175.00
SPRO-FLOWSENS180 1 1,985 EA 1,985.00
SPRO-FLOWSENSQRS 1.6 58 EA 92.80
SPRO-HOSE-ADPT 15 5 EA 75.00
SPRO-MTHPCS 7.76 1 EA 7.76
SPRO-PAPER-ST2000 4 31 EA 124.00
SPRO-PAPERST95 1.9 84 EA 159.60
SPRO-SA 800 1 EA 800.00
SPRO-ST2000 785 5 EA 3,925.00
SPRO-ST70 830 3 EA 2,490.00
SPRO-ST70PCABLE 40 5 EA 200.00
200-1595-001 Bearing 28 EA 229.60
</TABLE>
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(vii) (PAGE 2)
<TABLE>
<S> <C> <C> <C>
800-0364-00 Clock 2 EA 14.00
200-0450-001 On/Off Switch 10 EA 45.00
800-0393-00 Pressure Roller 2 EA 39.00
800-0352-00 Take-up clutch Assembly 8 EA 128.00
800-0355-00 Motor with Pulley 3 EA 333.00
800-0358-00 Capstan/Flywheel Assembly 8 EA 104.00
100-1470-001 Drive Belt Molded 19 EA 38.00
800-0350-05 Headbar Assembly 1 EA 141.00
Sub-Total 84,453.13
Inventory located at Braemar, Minnesota
Per Schedule 4.3 (vii) page 4 16,227.34
---------
Total Inventory before Reserve 100,680.47
Reserve (5,000.00)
----------
Total Inventory 95,680.47
----------
</TABLE>
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(viii)
ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
CUSTOMER NAME \ INV TOTAL BY
INVOICE NUMBER AMOUNT CUSTOMER
- ------------------------------------------------------------------
<S> <C> <C>
APS Diagnostic
IN 980720 315.00 315.00
Ashland-Bellefonte Cardiology
IN 980759 270.00 270.00
Badin, Tom, M.D.
IN 980766 87.81 87.81
Beijing Hanker Co., LTD.
IN 4009 365.00
IN 980772 50.00 415.00
Biomedical Systems, Inc.
IN 980760 15.00 15.00
Cardiac Medical Services
IN 980773 4,306.78 4,306.78
Cosin, LTDA
IN 3988 85.00 85.00
De La Madriz Medical, Inc.
IN 980642 3,992.00 3,992.00
Diagniscan, S.A.
IN 980727 649.00
IN 980739 945.00 1,594.00
Diamed, Inc.
IN 3602 40.00
IN 980704 259.00 299.00
Diag. Test & Inst. Supply
IN 980716 69.00 69.00
DRG International, Inc.
IN 980735 1,050.00
IN 980743 868.00 1,918.00
Equimed Medical
IN 980709 3,549.00 3,549.00
<PAGE>
Harris Healthcare, Inc.
IN 980754 779.75 779.75
</TABLE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(viii) PAGE 2
<TABLE>
<S> <C> <C>
I.M.M. Company
IN 980719 26,200.00 26,200.00
Kapston, LTD
IN 980736 3,675.00 3,675.00
Lake Erie Med & Surg. Supply
IN 980774 6,515.47 6,515.47
Magna Medical, Inc.
IN 980705 2,500.00 2,500.00
Manta Medical Systems, Pty Ltd
IN 980643 298.00
IN 980671 1,540.00 1,838.00
Martin Gruber Medizintechnik
IN 980644 820.00
IN 980676 3,714.00
IN 980690 3,450.00
IN 980694 200.00
IN 980695 820.00
IN 980721 557.00
IN 980728 2,476.00
IN 980747 3,095.00 15,132.00
Medimar
IN 980529 2,310.00
IN 980556 4,645.00
IN 980589 1,000.00
IN 980723 7,065.00
IN 980733 169.00
IN 980749 4,975.00 20,164.00
MEDINGENIERIA LTDA
IN 980902 2,539.70 2,539.70
Medtechnica Ltd.
IN 980698 245.00
IN 980775 250.00 495.00
Medicotehna, d.o.o.
IN 980558 185.00 185.00
<PAGE>
Meditech
IN 980734 192.00
IN 980768 6,940.00 7,132.00
</TABLE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(viii) PAGE 3
<TABLE>
<S> <C> <C>
Medical Equipment Service
IN 980641 84.50 84.50
Mississippi State University
IN 980745 4,036.00 4,036.00
Omnilabo
IN 980756 2,780.00
IN 980757 3,475.00 6,255.00
Qmed Lab Services, Inc.
IN 980751 652.00 652.00
Sana-Med, Inc.
IN 980722 479.00
IN 980764 46.30 525.30
S.K. Wadhwa, M.D.
Richland Medical Center
IN 980761 270.00 270.00
Soft & Hard - in s.r.l.
IN 980741 5,000.00 5,000.00
The Stevens Co. -Ontario
IN 980715 77.00 77.00
Sylco, s.r.l.
IN 980702 81.00 81.00
Technum, s.r.o.
IN 980701 150.00 150.00
United Airlines
IN 980763 285.00 285.00
Willamette Valley Med. Center
IN 980765 56.00 56.00
Less: Reserve (2,500.00)
--------------------------
Totals 121,543.31 119,043.31
--------------------------
--------------------------
</TABLE>
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(ix)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
Vendor Name/
Doc. Number Amount
- --------------------------------------------------
<S> <C>
Arrhythmia Research Technology
IN 13667 3,750.00
3,750.00
AT&T- N79-714 0
IN N79714033-12 27.97
27.97
BRAEMAR,INC.
IN 866 10,500.00
IN 873 8,280.00
IN 865 4,016.58
IN 884 3,680.00
IN 98-0185 674
IN 887 3,680.00
IN 902 8,740.00
IN 905 5,520.00
IN 906 2,475.00
IN 907 301.5
IN 940 564
IN 975 13,800.00
IN 976 9,360.00
IN 985 228.2
IN 1020 1,303.00
73,122.28
Clinical Devices, Inc.
IN 204322 69.75
IN 204324 279
IN 204322-1 279
IN 206178 28.5
IN 206438 139.5
795.75
Copy Center
IN 26463 134.56
IN 27018 436.71
IN 27091 84.75
656.02
DHL Airways, Inc.
IN 944793 106.20
<PAGE>
IN 1022025 284.20
</TABLE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(ix) PAGE 2
<TABLE>
<S> <C>
IN 1224202 158.10
548.50
Direct Access Technology
IN 8549 1,016.49
IN 8641 141.00
IN 8742 20.00
1,177.49
Envoy Data Corp
IN 309914 1,532.75
1,532.75
Forest Medical
IN AA2072 210.00
210.00
Future Solutions, Inc.
IN 14529 180.00
IN 14743 47.50
IN 14744 94.88
IN 14742 110.38
IN 14819 127.25
IN 14820 90.00
650.01
GH Medical, Inc
IN 101312 150.00
IN 101323 2,800.00
IN 101324 1,445.00
IN 101343 45.00
4,440.00
ICC Instruments
IN 86839 45.00
IN 86848 52.50
IN 86853 562.50
660.00
Imex Medical Systems. Inc.
IN 9818454 386.25
386.25
MedMarket, Inc.
IN 1664 150.00
150.00
<PAGE>
Merit Industries
</TABLE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(ix) PAGE 3
<TABLE>
<S> <C>
IN 23276 1,200.87
IN 23286 774.17
IN 23332 231.70
IN 23386 351.49
IN 23450 776.18
IN 23493 1,121.91
IN 23502 1,083.49
IN 23781 537.50
IN 98-1092 1,699.03
7,776.34
Pulse Biomedical Inc.
IN 978469 1,400.00
IN 978470 750.00
IN 978476 1,400.00
IN 120798 178.00
IN Invoice not received
by Dec 31, 1998 2,800.00
6,528.00
Sierra Packaging
IN 980182 85.00
IN 8948 122.40
IN 9049 27.50
234.90
Union Transport Corporation
IN 76073037 191.31
IN 76074531 160.00
IN 76075709 187.25
IN 76075711 444.16
IN 76076738 220.00
IN 76076989 183.63
1,386.35
United Parcel Service
IN 83098W-518 20.00
IN 83098W-528 122.15
142.15
UPS Custom House Brokerage Inc.
IN 97535458 20.00
20.00
Vacumetrics, Inc.
