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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 1997
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission File No. 1-10986
MISONIX, INC.
(Name of Small Business Issuer in its charter)
New York 11-2148932
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1938 New Highway, Farmingdale, New York 11735
(Address of principal executive offices) Zip Code
Issuer's telephone number: (516) 694-9555
Securities registered under Section 12(b) of the Exchange Act:
Title of class Name of Each Exchange on Which Registered
Common Stock, $.01 par value Boston Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 in response to Item 405 of
Regulation S-B contained and no disclosure will be contained in this form, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]
Issuer's revenues for its most recent fiscal year: $17,560,041
The aggregate market value of the voting stock held by non affiliates of the
registrant (computed by reference to the average bid and asked prices of such
stock) on September 15, 1997 was approximately: $63,794,302
There were 5,672,154 shares of Common Stock outstanding at September 15, 1997
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DOCUMENTS INCORPORATED BY REFERENCE
None
- --------------------------------------------------------------------------------
This Report on Form 10-KSB and the Company's other periodic reports and
other documents incorporated by reference or incorporated herein as exhibits,
may contain forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, general economic conditions, competition, technological
advances, claims or lawsuits, and the market's acceptance or non-acceptance of
the Company's products.
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PART I
Item 1. Description of Business.
Misonix, Inc. (the "Company") is a New York Corporation which, through its
predecessors, was first organized in 1959. The Company designs, develops,
manufactures and markets ultrasonic equipment for scientific and industrial
applications, ductless fume enclosures for filtration of gaseous contaminates,
and environmental control products for the abatement of air pollution, as well
as medical devices. Other products manufactured or distributed by the Company
include ultrasonic cleaners and spray nozzles. In December 1995, the Company
entered into a license agreement with Medical Device Alliance, Inc.("MDA"),
giving MDA exclusive world-wide marketing and sales rights for the Company's
ultrasonic soft tissue aspiration medical device. In September 1996, the Company
began manufacturing this device for MDA and recognized its first revenues for
this product(see "Medical Products").
Medical Products
In December 1995, the Company entered into a license agreement with Medical
Device Alliance, Inc.("MDA"), giving MDA exclusive world-wide marketing and
sales rights for the Company's ultrasonic soft tissue aspiration medical device.
Pursuant to the License Agreement, the Company has received aggregate licensing
fees of $500,000 plus royalties based upon net sales of such products. Also as
part of the agreement, the Company was reimbursed a maximum of $30,000 per month
(commencing September 1995) for product development expenditures (as defined in
the agreement). The amount of reimbursements for the years ended June 30, 1997
and 1996 were $127,487 and $320,363, respectively. This license deals with,
among other matters, the Company's patent for a liposuction apparatus granted in
May, 1995 and its 510(K) approval from the United States Food and Drug
Administration to market and sell a device for ultrasonic tissue aspiration. In
September 1996, the Company began manufacturing this device for MDA and
recognized its first revenues for this product. Total sales of this product were
approximately $5,200,000 during the fiscal year ended June 30, 1997.
The Company has settled the dispute (as discussed in prior filings) with
the two individuals who are joint inventors, with the Company's founder, of the
Patent for a Liposuction Method and Apparatus. As a result, they have
reconfirmed their assignment, and in return, the Company has reestablished the
original payment agreement which gives the two inventors a 5% royalty on
revenues covered, including those received from the MDA License.
A competitor, Mentor Corporation, has brought an action against the
Company, MDA, and a subsidiary of MDA alleging patent
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infringement. The Company and its licensee are vigorously contesting and
defending against this claim (see "Item 3 Legal Proceedings")
In October 1996, the Company entered into a license agreement, with United
States Surgical Corporation ("USS"), covering the further development and
commercial exploitation of the Company's medical technology relating to
ultrasonic cutting, which uses high frequency sound waves to coagulate and
divide tissue for both open and laparoscopic surgery. The license agreement
gives USS exclusive world-wide marketing and sales rights for this technology.
The Company received $100,000 under the option agreement preceding the license
agreement. Under the license agreement, the Company is entitled to receive
aggregate fees of approximately $500,000, subject to attaining certain
milestones over the term of the agreement, plus royalties based upon net sales
of such products. As of June 30, 1997, the Company has received $275,000 under
the license agreement.
Revenue from both the MDA and the USS License Agreements is recognized
ratably over the respective terms of the Agreement.
Scientific and Industrial Products
The Company's other revenue-producing activities consist of the manufacture
and sale of the Sonicator(R) ultrasonic liquid processor and cell disruptor, the
distribution of other ultrasonic equipment for scientific and industrial
purposes, the manufacture and sale of Mystaire(R) ductless fume enclosures for
filtration of gaseous contaminants and the manufacture and sale of Mystaire
scrubbers for the abatement of air pollution.
The Sonicator is used in laboratories as a biological cell and tissue
disruptor and for the preparation of substances used to target drug delivery in
the body and certain agents used to visualize the circulatory system
non-invasively. In analytical chemistry, ultrasonic processors such as the
Sonicator remove gases from solvents and prepare samples for chemical analysis.
Similar procedures are used in biotechnology in the production of medications
and chemicals. The Sonicator is also used in the acceleration of chemical
reactions and the extraction of proteins from cells such as E.coli and yeast.