IN 93648 30.82
30.82
<PAGE>
Estimated accrued expenses 5,000.00
Total Accounts Payable and ----------
Accrued Expenses 109,225.58
----------
</TABLE>
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.3(x)
Equipment:
<TABLE>
<CAPTION>
DESCRIPTION LOCATION VALUE
----------- -------- -----
<S> <C> <C>
Compaq Pressario Model 1215 s/n v812bxn21817 DM 1,000
Pentium 166 DM 300
14" video Monitor Tatung model s/n 37468849 DM 50
Pentium 133 Demo PC DM 300
HP 5l Laserjet printer s/n uscboo4732 DM 200
486dx-4 computer and Goldstar 15' monitor DM 200
Fukuda Electrocardiograph s/n 29140380 DM 1,000
DM400 Test fixtures Braemar 1,300
Fukuda Electrocardiograph Braemar 2,200
DM400 Test Fixture DM 1,300
Garner Industries Tape Eraser DM 2,000
------
Total $9,850
------
------
</TABLE>
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 4.13
Environmental Matters -None
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
SCHEDULE 5.5
Capitalization
Biosensor's Articles of Incorporation currently provide that the Company is
authorized to issue up to 5,000,000 shares of capital stock, of which 4,850,000
has been designated Class A common stock and 150,000 of which has been
designated as Series A Preferred Stock. The total number of shares of capital
stock outstanding as of December 31, 1998 consisted of 3,008,055 shares of $.05
par value common stock and 149,025.15 shares of no par value Series A Preferred
Stock. While each share of common stock is entitled to one vote, each share of
Series A Preferred Stock is entitled to 96 votes. Holders of the preferred
shares hold approximately 83% of the voting power of all shares (including both
common and preferred) entitled to vote. There is no cumulative voting. Of the
4,850,000 authorized shares of common stock, 3,008,055 shares are issued and
outstanding, 82,500 are reserved for issuance upon exercise of outstanding
options, and 1,759,445 shares are available for issue. If 1,440,000 shares of
common stock are issued to Innovative Physician Services as contemplated by this
Agreement, 4,448,055 shares of common stock will then be issued and outstanding,
and 319,445 shares of common stock will be available for issue. Holders of the
preferred shares would then hold approximately 76% of the voting power of all
shares entitled to vote.
On July 23, 1998, Biosensor Corporation ('Biosensor" or the "Company")
acquired all of the outstanding shares of Carolina Medical, Inc. pursuant to a
Plan of Reorganization and Agreement which requires the Company to submit to its
shareholders proposals: i) to change the Company's name to BIOTEL Inc., ii) to
effect a one-for-six reverse stock split (the "Reverse Stock Split"), and iii)
to increase the authorized number of shares of common stock to 10,000,000 and
the authorized number of preferred stock shares to 2,000,000. A Preliminary
Proxy Statement filed with the Securities and Exchange Commission on December 4,
1998 includes the above proposals.
If the proposed Reverse Stock Split is approved, there will be 808,333.333
shares of common stock authorized of which 501,342 will be issued and
outstanding. The authorized number of Series A Preferred Stock will be
unaffected by the Reverse Stock Split. The number of shares of common stock
issuable upon conversion of the Series A Preferred Stock will, however, be
reduced from 14,400,000 to 2,400,000. In addition, if the Reverse Stock Split is
approved, the Company will have 306,991 shares of common stock that are
authorized but unissued, of which 13,750 will be reserved for issuance upon
exercise of outstanding options and 293,241 shares will be available to issue.
If 1,440,000 shares of pre-reverse split common stock are issued to Innovative
Physician Services as contemplated by this Agreement, these shares will be
replaced by 240,000 post reverse split shares, bringing the total number of
common shares issued and outstanding to 741,341 and leaving 53,241 shares of
common stock available for issue.
<PAGE>
If the proposal to increase the authorized number of shares of common stock
to 10,000,000 and the authorized number of preferred stock shares to 2,000,000
is approved, the 149,025.15 Series A Preferred Shares will automatically be
converted to 2,384,402 shares of common stock, increasing the total number of
common stock shares issued and outstanding to 2,885,744. The number of
available common stock shares would then be 7,114,256 and the number of
available preferred stock shares would be 2,000,000. If 240,000 post reverse
split shares of common stock are issued to Innovative Physician Services as
contemplated by this Agreement, the total number of common shares issued and
outstanding will be 3,125,744, 13,750 shares will be reserved for options, and
6,860,506 shares of common stock will remain authorized and available for issue.
Principal Shareholders
Of the thirty-two (32) Series A Preferred Stock holders, the following
eight (8) own more than four (4) per cent of the current voting power of the
Company.
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER APPROXIMATE PERCENTAGE OF OWNERSHIP*
<S> <C>
Ronald G. Moyer 27.1%
C. Roger Jones 10.6%
Ronald D. Ordway 10.3%
Nishimoto Sangyo Co., LTD. 8.4%
Bernard B. Klawans 6.8%
Charles A. Barefoot 4.9%
Counterpoint Capital Management, LLC 4.2%
Woodhaven Investors, Inc. 4.2%
TOTAL FOR 8 76.5%
</TABLE>
* calculated as if all issued and outstanding shares of Series A Preferred
Stock were converted into Common Stock at the ratio of 96 shares of Common
Stock for each share of Series A Preferred Stock.
In addition to the above holders of Series A Preferred Stock, Steven
Springrose owns 5.2% of the voting power of the Company as a result of his
beneficial ownership of 896,000 shares of the Company's Common Stock.
Other than in connection with: i) this Agreement, and ii) the possible
merger of Advance Medical Products, Inc. into Advanced Biosensor, Inc., a wholly
owned subsidiary of the Company, the Company has no current plans, agreements or
arrangements for the issuance of additional shares of common stock or Preferred
Stock, other than the issuance of shares pursuant to its stock option and other
employee benefit plans. The Company is at all times investigating additional
sources of financing and future acquisitions which the Board of Directors
believes will be in the best interests of the Company and its shareholders. In
addition, the Company is currently seeking and plans to continue to seek
additional financing, which could involve the issuance of debt or equity of the
Company.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS BETWEEN INNOVATIVE
PHYSICIAN SERVICES, INC. (DBA DIAGNOSTIC MONITORING) AND
BIOSENSOR CORPORATION
<TABLE>
<CAPTION>
Exhibit A Condensed Balance Sheet
<S> <C>
Accounts Receivable $119,043
Inventory 95,680
Equipment 9,850
Accounts Payable 109,226
Net Book Value 115,347
</TABLE>
<PAGE>
DISTRIBUTION AND LICENSE AGREEMENT
AGREEMENT made as of this __________ day of ___________, 199___, by and
between Physio-Control Corporation ("Physio") and Cardiac Science, Inc.
("Cardiac Science").
RECITALS
a. CARDIAC SCIENCE. Cardiac Science is a corporation incorporated under
the laws of Delaware, with its principal place of business at 1176
Main Street, Bldg. C, Irvine, CA 92614. Cardiac Science is a
manufacturer of medical devices, including the Powerheart-Registered
Trademark- AECD-Registered Trademark- defibrillator-monitor
("Powerheart") and related supplies and accessories. Incorporated
within the Powerheart is certain Software Technology (as defined in
1.3).
b. PHYSIO. Physio-Control Corporation is a Washington corporation with
its principal place of business at 11811 Willows Road NE, P.O. Box
97006 Redmond, WA 98073-9706. Physio represents that it has the
capability and resources to promote, market, and sell the Products (as
defined in 1.2). Physio is also a manufacturer of cardiac
defibrillator-monitors and related supplies and accessories, including
disposable defibrillator electrode pads.
c. PURPOSE. The parties intend that during the term of this Agreement
Physio will be appointed as an authorized dealer of Cardiac Science
Products with the exclusive right to distribute the Powerheart to the
US and Canadian Hospital Market; will be the exclusive authorized
supplier of electrodes for use with the Powerheart; and will have the
right to incorporate the Software Technology into existing or future
defibrillator-monitor products to be manufactured by Physio.
NOW, THEREFORE, the parties agree as follows:
1 DEFINITIONS
Whenever the following terms appear capitalized in this Agreement they shall
have the indicated meanings.
1.1 HOSPITAL MARKET. The Hospital Market shall be defined as any and all
hospitals without limitation to type or size. The Powerheart is
intended to be used to provide treatment for "in-hospital" patients
who are at risk of cardiac arrest. Therefore, sale of the Powerheart
is restricted for use inside of hospitals.
1.2 PRODUCTS. The Powerheart and/or replacements.
1
<PAGE>
1.3 SOFTWARE TECHNOLOGY. The AECD-Registered Trademark- Tachyarrhythmia
Detection and Discrimination software package, which when integrated
into an external defibrillator-monitor, is capable of, among other
things, continuous monitoring and instant detection of ventricular
tachyarrthymias. Moreover, it allows for fully automatic delivery of
defibrillation therapy without human intervention in accordance with
its programmed parameters. The Software Technology is further
described in EXHIBIT 1.3 labeled AECD-Registered Trademark-
Tachyarrhythmia Detection Software-TM- Description attached hereto.