Sonication can strip away the outer coating of a virus and fragment DNA for
immunological studies. It is also widely applied in manufacturing
pharmaceuticals, fuel/oil emulsions, homogenizing pigments and dyes and
improving the quality and consistency of these products. Additional uses of the
Sonicator are, among others, quality control, including the dispersion of black
carbon in the ink industry, improving polymer films, degassing carbonated
beverages, beer, wines and spirits, and solvents.
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In addition to the Sonicator, the Company also manufactures and sells an
ultrasonic spray nozzle, marketed under the name Sonimist(R), and distributes
ultrasonic cleaners, marketed under the names Astrason(R) bench-top cleaner and
Astramax(R) industrial ultrasonic cleaner. The Sonimist ultrasonic spray nozzles
are used for, among other things, coating, cleaning, cooling and disinfecting
products in the food, pharmaceutical, paint, chemical, electronic, environmental
and printing industries. Ultrasonic cleaners are marketed to research and
industrial laboratories to remove various contaminants, such as radioactive
particles, proteins, rust, blood and oil, from laboratory equipment.
The Mystaire fume enclosure is a ductless filtration and containment hood
which is portable and easy to install. It eliminates the duct work that is
otherwise necessary for exhausting to the outside air. The enclosure is sold to
clinical, research, and industrial laboratories for various industrial purposes.
Laboratory applications include working with organic solvents and radioisotopes,
chemical storage, chemical dispensing, pathology and histology. Industrial
markets for the product line include the pharmaceutical, semiconductor
manufacturing, and asbestos containment industries. The Mystaire air purifier is
a general purpose recirculating system with activated carbon filters that purify
air and remove airborne fumes, odors, and particulates. A new product which
utilizes the same technology as the Mystaire fume enclosure, the Forensic
Evidence Cabinet, is being marketed to crime labs, medical examiners, and police
stations. Its primary use is to insure proper storage and minimize cross
contamination as well as protect staff from exposure to airborne pathogens
during storage of evidence.
The Mystaire scrubber is an air pollution abatement system which removes
difficult airborne contaminants emitted from laboratory, industrial and sewage
treatment processes. The scrubber operates on broad range of contaminants and is
particularly effective on gaseous contaminants such as sulfur oxides. The
Company also manufactures a range of "point of use" scrubbers for the
microelectronics industry. This equipment eliminates low levels of toxic and
noxious contaminants arising from silicon wafer production.
The Company owns an 84.05% interest in Labcaire Systems Ltd. ("Labcaire"),
a United Kingdom company formed in February 1992 with its principal place of
business in Clevedon, England. The balance of the capital stock of Labcaire is
owned by four executives who have, under a purchase Agreement ("Agreement"),
agreed to sell one-seventh of their total holding of Labcaire shares to the
Company in each of seven consecutive years, commencing with the fiscal year
ended 1996. Under the Agreement, the Company is required to repurchase such
shares at a price equal to one-seventh of each executive's prorata share of 8.5
times Labcaire's earnings before interest, taxes, and management charges
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for the preceding fiscal year. Pursuant to the Agreement, 9,284 shares (2.65%)
of Labcaire common stock was purchased by the Company for (pound)62,388
(approximately $102,100), in October 1996, for the year ended June 30, 1996 and
9,286 shares (2.65%) will be purchased by the Company for (pound)70,666
(approximately $114,500)for the year ended June 30, 1997. The effective date of
this transaction is expected to be October 1997. Labcaire's business consists of
designing, manufacturing, and marketing air handling systems for the protection
of personnel, products and the environment from airborne hazards. Labcaire is
the European distributor of the Company's ultrasonic scientific and industrial
products. The present management of Labcaire consists of four
executives/minority interest shareholders with experience in chemical
containment and air handling technologies. Labcaire manufactures class 100
biosafety hazard enclosures, used in laboratories to provide sterile
environments and protect lab technicians from airborne contaminants, and class
100 laminar flow enclosures. Labcaire also manufactures the Company's ductless
fume enclosures for the European market and sells the enclosures under its
tradename. Labcaire has developed and now manufactures and sells an automatic
endoscope disinfection system ("Autoscope"). The Autoscope disinfects and rinses
several endoscopes while abating the noxious disinfectant fumes.
Market and Customers
The Company relies on its joint venture partner, MDA, for marketing its
ultrasonic soft tissue aspiration medical device and, with respect to any other
potential ultrasonic medical devices, will likely seek and rely upon other joint
venture partners.
The largest market for the Company's Sonicator includes research and
clinical laboratories worldwide. In addition, the Company has expanded its sales
of the ultrasonic processor into industrial markets such as paint, pigment,
ceramic and pharmaceutical manufacturers.
The Company views a wide range of industries as prospective customers for
its pollution abatement scrubbers. Scrubbers are usable in any industry or
environment in which airborne contaminants are created.
The market for the Company's ductless fume enclosures includes laboratory
or industrial environments in which workers may be exposed to noxious fumes or
vapors. The products are suited to laboratories in which personnel perform
functions which release noxious fumes or vapors (including hospital and medical
laboratories), industrial processing (particularly involving the use of
solvents) and soldering and other general chemical processes. The products are
particularly suited to users in the pharmaceutical, semiconductor,
biotechnology, and forensic industries.
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The Company relies on manufacturing representatives, distributors, direct
salespersons and catalogue listings for the marketing of its scientific and
industrial products. The Company currently sells through more than ten
manufacturing representatives and distributors in the United States. The Company
currently employs two direct sales persons who operate outside the Company's
offices and conduct direct marketing on a regional basis, two sales specialists,
one marketing manager, and a vice-president of sales and marketing who work in
the Company's offices. Approximately 9% of its sales are through catalogue
distributors. The Company's sales efforts include advertising and participating
in trade shows.
In fiscal 1997, approximately 36.8% of the Company's net sales were to
foreign markets. Labcaire, a subsidiary of the Company, acts as the European
distributor of the Company's scientific and industrial products and manufactures
and sells the Company's fume enclosure line as well as its own range of
laboratory environmental control products. Sales by the Company in other major
industrial countries are made through distributors.
Manufacturing and Supply
The Company manufactures and assembles the majority of its scientific and
industrial products and its medical devices at its production facility located
in Farmingdale, New York. The Company's products include components manufactured
by other companies in the United States. The Company believes that it will not
encounter difficulty in obtaining materials, supplies and components adequate
for its anticipated short-term needs. The Company is not dependent upon any
single source of supply and has no long-term supply agreements.
Labcaire manufactures and assembles its products at its facility located in
Clevedon, England. It is not dependent upon any single source of supply and has
no long-term supply agreements.
Competition
Competition in the medical and medical device industry is rigorous with
many companies having significant capital resources, large research laboratories
and extensive distribution systems in excess of the Company's. Accordingly, the
Company believes participation in this field is only feasible if it enters into
strategic alliances and/or joint ventures with other entities having greater
experience and resources for use in this field.
Competitors in the ultrasonic industry for industrial products range from
large corporations with greater production and marketing capabilities to smaller
firms specializing in single products. The Company believes that its significant
competitors in the manufacture and distribution of industrial ultrasonic devices
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are Branson Sonic Power, a division of Emerson Electric Co., and Sonics &
Materials, Inc. In addition, the Company is aware of at least four other
manufacturers of ultrasonic liquid processors. It is possible that other
companies in the industry are currently developing products with the same
capabilities as those of the Company. The Company believes that the features of
its Sonicator and the Company's customer assistance in connection with
particular applications give the Sonicator a competitive advantage over
comparable products.
Competitors in the air pollution abatement industry range from large,
multi-national corporations with greater production and marketing capabilities
to small firms specializing in single products. The Company competes with other
entities whose financial resources are substantially greater and, in many cases,
whose share of the air pollution abatement market is significant. The Company
believes that its principal competitors in the manufacture and distribution of
scrubbers are The Ceilcote Company, Inc., Duall Division, a division of Met-Pro
Corporation, and Croll-Reynolds Company, Inc. The principal competitor for the
ductless fume enclosure is Captair, Inc. The Company believes that specific
advantages of its scrubbers include efficiency, price and customer assistance
and that specific advantages of its fume enclosures include efficiency and other
product features, such as durability and ease of operation.
Patents, Trademarks, Trade Secrets and Licenses
The Company owns United States trademark registrations for the following
marks: Mystaire, Waterweb, Sonimist, Astrason and Astramax. Pursuant to a
royalty free license agreement with an unaffiliated third party, the Company has
the right to use the trademark "Sonicator" in the United States. The Company
also owns trademark registrations for Mystaire in both England and Germany.
In May 1990, the United States Patent and Trademark Office (the "U.S.
Patent Office") issued a patent relating to the Alliger System for applying
ultrasonic forces on clots and plaque in human arteries using a generator,
transducer and titanium wire.
In June 1991, the U.S. Patent Office issued a patent relating to the
Company's environmental control product line for introducing ozone and liquid
into the cavitation zone for an ultrasonic probe.
In July 1991, the U.S. Patent Office issued a patent relating to the
Company's environmental control product line for the intimate mixing of ozone
and contaminated water for the purpose of purification.
In September 1993, the U.S. Patent Office issued a patent relating to the
Company's Alliger System for reducing transverse
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motion in its catheters.
In April 1994 and August 1995, the U.S. Patent Office issued two patents
relating to the Company's Alliger System for a catheter with collapsible wire
guide.
In December 1994, the U.S. Patent Office issued a patent relating to the
Company's liposuction system and its ultrasonic industrial products for an
electromechanical transducer device.
In March 1995, the U.S. Patent Office issued a patent relating to the
Company's Alliger System for an ultrasonic device with sheath and transverse
motion damping.
In May 1995, the U.S. Patent Office issued a patent relating to the
Company's liposuction apparatus and associated method. The Company has settled
the dispute with the two individuals who are joint inventors, with the Company's
founder, of this patent (see "Medical Products").
In November 1995, the U.S. Patent Office issued a patent relating to the
method of making an electromechanical transducer device to be used in
conjunction with the soft tissue aspiration system and the Company's ultrasonic
industrial products.
In May 1996, the U.S. Patent Office issued a patent relating to an
ultrasonic atomizing device which is used in the Company's industrial products.
In June 1996, the U.S. Patent Office issued a patent relating to an
ultrasonic lipectomy probe to be used with the soft tissue aspiration
technology.
The Company filed a patent application with the U.S. Patent Office,
relating to an autoclavable rotary switch.
The Company filed three foreign patent applications relating to an
ultrasonic lipectomy probe to be used with the soft tissue aspiration
technology.