1.4 DEFIBRILLATOR-MONITOR. A defibrillator device with a display that
incorporates certain hardware and software components that is
portable, stands alone and is not part of, nor a sub-component of,
another product (e.g., patient monitoring system). A defibrillator
device that is capable of communicating with, or functioning as a
sub-component of, another product such as a patient monitoring system
shall be considered a Defibrillator-Monitor provided that the
defibrillator device is capable of operating as a portable, stand
alone device.
1.5 PROPRIETARY CHIP. A proprietary device comprised of electronic chips
within a proprietary integrated circuit designed and owned exclusively
by Cardiac Science and incorporated into the cable connector of a
disposable defibrillator pad, which allows the defibrillator to detect
the presence of the disposable defibrillator pad.
1.6 CHIP CONTROLLED CONNECTOR. The cable connector component of disposable
defibrillator pads that has incorporated Cardiac Science's Proprietary
Chip, and may or may not be compatible with the Products.
1.7 ELECTRODES. Disposable defibrillator pads that incorporate a
Proprietary Chip in the cable connector and is compatible with the
Products.
1.8 MANUFACTURED COST. The parties anticipate that the Products and the
Electrodes will each be manufactured for Cardiac Science and Physio,
respectively, by independent 3rd party suppliers. In such case, the
Manufactured Cost shall be the actual cost paid to the supplier plus
any applicable transfer taxes, and shall also include freight, if any,
incurred by Cardiac Science or Physio from the place of manufacture.
If the Products or the Electrodes are manufactured directly by Physio
or Cardiac Science, then the definition of Manufactured Cost shall be
agreed to in good faith by the parties.
1.9 NET SALES PRICE. The Net Sales Price shall be the actual sales price
of the product net of taxes, freight for shipment from Physio, actual
discounts, and returns.
2
<PAGE>
2 DISTRIBUTION OF PRODUCTS
2.1 APPOINTMENT. Subject to the terms and conditions of this Agreement
and during the term hereof, Physio shall be the exclusive authorized
dealer and distributor of the Products for all sales to the Hospital
Market anywhere in the United States and Canada ("Exclusive
Territory").. During the period of exclusivity, Cardiac Science shall
not sell, authorize or knowingly permit any other party to sell, any
Products to an end customer for use in the Hospital Market within the
Exclusive Territory. Exclusivity is conditioned upon Physio
purchasing at least the following minimum number of Products or
Software Technology (or a combination of both which totals the
following), following successful completion (and availability in
commercially reasonable quantities) of the commercial version of the
Products:
First 12 months 1,000
Second 12 months 1,600
Third 12 months 2,400
Fourth 12 months 3,600
Fifth 12 months 5,400
If Physio fails to purchase the minimum number in any period it will
have a six (6) month period within which to cure any shortfall. At
its election, Physio may purchase Products or Software Technology in
advance of their sale to end customers for the purpose of satisfying
the foregoing minimum requirements.
If Physio does not cure any shortfall within the six (6) month cure
period, Cardiac Science may terminate Physio's representation of
Products, upon not less than thirty (30) days prior written notice to
Physio. In the event Physio's distribution rights to Products
terminate under the terms of this Section 2.1, Cardiac Science shall
be entitled to develop, manufacture and sell disposable defibrillator
pads with a Proprietary Chip embedded in the connector component
thereof compatible with Products; provided that such disposable
defibrillator pads will not be compatible with Defibrillator-Monitors
manufactured by or for Physio and provided that Cardiac Science shall
be responsible for all forecasts which it has provided to Physio for
the purchase of disposable defibrillator pads.
2.2 TERM. Subject to the Termination provisions in Section 2.8, the term
of this Agreement shall commence as of the date hereof and shall
3
<PAGE>
continue for an initial term of five (5) years. At the conclusion of
any term of this Agreement, the term shall automatically renew for an
additional term of one (1) year, unless either party has given the
other party notice at least 12 months in advance of its intent not to
renew the term.
2.3 PAYMENT. Physio shall pay Cardiac Science, in accordance with the
Product pricing outlined in section 2.5.3 and section 2.11 herein, for
all Products shipped to Physio or its customers, within the close of
twenty (20) business days from the presentation of invoices.
2.4 PHYSIO'S RESPONSIBILITIES. During the term of this Agreement, Physio
shall:
2.4.1 PURCHASE, PROMOTE AND SELL. Until such time as Physio is
able to integrate the Software Technology into its own
Defibrillator-Monitor products, purchase Products from
Cardiac Science and use its best efforts to promote and sell
the Products at such prices as Physio may, in its sole
discretion, determine. Thereafter, Physio shall use its
best efforts to promote and sell its Defibrillator-Monitor
products, which shall incorporate the Software Technology
and an Electrode or a Chip Controlled Connector.
2.4.2 FACILITY AND STAFF. Maintain a business sufficient to carry
out its duties hereunder. Physio shall also maintain a
sales staff capable of demonstrating the Products in a
manner consistent with any policies or guidelines which the
parties may from time to time mutually establish.
2.4.3 INSERVICE. Perform post-sale delivery, instruction and
education to the user in a manner that is consistent with
standards or guidelines which the parties may from time to
time establish.
2.4.4 ORDERS. Place all orders for Products and/or Software
Technology on terms set out in this Agreement or upon such
other terms as may from time to time be mutually agreed upon
by the parties.
2.4.5 DEVICE TRACKING. Maintain a system in place to track each
serialized Product sold by Physio in accordance with
applicable law, and with such requirements as the parties
may from time to time establish.
2.4.6 RECALL OF PRODUCTS. Promptly notify Cardiac Science in the
event that Physio has reason to believe that one or more of
the Products should be recalled or withdrawn from
distribution. Any decision as to whether or not to initiate
a recall or withdrawal shall be solely that of Cardiac
Science. Physio shall provide Cardiac Science with all
reasonably requested assistance in any
4
<PAGE>
recall or withdrawal, including, without limitation,
Physio contacting its subdealers and distributors.
2.4.7 COMPLY WITH LAW. Comply with all applicable laws, rules and
regulations in all of its activities relating to the
marketing, promotion, service, and sale of Products,
including obtaining any and all required registrations and
licenses for the operation of Physio's business and the sale
of the Products. All licenses and registrations for the
Products shall be the property of Cardiac Science and, at
the option of Cardiac Science, shall be obtained in the name
of Cardiac Science.
2.4.8 SUB DEALERS. In its sole and absolute discretion, sell the
Products through such subdealers or distributors as it may
from time to time establish. Physio is jointly and severally
liable for the actions of its subdealers and distributors.
2.4.9 SUPPLY OF ELECTRODES. Be responsible for the processing of
orders received from Cardiac Science and/or its authorized
dealers. Moreover, Physio will be responsible for
maintaining adequate levels of inventory of the Electrodes
in order to facilitate its own sales and that of Cardiac
Science and its authorized dealers. Physio will supply,
package and ship directly to Cardiac Science and/or its
authorized dealers as well as invoice (payment terms to be
consistent with standard industry terms) and collect
accounts receivable for Electrodes sold to Cardiac Science's
authorized dealers. Physio shall use its reasonable
commercial efforts to deliver accepted orders for Electrodes
on time. Cardiac Science shall provide Physio with a rolling
one hundred twenty (120) day forecast of anticipated
Electrode orders. However, in no event shall Physio be
responsible for shipping Electrodes to any party who is in
default of credit terms or any loss or damages which are
claimed to have been caused by a delay in shipping an order,
whether or not Physio may have been advised of the
possibility of such loss or damages. Cardiac Science may
elect to cancel any order for which delivery of an Electrode
is delayed more than thirty (30) days.
2.4.10 INCORPORATION OF SOFTWARE TECHNOLOGY IN PHYSIO'S PRODUCTS.
Be responsible for providing, at its expense, engineering
resources needed to determine the feasibility of
incorporating the Software Technology into any of its
Defibrillator-Monitor products and the development and
manufacturing of such products. Cardiac Science shall
supply the reasonable assistance of Cardiac Science's chief
technical officer and
5
<PAGE>
director of software programming, and/or other Cardiac
Science engineering personnel that Cardiac Science may
from time to time assign to the project.
2.4.11 DEFECTIVE PRODUCTS; CUSTOMER SERVICE. During the first year
after commercial introduction of the Products, arrange
that all Products which are claimed to be defective be
returned to Cardiac Science for inspection, engineering
analysis of claimed defect, and repair. Physio is
authorized, but not required, to accept return of the
Products on behalf of Cardiac Science from Physio customers,
in which case Physio will promptly forward the Products to
Cardiac Science. At all times with respect to the Products,
Physio shall be the initial point of contact for its
customers and shall provide customer support services in a
manner consistent with such standards, procedures and
guidelines Physio applies to its own products.
2.5 CARDIAC SCIENCE RESPONSIBILITIES. During the term of this Agreement,
Cardiac Science shall:
2.5.1 PROVIDE PRODUCTS. Provide the Products to Physio upon the
terms and conditions specified in EXHIBIT 2.5.1 or such
other terms as the parties may from time to time agree.
2.5.2 PROVIDE SOFTWARE TECHNOLOGY. Provide the Software
Technology to Physio in a form (along with the necessary
software tools) that the parties may reasonably agree.
2.5.3 PRICING. ***
2.5.4 2.5.4 REFERRALS. Refer all inquiries for purchases of
Products in the Exclusive Territory for the Hospital Market
to Physio.
2.5.5 PROMOTIONAL MATERIALS. Be responsible for developing and
providing such sales literature and advertising materials
the parties deem appropriate to assist Physio in selling the
Products.
2.5.6 TRAINING AND SUPPORT. Offer such general and specialized
sales and technical training, materials and support as the
parties may from time to time agree. The costs and expenses
incurred by Cardiac Science employees in the training of
Physio's representatives shall be paid by Cardiac Science.
Any costs and expenses incurred by Physio in said training
shall be paid by Physio.
2.5.7 DELIVERY. Use reasonable commercial efforts to deliver
accepted orders for Products on time. However, in no event
shall Cardiac Science be responsible for any loss or damages
which are claimed to have been caused by a delay in shipping
an order, whether or not Cardiac Science may have been
advised of the possibility of such loss or damages. Physio
may
6
<PAGE>
elect to cancel any order for which delivery of a Product
is delayed more than ninety (90) days.
2.5.8 REPAIR AND SERVICE FOR DEFECTIVE PRODUCTS. ***
2.5.9 2.5.9 WARRANTY. The Products will be warranted to the
end customer according to the terms of a Warranty to be
established by Cardiac Science and reasonably acceptable to
Physio.
2.5.10 AVAILABILITY.***.
2.5.11 DEVICE REPORTING. Physio shall promptly notify Cardiac
Science of any event which is reportable under applicable
Medical Device Reporting requirements, Cardiac Science has
the responsibility to submit all such reports and maintain
all applicable records.
2.6 PRODUCT MODIFICATIONS AND LABELS; DISCONTINUANCE. Physio will sell
the Products only in the form, condition and packaging as provided or
approved by Cardiac Science. Physio will not alter, modify or change
any Product or its package without Cardiac Science's prior written
consent. In addition, with Cardiac Science's prior approval, not to
be unreasonable withheld, Physio may (a) attach labels which identify
Physio as the dealer or distributor of the Products or (b) have
Cardiac Science attach such labels to any Products which are sold to
or by Physio or any of its subdistributors. Physio will reimburse
Cardiac Science for its reasonable costs in attaching such labels.
Cardiac Science reserves the right to change the design of any
Products or any part thereof at any time without notice to Physio. In
such event, Cardiac Science shall have no obligation to make such
changes upon any Products shipped upon existing orders to Physio's
customers, nor shall Cardiac Science be obligated to make a similar
change on any Products previously shipped to Physio's customers, or to
install or furnish any other or different parts than were on such
Products when shipment was made. Cardiac Science, in its sole and
absolute discretion may discontinue manufacture of the Products at any
time and shall not incur any obligation or liability by reason
thereof.
2.7 SALES DEMO UNITS. Physio agrees to purchase an adequate number of
sales demonstration inventory necessary to facilitate sales of the
Products in the Exclusive Territory. Sales demo units shall be
purchased at a price to be agreed upon, but not less than the
Manufactured Cost.
2.8 TERMINATION. This Agreement may be terminated as follows:
2.8.1 IMMEDIATE FOR CAUSE. In the event of any of the following,
the non-breaching party may terminate this Agreement if:
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(a) Any employee or representative of the other party
commits any illegal or unethical act in the course of
carrying out any of its duties under this Agreement;
(b) Either party or its parent or any of its principal
owners becomes insolvent or is the subject of a
bankruptcy or other insolvency proceeding;
(c) Physio or any of its representatives makes a material
misrepresentation in seeking this appointment, in
filing warranty claims or performing any other
responsibilities under this Agreement;
2.8.2 FOR CAUSE.
(a) Either party may terminate this Agreement if the other
party is in default of any representation, warranty,
covenant or other obligation in this Agreement and
fails to cure such default within twenty (20) days of
written notice from the other party specifying the
nature of such default. Thereafter, the party giving
such notice may terminate this Agreement by a separate
five (5) days notice.
(b) This Agreement shall terminate upon written notice from
Cardiac Science to Physio if Physio determines within
the thirty (30) day period provided for in section
2.5.10 hereof, that the Products do not pass its test
for quality, reliability, efficacy and marketability
and gives written notice thereof to Cardiac Science
within such time period. The failure by Physio to give
such notice shall activate the provision of Section
2.4.1 hereof.
2.9 EFFECT OF TERMINATION. Upon the effective date of termination or
expiration of this Agreement for any reason, the obligations and
responsibilities of the parties one to the other contained herein
shall cease; provided, however, that the same shall not release Physio
from payments which may be due to Cardiac Science as a result of
prior sales or prior obligations incurred, and these shall be paid as
they become due; and, provided, further, however, that all obligations
with respect to confidentiality, return of intellectual property and
other obligations which by their nature are continuing or which are
specifically stated to survive the termination or expiration of the
Agreement shall survive the termination or expiration of this
Agreement. Physio may, at its option, cancel any outstanding order
for purchase which has not been shipped by the effective date of
termination.
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2.9.1 MANUFACTURE AND AVAILABILITY OF ELECTRODES. In the event of
termination or expiration of this Agreement Cardiac Science
may manufacture or authorize others to manufacture
disposable defibrillator pads for use with the Products. In
addition hereto, as long as Physio or its designated
supplier manufactures Electrodes, Physio shall make such
Electrodes available to Cardiac Science and its customers
and authorized distributors at such prices as the parties
may reasonably agree. However, Physio may terminate
production of Electrodes upon one-hundred eighty (180) days
written notice to Cardiac Science. Thereafter, Cardiac
Science may manufacture or authorize others to manufacture
disposable defibrillator pads for use with the Powerheart
and in such event make such Electrodes available to Physio
and its customers upon such terms and conditions as the
parties may reasonably agree. Nothing in this Agreement
shall constitute a license for Cardiac Science or any of its
suppliers to use any of the patented or proprietary
technology Physio or any of its suppliers in the manufacture
of such disposable defibrillator pads, nor to use the trade
names or trademarks of Physio or any of its suppliers. The
provision of this section 2.9.1 will survive the expiration
and termination of this Agreement.
2.10 RETURN OF MATERIALS. Upon termination of this Agreement, Physio shall
return to Cardiac Science all promotional and other Product related
materials previously provided by Cardiac Science to Physio. If Physio
has paid Cardiac Science for any of the materials returned then
Cardiac Science shall reimburse Physio for the value of the returned
materials to the extent that such materials are currently useable by
Cardiac Science.
2.11 SALE PRICE OF THE PRODUCTS.***.
2.12 RIGHT TO INSPECT. Upon reasonable notice either party shall make
available to the other party's independent auditors, all records
pertaining to the Manufactured Cost or sale of the Products,
Electrodes, Chip Controlled Connectors and any Defibrillator-Monitor
products incorporating the Software Technology.
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3 DISPOSABLE DEFIBRILLATOR PADS
3.1 PROPRIETARY CHIP. Cardiac Science has developed a Proprietary Chip
designed to be incorporated into the cable connector component of
disposable defibrillator pads to be used with the Products. Cardiac
Science has designed and will manufacture the Products with a patient
and therapy cable, which is physically compatible with Physio's Quick
Combo-Registered Trademark- connectors containing a Proprietary Chip.
Cardiac Science hereby grants, during the term of this Agreement, a
non-exclusive license to Physio and/or its designated suppliers solely
to incorporate and manufacture the Proprietary Chip into Physio's
Quick Combo-Registered Trademark- connectors for the purpose of
carrying out all of the terms of this Agreement. Cardiac Science will
provide Physio and/or its designated subcontractor or supplier with
sufficient information to manufacture pads compatible with the
Proprietary Chip to be embedded into Physio's Quick Combo connector.
3.2 MANUFACTURE OF ELECTRODES. Through itself or its designated supplier,
Physio will manufacture Electrodes. Physio may terminate production
thereof upon one-hundred and eighty (180) days written notice to
Cardiac Science. Thereafter, Cardiac Science may manufacture or
authorize others to manufacture Electrodes in accordance with Section
2.9.1 hereof.
3.3 EXCLUSIVITY. Except as permitted under Section 2.1, 2.9.1 and 3.2
hereof, Cardiac Science will not manufacture or sell any Electrodes
nor will it authorize, assist or permit anyone else to manufacture or
sell Electrodes. Electrodes will be supplied by Physio in accordance
with Section 2.4.9 hereof.