Backlog
As of June 30, 1997, the Company's backlog, including Labcaire, relating to
industrial products was approximately $1,700,000 as compared with approximately
$850,000 as of June 30, 1996. The Company's backlog relative to medical products
was approximately $2,900,000 at June 30, 1997 and approximately $950,000 at June
30, 1996.
Employees
As of September 15, 1997 the Company, including Labcaire,
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employed a total of 108 full-time people, including 21 in management and
supervisory positions. The Company considers its relationship with its employees
to be satisfactory.
Item 2. Description of Property.
The Company occupies approximately 34,000 square feet, at 1938 New Highway,
Farmingdale, New York, under a lease expiring on April 30, 1998. The rental
amount, which is approximately $20,000 per month, includes a pro rata share of
real estate taxes, water and sewer charges, and other charges which are assessed
on the leased premises or the land upon which the leased premises are situated.
The Company is exploring alternatives, to take effect following expiration of
this lease, which include a move to new facilities or the expansion and renewal
of the lease covering its existing facilities. Labcaire occupies approximately
12,000 feet, at 15 Hither Green, Clevedon, England, under a lease expiring July
20, 1999. The rental amount is approximately $4,000 per month with a pro rata
share of local taxes and water and sewer charges billed separately. Both
properties are in good condition.
Item 3. Legal Proceedings.
The Company, Medical Device Alliance, Inc. ("MDA"), and MDA's wholly owned
subsidiary, Lysonix, Inc., are defendants in an action alleging patent
infringement by Mentor Corporation. Both the Company and its licensee (MDA) are
aggressively contesting Mentor's claim. Based upon the current status of
matters, management believes that the outcome of this suit will not have a
material adverse effect on the consolidated financial statements included in
this report.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders
during the last quarter of the fiscal year ended June 30, 1997.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is listed on the Boston Stock Exchange under the
symbol "MSO" and is traded in the over-the-counter market on the National
Association of Securities Dealers' Automated Quotation System ("NASDAQ") under
the symbol "MSON". Trading on both the Boston Stock Exchange and on NASDAQ
commenced on January 23, 1992.
On September 9, 1997, the Board of Directors of the Company declared a 3
for 2 stock split payable as a 50% stock dividend to shareholders of record on
October 10, 1997. All common stock data, per share data and market prices per
common share in this report have been retroactively adjusted to reflect the
stock split.
The following table sets forth the high and low bid prices for the Common
Stock during the periods indicated as reported by NASDAQ. The prices reported
reflect inter-dealer quotations, may not represent actual transactions, and do
not include retail mark-ups, mark-downs or commissions. The trading on the
Boston Stock Exchange has been very limited to date and has been at prices
substantially similar to those quoted below for NASDAQ.
Fiscal 1997 High Low
- ----------- ---- ---
First Quarter ........................ $2.92 $2.00
Second Quarter ....................... 5.75 2.25
Third Quarter ......................... 7.00 4.33
Fourth Quarter ....................... 7.50 4.42
Fiscal 1996: High Low
- ------------ ---- ---
First Quarter ........................ $1.00 $ .44
Second Quarter ....................... .88 .50
Third Quarter ........................ .79 .50
Fourth Quarter ....................... 3.08 .68
As of September 15, 1997, the Company had 5,672,154 shares of Common Stock
outstanding and 124 shareholders of record. This does not take into account
stockholders whose shares are held in "street name" by brokerage houses. The
Company has not paid any dividends since its inception. The Company currently
does not intend to pay any cash dividends in the foreseeable future, but intends
to retain all earnings, if any, in its business operations.
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Item 6. Management's Discussion and Analysis
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere herein.
All of the Company's sales to date have been derived from the manufacture
and distribution of ultrasonic equipment for scientific and industrial purposes,
ductless fume enclosures for filtration of gaseous emissions in laboratories,
environmental control equipment for the abatement of air pollution, and
ultrasonic medical devices.
Results of Operations:
The following table sets forth, for the two most recent fiscal years, the
percentage relationship to net sales of principal items in the Company's
Statement of Operations:
Fiscal years ended
June 30,
----------------
1997 1996
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Net sales .................................................. 100.0% 100.0%
Cost of goods sold ......................................... 43.2 52.3
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Gross profit ............................................... 56.8 47.7
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Selling, general and administrative expenses ............... 31.3 41.8
Research and development expenses
-medical products ....................................... .6 .4
Research and development expenses
-industrial products .................................... 1.4 1.6
Non-cash compensation charge ............................... 24.8 .0
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Total operating expenses ................................... 58.1 43.8
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(Loss) income from operations .............................. (1.3) 3.9
Other income ............................................... 3.9 .7
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Income before minority interest
and income taxes ........................................ 2.6 4.6
Minority interest .......................................... (.2) (.7)
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Income before income taxes ................................. 2.4 3.9
Income taxes ............................................... (.3) --
----- -----
Net income ................................................. 2.1 3.9
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The following table provides a breakdown of net sales by major category for
the periods indicated:
Fiscal years ended
June 30,
------------------
1997 1996
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(in thousands)
Ultrasonic products ........................................ $ 3,174 $2,632
Scrubbers .................................................. 1,943 1,156
Ductless fume enclosures ................................... 7,226 6,125
Ultrasonic medical devices ................................. 5,217 --
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Net sales ............................................. $17,560 $9,913
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The following table provides a breakdown of foreign sales by geographic
area during the periods indicated:
Fiscal years ended
June 30,
------------------
1997 1996
----- -----
(in thousands)
Canada & Mexico .............................................. $ 122 $ 95
Europe ....................................................... 4,894 4,533
Asia ......................................................... 934 703
Middle East .................................................. 180 146
Other ........................................................ 336 166
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$6,466 $5,643
====== ======
Fiscal years ended June 30, 1996 and 1997
Net Sales. Net sales increased by 77.2% between the fiscal year ended June
30, 1996 and the fiscal year ended June 30, 1997 from $9,913,136 to $17,560,041.