3.4 CARDIAC SCIENCE RIGHT TO SELL DISPOSABLE DEFIBRILLATOR PADS. Nothing
in this Agreement shall prohibit or in any way restrict the right of
Cardiac Science to develop, manufacture or sell disposable
defibrillator pads with a Proprietary Chip embedded in the connector
component thereof for use with products other than
Defibrillator-Monitors; provided that such pads are not compatible
with the Products or with Defibrillator-Monitors which incorporate the
Software Technology.
3.5 ELECTRODE WARRANTY. The Electrodes will be warranted by Physio or its
designated supplier upon terms that are consistent with the terms of
warranties for electrodes for use with Physio products, as those
warranties may be established from time to time. Cardiac Science
shall bear no responsibility for any such warranties, except to the
extent that
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the Proprietary Chip infringes upon the U.S. patent rights of
any third party.
3.6 ROYALTY ON ELECTRODES. ***
3.7 PAYMENT OF ROYALTY. Physio shall pay Cardiac Science its royalties on
the sale of Electrodes on a calendar quarterly basis, with payments
due within ten (10) business days of the close of the quarter
3.8 ENGINEERING SUPPORT. Physio will allocate such reasonable engineering
resources as it determines are appropriate for the purpose of timely
completing the Electrode so as not to unreasonably delay the
commercial introduction of the Products.
3.9 REGULATORY APPROVAL. Cardiac Science shall be responsible to obtain,
if necessary, any regulatory approvals for use of Electrodes with the
Products.
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4 SOFTWARE TECHNOLOGY
4.1 GRANT OF LICENSE. Cardiac Science hereby grants to Physio, for the
term of this Agreement, a license to use the Software Technology
solely to incorporate such Software Technology into any existing or
future Defibrillator-Monitor product manufactured or to be
manufactured by Physio or its designated supplier. As soon as
practicable after the signing of this Agreement, the parties shall
enter into a license agreement, to be attached to this Agreement,
setting forth the terms and conditions of such license. The license
agreement will contain, at a minimum, the rights set forth in Sections
4.1 - 4.9 hereto.
4.1.1 SCOPE. This license shall be exclusive with respect to the
use of the Software Technology in Defibrillator-Monitors for
the Hospital Market in the Exclusive Territory during the
term of this Agreement; provided however that such license
shall become non-exclusive in the event Physio fails to
maintain its exclusivity with respect to the Products
pursuant to Section 2.1.
4.2 CARDIAC SCIENCE'S -RIGHT TO MARKET THE SOFTWARE TECHNOLOGY. Nothing in
the license agreement, or this Agreement, shall prohibit or in any way
restrict the right of Cardiac Science to develop, manufacture, embed,
incorporate or sell the Software Technology to any other third party
for any application other than that for which Physio has been granted
exclusivity herein.
4.3 ENGINEERING SUPPORT. Cardiac Science will, at its expense, make its
chief technical officer, director of software programming and/or other
engineering personnel reasonably available at Physio's Redmond, WA
facility to provide engineering support to assist Physio in
investigating the feasibility of incorporating the Software Technology
into any Physio Defibrillator-Monitor product.
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4.4 ROYALTY ON SOFTWARE TECHNOLOGY INCLUDED UNITS. ***
4.5 USE OF CHIP CONTROLLED CONNECTOR. Any Defibrillator-Monitor
manufactured or sold by Physio which incorporates the Software
Technology will be manufactured for use with disposable defibrillator
electrodes that incorporate a Chip Controlled Connector designed by
Cardiac Science and approved by Physio.
4.6 ROYALTY ON CHIP CONTROLLED CONNECTOR. ***
4.7 SOFTWARE TECHNOLOGY WARRANTY. The Software Technology will be
warranted by Cardiac Science to work in accordance with its
specifications as described in EXHIBIT 1.3 of this Agreement.
4.8 CHIP CONTROLLED CONNECTOR WARRANTY. The electrode incorporating the
Chip Controlled Connectors will be warranted by Physio or its
designated supplier upon terms that are consistent with Section 3.5
hereto. Cardiac Science shall bear no responsibility for any such
warranties, except to the extent that the Proprietary Chip infringes
upon the U.S. patent rights of any third party.
4.9 LABELING AND ADVERTISING. Any Physio products which incorporate the
Software Technology and the product advertising and brochures for them
will include a label, logo or other method to identify Cardiac Science
in a manner which is reasonably acceptable to both Cardiac Science and
Physio.
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5 INTELLECTUAL PROPERTY
5.1 TRADEMARKS AND TRADE NAMES.
5.1.1 Neither party shall have rights under this Agreement in the
trademarks, trade names, logos, distinctive packaging and
designs of the other party or any of its affiliates or
suppliers except as set forth in Sections 2.6 and 5.1.2
5.1.2 Cardiac Science hereby grants to Physio a limited,
non-exclusive license to use Cardiac Science trademarks and
trade names associated with the Products and Software
Technology during the term of this Agreement solely in the
advertisement and promotion of the Products and Software
Technology; provided (i) all uses have been approved in
writing by Cardiac Science, (ii) such use shall be
consistent with any reasonable rules or guidelines that
Cardiac Science may now or hereafter establish with respect
to such use and (iii) Cardiac Science has the right to
periodically review all advertising and promotional
materials bearing the trademarks and/or trade names. In
addition, Physio shall not use any of Cardiac Science's
trademarks or trade names in connection with any product
that does not meet certain quality standards as established
by Cardiac Science from time to time. Upon any termination
of this Agreement, Physio shall immediately discontinue all
uses of Cardiac Science Trademarks, trade names, logos,
distinctive packaging, and designs similar thereto.
5.2 PATENT RIGHTS. Neither party is granted rights in any of the other
party's patents, except as expressly granted in this Agreement.
5.3 CONFIDENTIAL INFORMATION. In the course of performing its duties
hereunder either party may become aware of confidential information of
the other, including, but not limited to, trade secrets under the
Uniform Trade Secrets Act, technical product data, software programs,
software code, designs, prototypes, methods, techniques, business
plans, product pricing, sales goals, marketing information and other
information not generally available to the public (collectively,
"Confidential Information"). Each party shall maintain in confidence
and, except as provided in this Agreement, not use for its own
benefit, directly or indirectly any Confidential Information received
from the other or any of its suppliers or purchasers during the term
of this Agreement and shall not publish, disseminate, or disclose such
information except to the extent necessary to carry out its duties
hereunder without the express written permission of the other. The
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parties shall use at least the same degree of care to protect the
Confidential Information of the other, its suppliers, or purchasers
as it does to protect its own Confidential Information and in all
cases commercially reasonable efforts. This obligation shall not
apply to Confidential Information which (a) was known to the recipient
prior to disclosure by the other party or it supplier as evidenced by
the party's prior written record, (b) is disclosed to the recipient by
a third party without violation of any obligation of confidentiality
to the other, (c ) becomes public knowledge without the breach of any
obligation of confidentiality. All Confidential Information shall be
returned to the originating party at the request of the recipient
party upon the termination or expiration of this Agreement, with the
exception of a single copy which may be retained in a confidential
file solely for the purpose of determining compliance with this
paragraph. The covenants contained in this section 5.3 shall expire
five (5) years after the termination or expiration of this Agreement.
Each party acknowledges that the other party will be irreparably
damaged if the covenants contained in this section 5.3 are not
specifically enforced. The provisions of this section 5.3 may be
enforced by injunctive relief restraining any violation (without any
bond or other security required) or any other appropriate decree of
specific performance, such remedies shall not be exclusive and shall
be in addition to any other remedy which an injured party may have.
5.4 PROTECTION OF RIGHTS. Each party shall use its best efforts to
cooperate with the other in protecting all of each other's rights in
intellectual property. Neither party shall dispute nor contest the
validity of the other party's intellectual property rights which are
subject to this Agreement. Each party shall promptly inform the other
about any facts of which it becomes aware, which may constitute unfair
competition or in which any other person or entity may be infringing
on the intellectual property rights of the other. Physio acknowledges
and agrees that Cardiac Science is the sole and exclusive owner of all
right, title and interest in and to (a) the Software Technology, the
Proprietary Chip and any and all updates and modifications to the
foregoing technology, (b) the current model of the Powerheart and all
future models of the Powerheart, (c) trademarks and trade names
associated with the advertisement and promotion of Cardiac Science's
Products and (d) all proprietary rights in (a) - (c).
5.5 PHYSIO RIGHT TO DEVELOP DEFIBRILLATOR-MONITOR PRODUCTS. Nothing in
this Agreement shall prohibit or in any way restrict the right of
Physio to develop, manufacture or sell its own Defibrillator-Monitor
products. The parties acknowledge that Cardiac Science is under no
obligation to
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extend the license for the Software Technology beyond the termination
or expiration of this Agreement.
6 WARRANTS
6.1 INITIAL GRANT. Upon the mutual execution of this Agreement Cardiac
Science will issue a warrant to Physio to purchase two hundred
thousand (200,000) shares of common stock in Cardiac Science at a
price of three dollars ($3.00) per share. The warrant on this initial
grant must be exercised by Physio, if at all, by November 30, 1999.
Any share issued pursuant to this initial grant will include
"piggyback" registration rights.
6.2 PERFORMANCE GRANT. At such time as Physio has purchased one thousand
(1,000) Products or has sold one thousand (1,000)
Defibrillator-Monitors which include the Software Technology (or a
combination of both totaling 1,000), Cardiac Science will issue a
warrant to Physio to purchase an additional two hundred thousand
(200,000) shares of common stock in Cardiac Science at a price of
three dollars ($3.00) per share. The warrant on this performance
grant must be exercised by Physio, if at all, within two (2) years of
the date of the grant. Any share issued pursuant to this performance
grant will also include "piggyback" registration rights.
7 INDEMNITIES AND INSURANCE
7.1 MUTUAL. The parties shall defend and indemnify each other from any
loss, damages and costs incurred as a result of the breach of any of
their duties under this Agreement or for the negligent acts of that
party's employees or other representatives operating within the scope
of their authority; provided that in no event shall a party be
responsible to the other for any compensation, reimbursement or
damages on account of the loss of prospective profits or anticipated
sales nor for expenditures, investments, lease commitments, property
improvements or other commitments made in connection with the business
or goodwill of the other party.
7.2 INTELLECTUAL PROPERTY. Cardiac Science warrants that the Proprietary
Chip to be incorporated into the Chip Controlled Connector, does not
infringe upon the patent or other intellectual property rights of any
third party currently known to the extent that it is manufactured in
accordance with information or design provided by Cardiac Science.
Cardiac Science shall indemnify Physio from any cost, expense or
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damage to the extent that it is based upon a claim that the
Proprietary Chip, Software Technology or any Product purchased by
Physio infringes an applicable U.S. patent; provided that Physio shall
promptly notify Cardiac Science of such claim, permit Cardiac Science
to assume control of the defense of such claim, and fully cooperate in
the defense of such claim. If the use or sale of the Proprietary
Chip, Software Technology or a Product is enjoined by order or
settlement, then Cardiac Science shall have the option to (1) procure
for Physio the right to continue using or selling the Product, (2)
replace the Product with a non-infringing Product or to modify the
Product, (3) modify the Product so it becomes non-infringing, or (4)
accept return of the infringing Product and grant Physio a credit for
its purchase price. The foregoing shall be the entire liability of
Cardiac Science for infringement by Products furnished hereunder.
8 GENERAL PROVISIONS
8.1 RELATIONSHIP. This Agreement creates no relationship of employer and
employee, agent and principal, partnership or joint venture, Cardiac
Science and Physio are independent contractors and neither party is
the legal representative or agent of the other party in any respect
and is not authorized to assume or create any obligation or liability
of any kind on behalf of the other party. Neither party may make any
promises or representations in the name of the other.
8.2 NOTICES. All notices required or permitted by this Agreement shall be
in writing, in English and may be delivered personally, or may be sent
by registered prepaid airmail, return receipt requested, or by
facsimile transmission, or other electronic means of written
communication with a copy to be dispatched by registered prepaid
airmail return receipt requested by the close of the next following
business day.
Notices Sent to Physio shall be addressed to:
General Counsel
PHYSIO-CONTROL CORPORATION
11811 Willows Road N.E.
P.O. Box 97006
Redmond, WA 98073-9706
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Notices Sent to Cardiac Science shall be addressed to:
Raymond W. Cohen
President & CEO
CARDIAC SCIENCE, INC.
1176 Main Street, Bldg. C
Irvine, CA 92614
8.3 WAIVERS. Failure of either party at any time to require strict
performance of the other party of the provisions of this Agreement
shall not act as a waiver of such provisions, nor shall the waiver of
a breach of the Agreement by either party constitute a waiver of such
provision for any subsequent breach.
8.4 ENTIRE AGREEMENT AND MODIFICATIONS. This Agreement, together with its
Exhibits and addendum's, if any, contains the entire and only
agreement between the parties with respect to the matters addressed
herein. Any representations or terms and conditions not incorporated
in this Agreement shall not be binding upon either party. No
attempted modification of this Agreement shall be binding upon either
party unless in writing and signed in the same manner as the original
Agreement. If any provision of this Agreement is held to be invalid,
it shall not affect the enforceability of the remaining provisions.
8.5 DISPUTES. Any dispute arising from this Agreement or the relationship
between the parties shall be governed by the laws of the State of
California . At the request of either party, any dispute shall be
submitted to binding arbitration JAMS in Los Angeles, California. The
prevailing party in any arbitration, litigation or other alternate
dispute resolution forum shall be entitled to its reasonable costs and
fees, including attorney's fees.
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8.6 FORCE MAJEURE. If the performance of any obligation of this Agreement
except for the payment of money is prevented, restricted, or
interfered with by reason of strike, labor dispute, natural disaster,
war, the acts of government or any other cause outside the reasonable
control of the parties, then the party so affected shall give prompt
notice to the other party and shall be excused from such performance
to the extent made necessary by such event.
PHYSIO-CONTROL CORPORATION CARDIAC SCIENCE, INC
By: By:
--------------------------- ---------------------------
Title: Title: President & CEO
----------------------------
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[LOGO]
POWERHEART-Registered Trademark- AECD-Registered Trademark-
DEFIBRILLATOR-MONITOR PRODUCT SUMMARY
1. DEVICE OVERVIEW
The Powerheart-Registered Trademark- AECD-Registered
Trademark- defibrillator-monitor represents a significant advancement in
defibrillator technology and the ability to effectively manage
life-threatening arrhythmias in a hospital environment. Drawing on the
technologies that have made "hands-off" defibrillation and implantable
defibrillation possible and fusing this with advanced monitoring
capabilities, the Powerheart introduces the unique ability to provide
continuous monitoring of patients at risk for Sudden Cardiac Arrest. If a
patient suffers cardiac arrest, the Powerheart automatically detects and
restores a normal heart rhythm within seconds.
The Powerheart is a fully functional defibrillator that can be programmed to
identify and treat life-threatening arrhythmias. The Powerheart is capable
of providing as many as eight defibrillation shocks of up to 360 joules for
each life-threatening ventricular tachyarrhythmia event that occurs. This
unique protection is available to the patient throughout the period of high
risk whether that time is hours, days, or weeks. Similar to other diagnostic
monitoring devices that may be attached to the patient in this environment,
the Powerheart provides a patient cable to allow limited mobility customarily
available to less critical patients, as well as providing flexibility to the
nursing staff.
In addition to the standard AC power, the Powerheart also has a backup
battery that provides up to one hour of freestanding use. This battery is
automatically recharged whenever the Powerheart is plugged in, so that it is
always ready for use. The battery provides reliable backup in case of a
power outage as well as allowing the Powerheart to go with the patient should
the patient need to be moved.
The Powerheart attaches to the patient using disposable defibrillation
electrodes. Four additional monitoring electrodes may also be attached
providing up to three separate electrocardiogram (ECG) signals (channels) for
analysis. These additional channels provide the physician with the ability
to select and change the channel of ECG to be analyzed. Once the patient is
attached, the operator can program the Powerheart according to the
physician's prescription. The Powerheart will verify hookup quality.
Assuming the patient is in a normal rhythm, the operator will proceed to
program the device and allow for automatic analysis.
During the analysis period, the Powerheart can communicate with the medical
staff in a variety of ways. The ECG is always available for review on the
LCD display. This display provides important patient ECG information
regarding the analysis such as heart rate and rhythm. The printer will
provide hard copy documentation in standard ECG "strip chart" format. These
strips are printed automatically during a cardiac event. They may also be
printed whenever the operator
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desires. The Powerheart also stores one hour of information in a continuous
loop. This data can be transmitted to a personal computer for detailed
review and/or printing. In the case of a cardiac event, or any situation
requiring operator attention, the Powerheart can alert the operator through
an appropriate combination of visual alarm, audible alarm, or voice prompt.
The Powerheart includes the following basic components:
- - RHYTHM ANALYSIS SYSTEM - This system assesses the patient's
electrocardiogram ("ECG") signal to determine when therapy is appropriate
based upon parameters set by the patient's physician. ECG signals are
sensed by electrodes placed on the patient's chest. This signal is
amplified and filtered by an electrical analog circuit, digitized, and then
analyzed by proprietary software algorithms in the device, which makes the
determination of when therapy (a defibrillation shock) is appropriate for
the patient.