Approximately two-thirds of this increase was due to the Company's first medical
device sales which were approximately $5,200,000 during the fiscal year ended
June 30, 1997.
Fume enclosures increased by $1,101,000 or 17.9% in the fiscal year ended
1997 due to increased marketing efforts for its domestic products and the
continued success of Misonix's forensic cabinet and Labcaire's Autoscope.
Ultrasonic products include the Sonicator liquid processor and cell
disrupter systems, ultrasonic cleaners, related accessories, and repair and
service. The increase of $542,000 or 20.6% in sales of ultrasonic products in
fiscal 1997 is the result of new marketing strategies which increased catalog
sales and allowed the Company to increase its market share.
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The increase of $787,000 or 68.1% in scrubber sales between fiscal 1996 and
fiscal 1997 was due to increased marketing efforts to the microelectronics
industry.
The medical device product category had its first revenues in the fiscal
year ended June 30, 1997. Its revenues of $5,217,000 is the result of the
Company's strategic alliance with MDA.
During fiscal 1996 and fiscal 1997 the Company had foreign net sales of
$5,643,101 and $6,465,673, respectively, representing 56.9% and 36.8% of net
sales for such years, respectively. This increase in sales is principally due to
Labcaire's increased sales volume in fiscal 1997 over fiscal 1996, increasing to
$5,469,992 from $4,711,667. The decrease in foreign sales as a percent of total
sales is a result of the Company selling approximately $5,200,000 of medical
devices domestically during fiscal 1997. There were no such sales during fiscal
1996.
Gross profit. There was an increase in overall gross profit margin to 56.8%
in fiscal 1997 from 47.7% in fiscal 1996 because of economies of scale resulting
from increased sales volume, sales of higher gross profit products(i.e., the
newly introduced medical device),and various product price increases.
Selling, general and administrative expenses. There was a 32.7% increase,
from $4,139,183 to $5,492,087 in SG&A expenses from fiscal 1996 to fiscal 1997
owing in part to higher commissions on increased sales volume and the hiring of
additional employees. However, this increased sales volume resulted in a
decrease of these expenses to 31.3% of net sales in fiscal 1997 compared to
41.8% in fiscal 1996.
Research and development expenses. Medical product research and development
expenses were $42,933 in fiscal 1996 and $105,120 in fiscal 1997. The increase
in medical product R&D expenses is due to non-funded development costs,
associated with the Company's medical devices, under its agreements with Medical
Device Alliance Inc. and U.S. Surgical Corporation. Industrial product R&D
expenses were $161,253 in fiscal 1996 and $245,668 in fiscal 1997.
Interest expense. Interest expense was $41,529 in fiscal 1996 and $40,953
in fiscal 1997. This decrease was due to a slightly lower level of borrowing by
Labcaire during the fiscal year.
Option/license Fees. In December 1995, the Company entered into a licensing
agreement with Medical Device Alliance, Inc. ("MDA"). As part of this agreement,
the Company has received $500,000 in licensing fees, of which $45,000 and
$19,167 has been recorded as income during fiscal 1997 and fiscal 1996,
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respectively. In October 1996, the Company entered a licensing agreement with
United States Surgical Corporation ("USS"). The Company received $100,000 under
the option agreement preceding the license agreement and has received $275,000
under the license agreement. The Company has recorded $100,000 of the option
fees and $10,312 of the licensing fees as income during fiscal 1997.
Net operating losses. The Company has accumulated approximately $2,000,000
of net operating losses as of June 30, 1997, which may be used to reduce taxable
income and income taxes in future years. The utilization of these losses to
reduce future income taxes will depend on the generation of sufficient taxable
income prior to the expiration of the net operating loss carryforwards. The
carryforwards begin to expire in fiscal year 2002 and will continue to expire
through fiscal year 2011.
Liquidity and Capital Resources:
On February 3, 1997, 1,093,692 publicly issued Redeemable Warrants were
exercised and a like number of common shares were issued. The balance of these
options, which were originally issued at the time of the Company's initial
public offering in January 1992, expired. As a result of the exercise, the
Company received proceeds of $5,655,924, net of expenses of approximately
$31,000.
At June 30, 1997, the Company had a cash and cash equivalent balance of
$5,409,830 and investments held to maturity of $6,367,595.
The Company believes that its existing capital resources will enable it to
maintain its current and planned operations for at least 12 months from the date
hereof.
Currency Risk:
Approximately 31% of the Company's revenues in fiscal 1997 were received in
English Pounds Sterling currency. To the extent that the Company's revenues are
generated in English Pounds and, for purposes of the Company reporting its
financial position, its operating results are converted into US Dollars using
rates of 1.62 and 1.55 in the years ended June 30, 1997 and 1996, respectively.