- - DEFIBRILLATOR - The AECD system uses electrical circuitry that provides an
AAMI standard waveform for defibrillation. Such waveforms are used by a
majority of defibrillators on the market, and have the longest proven track
record of success. The AECD can be programmed to transmit the low amounts
of electrical energy to the heart needed to terminate the life-threatening
arrhythmia. The AECD is designed to provide progressively greater amounts
energy, if needed, to restore the patient's heart to its normal cardiac
rhythm. The maximum energy that can be delivered by the device is 360
joules, which is the maximum limit recommended by the American Heart
Association (AHA).
- - DEFIBRILLATION ELECTRODES - The AECD uses self-adhesive, disposable
defibrillation electrodes manufactured by a third party vendor to the
Company's specifications. Electrodes require daily replacement.
- - DATA STORAGE - The device stores real-time ECG data on a real-time basis in
digital form. In addition, a strip chart recorder automatically prints
real-time ECG and relevant device data during significant detected events.
- - USER INTERFACE - Operating modes and setting parameters for rhythm analysis
are programmed via the user interface. The bedside AECD has a liquid
crystal display that indicates real time patient ECG as well as device
settings.
- - DATA RETRIEVAL SOFTWARE - This software is used to access the data stored
from the AECD device. This software runs on a personal computer. The data
can be viewed on a monitor and printed on a standard high-resolution
printer. This provides valuable post-facto analysis of the patient's rhythm
and device operation.
2. ANALYZER AND ALGORITHM OVERVIEW
The Powerheart's analysis of a patient's rhythm begins with the detection of
electrical activity in the heart. Under normal conditions this event is an
R-wave and represents a normal contraction of the heart. In abnormal
conditions this event may be the electrical signal generated with ventricular
tachycardia or fibrillation. The incoming signal is sampled every 2
milliseconds (2/1000th of a second). This incoming signal is filtered (for
signal and motion noise as well as baseline wandering), differentiated and
squared (calculations that normalize the event) and clipped (to take out
excess signal). The detection software for these electrical events also
automatically adjusts to take into account the size characteristics of the
preceding beats. If this moving average exceeds a given
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threshold, an electrical event (e.g. an R-wave) is considered to have
occurred. This further eliminates signal artifacts.
Analysis continues by determining the rate at which these electrical events
occur. The Powerheart will measure the interval between consecutive events
to compute rate. This rate calculation is the primary parameter in
determining if a rhythm is shockable. This rate is called the Shockable
Tachyarrhythmia Detection (STD) rate or simply the detection rate. This rate
analysis occurs continuously as a moving average.
In addition to rate analysis, the Powerheart is capable of distinguishing
between unusually fast "normal" rhythms (tachycardia, supraventricular
tachycardia or atrial fibrillation) and rhythms requiring a shock
(ventricular tachyarrhythmias). This feature is called Modulation Domain
Function, or MDF-Registered Trademark-. MDF uses sophisticated morphology
differentiation techniques designed to reduce the probability of delivering
therapy for rapid normal rhythms that satisfy the rate criteria without
compromising sensitivity in shocking ventricular tachycardia or fibrillation..
When the Powerheart is ready to deliver a shock, it will first verify that
the defibrillation pads are properly attached to the patient, can safely
deliver the shock and that the rhythm is still shockable. If the
life-threatening rhythm has changed on its own and no longer requires a
shock, the Powerheart will safely dispose of the charge internally. After
the shock is delivered, the Powerheart will quickly re-acquire the ECG signal
and resume analysis to check the resulting rhythm. If the life-threatening
rhythm continues, the Powerheart will charge and deliver another shock, if
programmed. If the shock restores normal rhythm, the Powerheart will wait
for one minute then reset to the beginning of its therapy sequence. Should
the shock.
There are two special rhythms that must be taken abnormal rhythm recur during
this minute, the Powerheart will continue therapy with the next programmed
into account by any automatic defibrillator. These rhythms occur when there
is no ECG signal or when the patient is in Fine VF. When this situation
occurs in a normal rhythm, this is called Asystole. Shocking Asystole cannot
help, and may in fact be harmful.
The Powerheart will not shock Asystole in accordance with the American Heart
Association recommendations. Fine VF however, is detectable by the
Powerheart, and the Powerheart will shock this rhythm.
The Powerheart incorporates important safety features and performs periodic
internal diagnostics to verify it is correctly operating. As already
mentioned, the Powerheart will verify that the rhythm is shockable, just
before delivering the shock. In addition, the Powerheart is able to
determine if the ECG and/or defibrillation electrodes become disconnected.
The Powerheart is also able to determine if the ECG signal it is receiving is
too small or too large for safe analysis. In any of these situations occur,
the Powerheart will alert the medical personnel to correct the situation.
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3. PROGRAMMING OVERVIEW
The Powerheart can be programmed for several modes of operation. The first
mode of operation is MANUAL. In this mode, the Powerheart functions as a
manual defibrillator. The operator selects the shock energy, charges the
device, and manually delivers the shock. MANUAL mode can always be selected
by the operator. This allows the users to operate the Powerheart as a
standard defibrillator, pre-empt automatic therapy or abort automatic therapy.
In order to set up the Powerheart for automatic use, a PROGRAMMING mode is
available. In this mode, the operator can program up to eight shocks. The
strength of the shock and a timed delay for the shock must be programmed for
each therapy. The shock strength can be programmed to "industry standard"
energy selections from 5 to 360 Joules. The delay indicates the time
interval from the detection of the shockable rhythm until the delivery of the
shock. The delay may be programmed from 10 seconds to 10 minutes. The
ability to program a long delay allows the doctor to take into account those
patients that can tolerate certain types of ventricular tachycardia.
The detection criteria are also set in PROGRAMMING mode. The operator
selects the ECG channel to be used for analysis. The operator must also
program the Shockable Tachyarrhythmia Detection (STD) rate described earlier.
The STD rate may be programmed from 120 up to 240 beats per minute in steps
of 5. If MDF is enabled, then a rate must be set for it. The rate for MDF
is programmed to a value greater than the STD rate up to 240 beats per
minute, again in steps of 5. Finally, the operator is able to enter a patient
ID, date and time.
During the programming process, the Powerheart checks for unsafe conditions
such as a delay without a corresponding shock or selection of an ECG channel
that has not been attached to the patient. The operator cannot continue
until these conditions have been corrected. Once programming is complete,
the Powerheart will verify that the ECG signal is satisfactory for safe
analysis and that the patient is in a normal rhythm.
The operator may now select one of two automatic analysis modes. In the
first mode, AUTO mode, the Powerheart will perform rhythm analysis and
automatically deliver therapy when needed. This is the primary intended mode
of operation for the Powerheart. A secondary mode called ADVISORY mode is
also available. In ADVISORY mode, the Powerheart will provide the automatic
analysis and will automatically prepare to shock a shockable rhythm.
However, the operator must confirm the shock before it will be delivered to
the patient.
4. CLINICAL RESULTS
To test the safety and efficacy of the Powerheart, a multi-center clinical
trial study was conducted. 155 patients enrolled in four institutions. Of
these patients, 130 were attached to the Powerheart and 25 were utilized as
controls. The control patients allowed comparison of the Powerheart to
standard medical care. The Powerheart was utilized for over 1200 hours
during this study.
4
<PAGE>
Patients in the clinical trial experienced a total of 92 shockable episodes.
The study found that the Powerheart had a sensitivity of 100% (correctly
identifying shockable episodes), a specificity of 99.4 percent, (not allowing
a non-shockable rhythm to be shocked). The average response time for the
Powerheart was approximately 21 seconds. In addition, normal rhythm was
restored by the FIRST shock of the Powerheart in 96 percent of the actual
shocks delivered with energy levels as low as 50 joules.
These results demonstrate that the Powerheart responded to every shockable
event within seconds, successfully restored a normal rhythm and delivered
shocks only when appropriate, confirming its safe to use.
5. SELECTED FEATURE CHART
<TABLE>
<CAPTION>
CAPABILITY POWERHEART AECD
----------------------------------------------------------------
<S> <C>
Indication for use Patients at risk for cardiac
arrest
----------------------------------------------------------------
Initial rhythm for attaching Typically a normal rhythm
----------------------------------------------------------------
Artifact/motion Designed to reject artifact.
Allows patient motion. Allows
transport of patient.
----------------------------------------------------------------
Length of use Continuos monitoring
----------------------------------------------------------------
Modes of use Fully automatic, Manual,
Semi-automatic (advisory)
----------------------------------------------------------------
Power source AC, battery
----------------------------------------------------------------
Inputs from patient Defibrillation pads plus two
optional channels of ECG
----------------------------------------------------------------
Unattended use? Yes
----------------------------------------------------------------
Automatic analysis Yes
----------------------------------------------------------------
Automatic shock? Yes
----------------------------------------------------------------
Monitoring capability Yes
----------------------------------------------------------------
Accuracy Specificity > 99%
Sensitivity > 99%
----------------------------------------------------------------
Programmable parameters Shock energy for 8 shocks
Delay for 8 shocks
ECG channel
Detection rate (STD)
MDF rate
Patient demographics
----------------------------------------------------------------
Rhythm analysis Continuous sliding window
----------------------------------------------------------------
</TABLE>
5
<PAGE>
EXHIBIT 1.3
AECD-Registered Trademark- TACHYARRYTHMIA DETECTION SOFTWARE DESCRIPTION
*** Seven pages omitted.
1
<PAGE>
EXHIBIT 2.5.1
STANDARD TERMS AND CONDITIONS
PURCHASE ORDERS. Physio will order Products from Cardiac Science by
issuing written Purchase Orders. Purchase Orders shall be issued one hundred
and twenty (120) days in advance of required shipment date. Each Purchase
Order will specify items such as: Products, quantity, delivery or completion
schedule, destination, Physio's Specifications/Acceptance Criteria (as
applicable), total price of the Purchase Order.
All Purchase Orders are subject to acceptance by Cardiac Science in
accordance with the terms of this Agreement; provided, however, that orders
for which Physio has not received a written acceptance or rejection from
Cardiac Science within 10 business days following its receipt by Cardiac
Science shall be deemed to have been accepted by Cardiac Science.
DELIVERY. Physio may elect to have Cardiac Science "drop ship" Product to
Physio determined destination. Time and method of shipment are of the
essence for all purchases made under this Agreement. Cardiac Science's
on-time delivery is defined as within 4 days early to 2 days late from
scheduled delivery date. Cardiac Science shall prepare and pack the Products
to prevent damage and deterioration, and comply with carrier tariffs.
Charges for preparation, packing, and crating are included in the price
unless separately specified on the Purchase Order. Products sold F.O.B.
place of shipment shall be forwarded collect. Shipments or deliveries, as
specified in this Agreement, shall be strictly in accordance with this
Agreement. Cardiac Science shall promptly notify Physio in writing of any
anticipated or actual delay, the reasons thereof, and the actions being taken
by Cardiac Science to overcome or minimize the delay. If requested by
Physio, Cardiac Science shall, at Cardiac Science's expense, ship quantities
of Product needed to support a shortage caused by Cardiac Science's delay in
shipment due to causes under Cardiac Science's control, via air or other fast
transportation to avoid or minimize the delay to the maximum extent possible.
REJECTION. In the regular course of its business, Physio may reject, refuse
acceptance or revoke acceptance ("rejection" herein) of any or all of the
Products or any tender thereof which Physio reasonably determines are not
strictly in conformance with all of the requirements of this Agreement.
Physio must promptly notify Cardiac Science of such rejection in writing.
At Cardiac Science's risk and expense, all such Products will be returned to
Cardiac Science for immediate repair, replacement or other correction.
SUBCONTRACT MANAGEMENT. Cardiac Science is responsible for the management of
his subcontractors, suppliers, and vendors. The Cardiac Science shall ensure
that each lower tier subcontract contains all applicable specifications,
special requirements, and clauses needed to comply with the requirements of
this Agreement. Any technical, schedule, and/or cost problems encountered by
the Cardiac Science or its subcontractors shall be promptly reported to the
Physio.
INQUIRIES. If any governmental agency contacts Cardiac Science or Physio to
inquire about or investigate any Product manufactured by Cardiac Science or
Physio, Cardiac Science or Physio shall use its best efforts to give notice
thereof to Cardiac Science or Physio within 24 hours of receipt of such
contact.
RESCHEDULING OF PURCHASE ORDERS. Unless otherwise agreed between the
parties, Physio may reschedule in writing, delivery of any Products on
Purchase Order with Cardiac Science within the following guidelines:
<TABLE>
<S> <C>
30 days from scheduled shipment date No changes
31-60 days from scheduled shipment date 25% (+ or -)
1
<PAGE>
61-120 days from scheduled shipment date 50% (+ or -)
121 days or more from scheduled shipment date 100% (+ or -)
</TABLE>
QUALITY ASSURANCE PROGRAM. Cardiac Science shall maintain a Quality
Assurance Program that effectively ensures the quality of design, materials,
workmanship, assembly, testing, inspection, distribution, and product support
of all Products.
AUDIT RIGHTS. Cardiac Science agrees to grant Physio complete and free
access to verbal, visual, and written records, as well as access to
personnel, suppliers, and facilities that are necessary and expeditious to
Physio's confirmation of the Quality Assurance Program. Physio shall perform
audits of Cardiac Science's facility at approximately twelve (12) month
intervals, and will give at least twenty (20) days notice of intent to visit
Cardiac Science's facility for the purpose of carrying out an audit. More
frequent audits could occur as a result of investigations or corrective
action follow-up. These are likely to be less comprehensive, and, as a
function of the nature and severity of the issue, notice for the audit could
be much shorter -- as little as one day.
If Cardiac Science has asked any third party (for example, certifying bodies
for ISO9001 registration) to audit their facility, Cardiac Science will
inform Physio of such scheduled audits. Physio may request Cardiac Science
to direct the third party to audit certain areas of Cardiac Science's
facility, and if such request results in additional third party audit expense
to Cardiac Science, Physio shall reimburse Cardiac Science for such expense.
Cardiac Science shall provide Physio with copies of third party audit
reports. Cardiac Science may edit such reports before sending them to Physio
to remove any information which if transferred to Physio might be in conflict
with Cardiac Science's existing confidentiality agreements with other parties.
CORRECTIVE ACTION SYSTEM. To address Product quality issues, Cardiac Science
shall implement and maintain a corrective action system to be approved by
Physio. This system shall specifically cover how Cardiac Science will deal
with "trigger" events, such events being defined as the discovery of a
problem by either Physio or Cardiac Science that has the potential of
existing in Product that has already been shipped to Physio or has potential
to disrupt deliveries. The Cardiac Science's corrective action system shall
include the following:
-Method of assessing risk in Cardiac Science's finished goods inventory
(FGI), Physio's FGI, and distributed Product
-Procedure for carrying out, validating, and documenting problem root
cause analysis
-Procedure for implementing remedial (short-term) corrective actions
-Procedure for implementing permanent corrective action that address the
root cause
-Response time requirements that are compatible with Physio's corrective
action system requirements
COMPLAINT FILES. Cardiac Science shall be responsible for Medical Device
Reporting (MDR) under the MDR requirements of Title 21 Code of Federal
Regulations Part 803. Product(s) supplied hereunder are designated as
medical devices. Therefore, Physio shall notify Cardiac Science if it
receives any complaint relating to any part of a Product or a Product that
was manufactured or sold by Cardiac Science or if it becomes aware of any
event involving such Product that might require filing of an MDR. Physio
shall orally notify the Cardiac Science within 24 hours if it becomes aware
of any event involving the Cardiac Sciences Product, requiring the filing of
an MDR.
REGULATORY REGISTRATIONS. Cardiac Science is required to maintain GMP
Registration as a Medical Device Manufacturer throughout the term of this
Agreement. Cardiac Science shall also obtain certification to ISO9001
including EN46001 and the European Medical Device Directives.
2
<PAGE>
CONFIGURATION CONTROL Cardiac Science shall maintain control of
configuration, traceability, and identification of raw materials,
components, sub-assemblies, and units in accordance with Cardiac Science's
Quality System.
3
<PAGE>
SECTIONS MARKED FOR CONFIDENTIAL TREATMENT
All sections marked as "***" have been omitted pursuant to a request for
confidential treatment. The omitted sections have been filed separately.
1
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Cardiac Science, Inc. on Form S-8 (File No. 333-70171) of our report dated
February 17, 1999, which contains a paragraph regarding the Company's ability
to continue as a going concern, on our audits of the consolidated financial
statements of Cardiac Science, Inc. as of December 31, 1998 and for the years
ended December 31, 1998 and 1997 which report is included in this Annual
Report on Form 10-KSB.
PricewaterhouseCoopers LLP
Newport Beach, California
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,247,602
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,277,731
<PP&E> 215,689
<DEPRECIATION> 97,979
<TOTAL-ASSETS> 1,555,707
<CURRENT-LIABILITIES> 1,827,629
<BONDS> 0
0
0
<COMMON> 7,015
<OTHER-SE> (294,938)
<TOTAL-LIABILITY-AND-EQUITY> 1,555,707
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,721,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,353
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,787,704)
<DISCONTINUED> (651,030)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,438,734)
<EPS-PRIMARY> (.81)
<EPS-DILUTED> (.81)
</TABLE>