A strengthening of the English Pound, in relation to the US Dollar, will have
the effect of increasing its reported revenues and profits, while a weakening of
the English Pound will have the opposite effect. Since the Company's operations
in England generally set prices and bids for contracts in English Pounds, a
strengthening of the English Pound, while increasing the value of its UK assets,
might place the Company at a pricing disadvantage in bidding for work from
manufacturers based overseas.
Other:
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
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Item 7. Financial Statements
The response to Item 7 is submitted as a separate section of this report
following the exhibits.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
15
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The Company currently has four Directors. Their term expires at the Annual
Meeting and all four are standing for reelection for a term of one year. The
following tables contains information regarding all Directors and executive
officers of the Company:
Director
Name Age Principal Occupation Since
- ---- --- -------------------- -----
Gary Gelman 50 Chairman of the Board 1995
of Directors
Joseph Librizzi 59 President, 1971
Chief Executive Officer,
Treasurer and a Director
Peter Gerstheimer 48 Vice President, --
Chief Financial Officer
and Secretary
Ronald Manna 43 Vice President Operations --
Robert Lee 38 Vice President Sales and Marketing --
Howard Alliger 70 Director 1971
Arthur Gerstenfeld 69 Director 1992
The following is a brief account of the business experience for the past
five years of the Company's Directors and officers:
Gary Gelman, the founder of American Claims Evaluation, Inc., a publicly
traded company engaged in auditing hospital bills and providing vocational
rehabilitational counseling, has been Chairman of the Board and a Director of
that company for more than ten years. Since 1973, Mr. Gelman has also been
President and a principal of American Para Professional Systems, Inc., which
provides nurses who perform physical examinations of applicants for life and/or
health insurance for insurance companies. He received a B.A. Degree from Queens
College. In March 1996, Mr. Gelman became Chairman of the Board of Misonix, Inc.
Joseph Librizzi became President and Chief Executive Officer of the Company
in March 1995. Prior to this he was Executive Vice President, Chief Operating
Officer, Treasurer and Secretary of the Company since September 1991. Dr.
Librizzi was previously President of the Company (prior to the merger between
the Company and Sonic Needle Corp.) from 1986 to September 1991. Dr.
16
<PAGE>
Librizzi holds a doctorate in applied mechanics and aerospace engineering from
Polytechnic Institute of Brooklyn.
Peter Gerstheimer became Vice President and Chief Financial Officer of the
Company in September 1992. From December 1984 to September 1992, he was Vice
President of Finance at Thermex-Thermatron, Inc., a manufacturer of
high-frequency electronic heat sealing and processing equipment. Previously, he
served as Treasurer and Controller of LogiMetrics, a manufacturer of electronic
test components and systems for military and non-military use. Mr. Gerstheimer
is a licensed certified public accountant in the State of New York and was a
senior accountant at Touche Ross & Co. Mr. Gerstheimer holds a B.A. Degree from
Hofstra University.
Ronald Manna became Vice President - Operations of the Company in September
1989. For more than three years prior thereto, Mr. Manna served as the Director
of Engineering of the Company. Mr. Manna holds a B.S. Degree in mechanical
engineering from Hofstra University.
Robert Lee became Vice President of Sales and Marketing in August 1996. For
the year prior thereto, he served as Director of Sales and Marketing for the
laboratory products division of the Company. Prior to employment with Misonix,
Mr. Lee was a Divisional General Manager, National Sales Manager and Regional
Sales Manager for Pall Corporation, a leading filtration company where he worked
for seven years. Prior to Pall Corporation, Mr Lee worked for American Bionetics
as a Regional Manager. Mr. Lee holds a B.A. Degree in Chemistry from the State
University of New York at Plattsburg.
Howard Alliger has served since 1955 as the sole proprietor or as the
Chairman of the Board of Directors of the Company and its predecessors. In March
1996, Mr. Alliger resigned as Chairman of the Board of Directors while remaining
on the Board. Mr. Alliger holds a B.A. degree in economics from Allegheny
College and attended Cornell University's School of Engineering. He has received
15 patents, has published various papers on ultrasonic technology and, for the
three years ended in June 1991, was the President of the Ultrasonic Industry
Association.
Arthur Gerstenfeld is a Professor at Worcester Polytechnic Institute and
Director of its Advanced Automation Technology Program. He is also the President
of UFA, Inc. a manufacturer of air traffic control simulation systems, and has
served in that capacity since 1980. Dr. Gerstenfeld received a B.M.E. from
Rensselaer Polytechnic Institute in 1950 and an M.S. and Ph.D. from the
Massachusetts Institute of Technology in 1966 and 1967, respectively.
17
<PAGE>
Item 10. Executive Compensation.
The following table sets forth for the fiscal years indicated the
compensation paid by the Company to its Chief Executive Officer and any other
executive officers with annual compensation exceeding $100,000:
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation
---------------------------- ----------------------
Securities
Name and Principal Fiscal Underlying
Position Year Salary Bonus Options/SARS
- ------------------ ------ ------ ----- ------------
Joseph Librizzi 1997 $160,000 $379,394 --
President, Chief 1996 160,000 23,971 --
Executive Officer 1995 135,000 -- --
and Treasurer
Robert Lee 1997 $ 67,708 $ 38,818 --
Vice President of 1996 52,303 14,925 --
Sales & Marketing 1995 -- -- --
Howard Alliger 1997 $ -- -- --
Chairman of the 1996 -- -- --
Board 1995 135,000 -- --
- ------------------------
Employment Agreements
On September 1, 1995, the Company entered into an employment agreement with
Dr. Librizzi, who is employed as President and Chief Executive Officer. The
agreement was renewed in July 1996 and again in August 1997 and expires on
September 30, 1998. It is automatically renewed for a successive one year term
unless the Company or the executive elects not to renew. The agreement provides
for an annual salary (starting September 1, 1997) of $200,000 plus a Company
provided automobile and bonus measured by pretax operating earnings. Dr.
Librizzi receives additional benefits that are generally provided to other
employees of the Company.
In conformity with the Company's policy, all of its Directors, officers and
employees execute confidentiality and nondisclosure agreements upon the
commencement of employment with the Company. The agreements generally provide
that all inventions or discoveries by the employee related to the Company's
business and all confidential information developed or made known to the
employee during the term of employment shall be the exclusive property of the
Company and shall not be disclosed to third parties without
18
<PAGE>
prior approval of the Company. Messrs. Librizzi, Gerstheimer, and Manna also
have agreements with the Company which provide for the payment of six months
severance upon their termination for any reason. The Company's employment
agreement with Dr. Librizzi also contains non-competition provisions that
preclude him from competing with the Company for a period of one year from the
date of his termination of employment unless his employment is terminated by the
Company without cause.
Option Exercises in Last Fiscal Year and Year-end Values
No options were exercised by any executive officer named in the Summary
Compensation Table during the fiscal year ended June 30, 1997. The following
table contains information concerning the number and value, at June 30, 1997, of
unexercised options held by executive officers named in the Summary Compensation
Table:
Number of Unexercised Value of Unexercised
Options Held at Fiscal In-the-Money Options
Year-End Held at Fiscal Year-End
Name (Exercisable/Unexercisable) (Exercisable/Unexercisable)(1)
---- --------------------------- ------------------------------
Joseph Librizzi 150,000/0 $496,250/$0
Robert Lee 15,000/15,000 $ 63,725/$63,725
- ----------
(1) Fair market value of underlying securities (the closing price of the
Company's Common Shares on the National Association of Securities Dealers
Automated Quotation System) at June 30, 1997 minus the exercise price.
Stock Options
In September 1991, in order to attract and retain persons necessary for the
success of the Company, the Company adopted a stock option plan (the "Plan")
which covers up to 375,000 of the Company's Common Shares. Pursuant to the Plan,
officers, Directors, consultants and key employees of the Company are eligible
to receive incentive and/or non-incentive stock options. At June 30, 1997,
options to purchase 200,250 shares were outstanding under this plan at $ .50 to
$4.33 per share and 174,750 options had been exercised or cancelled.
In March 1996, the Board of Directors approved the 1996 Employee Incentive
Stock Option Plan covering an aggregate of 450,000 common shares of the Company
and a 1996 Outside Directors Stock Option plan covering an aggregate of
1,125,000 common shares of the Company. The Board then granted options to
acquire 120,000 shares at prices of $4.00 and $6.00 under the Employee Incentive
Stock Option Plan and options to acquire 778,500 shares at a price of $.73 under
the Outside Directors Plan. At June 30, 1997, no options under either of these
plans had been exercised. The
19
<PAGE>
options are exercisable for 10 years. Both of these Plans and the transactions
under which options to acquire 898,500 shares were granted were ratified and
approved at the annual meeting of shareholders on February 19, 1997. Since the
exercise price of the granted options was less than the market price of the
Company's stock on February 19, 1997, this resulted in a non-cash compensation
charge in the amount of $4,544,600, of which $185,000 was recorded during the
fourth quarter of fiscal 1997.
The Plans are administered by the Board of Directors with the right to
designate a committee. The selection of participants, allotments of shares,
determination of price and other conditions relating to options are determined
by the Board of Directors, or a committee thereof, in its sole discretion.
Incentive stock options granted under the Plans are exercisable for a period of
up to ten years from the date of grant at any exercise price which is not less
than the fair market value of the Common Shares on the date of the grant, except
that the term of an incentive stock option granted under the Plans to a
shareholder owning more than 10% of the outstanding Common Shares may not exceed
five years and its exercise price may not be less than 110% of the fair market
value of the Common Shares on the date of grant.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's executive officers, Directors and persons who own more than ten
percent of a registered class of the Company's equity securities ("Reporting
Persons") to file reports of ownership and changes in ownership on Forms 3, 4,
and 5 with the Securities and Exchange Commission (the "SEC"), the Boston Stock
Exchange, and the National Association of Securities Dealers, Inc. (the "NASD").
These Reporting Persons are required by SEC regulation to furnish the Company
with copies of all Forms 3, 4 and 5 they file with the SEC and NASD. Based
solely on the Company's review of the copies of the forms it has received, the
Company believes that all Reporting Persons complied on a timely basis with all
filing requirements applicable to them with respect to transactions during
fiscal year 1997.
Item 11. Security Ownership of Certain Beneficial
Owners and Management.
The following table sets forth as of July 31, 1997 certain information with
regard to ownership of the Company's Common Shares by (I) each beneficial owner
of 5% or more of the Company's Common Shares; (ii) each Director and nominee for
Director; (iii) each executive officer named in the "Summary Compensation Table"
below; and (iv) all executive officers and Directors of the Company as a group.
Unless otherwise stated, the persons named in the table have sole voting and
investment power with respect to all Common Shares shown as beneficially owned
by them.
20
<PAGE>
Common Shares Percent
Name and Address (1) Beneficially Owned of Class
- -------------------- ------------------ --------
Howard Alliger.................... 1,099,608 (2) 19.4%
Joseph Librizzi................... 263,792 (3) 4.7%
Gary Gelman....................... 1,024,395 (4) 18.1%
Arthur Gerstenfeld................ 54,450 (5) *
All executive officers and
Directors as a group
(eight persons)................ 2,539,689 (6) 44.8
- ----------
* Less than 1%
(1) The business address of each of the named individuals in this table is c/o
Misonix, Inc., 1938 New Highway, Farmingdale, New York 11735.
(2) Includes 75,000 shares which Mr. Alliger has the right to acquire upon
exercise of stock options which are currently exercisable and 40,500 shares
held by Mr. Alliger's daughter, of which he disclaims all beneficial
interest.
(3) Includes 150,000 shares which Dr. Librizzi has the right to acquire upon
exercise of stock options which are currently exercisable.
(4) Includes 688,500 shares which Mr. Gelman has the right to acquire upon
exercise of stock options which are currently exercisable.
(5) Includes 18,000 shares which Mr. Gerstenfeld has the right to acquire upon
exercise of stock options which are currently exercisable.
(6) Includes (i) the shares indicated in notes (2), (3),(4), and (5), (ii)
67,895 shares which are beneficially owned by an executive officer of the
Company (7,500 of which he has a right to acquire upon exercise of stock
options which are currently exercisable), (iii) 22,050 shares which are
beneficially owned by another executive officer (15,000 shares of which he
has the right to acquire upon exercise of stock options which are currently
exercisable), and (iv) 7,500 shares which another executive officer has the
right to acquire upon exercise of stock options which are currently
exercisable.
Item 12. Certain Relationships and Related Transactions.
None
21
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
a. Exhibits
3(a) Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.1 to the
registrant's Registration Statement on Form S-1, File
No. 33-43585 (the "Registration Statement").
3(b) By-laws of the Company. (Incorporated by reference to
Exhibit 3.2 to the Registration Statement.)
4(a) Warrant Agreement. (Incorporated by reference to
Exhibit 4.1 to the Registration Statement.)
4(b) Specimen of Redeemable Warrant Certificate.
(Incorporated by reference to Exhibit 4.2 to the
Registration Statement.)
10(a) Lease extension and modification agreement dated
October 31, 1992.
10(b) Stock Option Plan. (Incorporated by reference to
Exhibit 10.2 to the Registration Statement.)
10(c) Employment Agreement dated September 1, 1991
between the Company and Michael Juliano.
(Incorporated by reference to Exhibit 10.4 to the
Registration Statement.)
10(d) Employment Agreement dated September 1, 1991
between the Company and Howard Alliger.
(Incorporated by reference to Exhibit 10.5 to the
Registration Statement.)
10(e) Employment Agreement dated September 1, 1991
between the Company and Joseph Librizzi.
(Incorporated by reference to Exhibit 10.6 to the
Registration Statement.)
10(f) Financial Advisory and Investment Banking
Agreement between the Company and Josephthal
Lyon & Ross Incorporated. (Incorporated by
reference to Exhibit 10.7 to the Registration
Statement.)
10(g) Settlement and License Agreement dated March 12,
1984 between the Company and Mettler Electronics
Corporation. (Incorporated by reference to Exhibit
22
<PAGE>
10.11 to the Registration Statement.)
10(h) Know-How, Trademark and License Agreement
dated July 25, 1983, between the Company and
Astec Environmental Systems, Ltd. (Incorporated by
reference to Exhibit 10.12 to the Registration
Statement.)
10(j) Assignment Agreement between the Company and Robert
Ginsburg. (Incorporated by reference to exhibit
10(j) of Form 10-K for the fiscal year ended June
30, 1992)
10(k) Subscription Agreement between the Company and
Labcaire. (Incorporated by reference to exhibit
10(k) of Form 10-K for the fiscal year ended June
30, 1992)
10(l) Option Agreements between the Company and each of
Graham Kear, Geoffrey Spear, John Haugh, Martin
Keeshan and David Stanley. (Incorporated by
reference to exhibit 10(l) of Form 10-K for the
fiscal year ended June 30, 1992)
10(m) Stock Option Contract between the Company and
Michael Juliano (Incorporated by reference to
exhibit 10(m) of Form 10-K for the fiscal year
ended June 30, 1992)
10(n) Stock Option Contract between the Company and
Joseph Librizzi (Incorporated by reference to
exhibit 10(n) of Form 10-K for the fiscal year
ended June 30, 1992)
10(o) Form of Director's Indemnification Agreement.
(Incorporated by reference to exhibit 10(o) of Form
10-K for the fiscal year ended June 30, 1992)
10(p) Stock Option Contract between the Company and Peter
Gerstheimer.
10(q) Stock Option Contract between the Company and
Ronald Manna.
10(r) Severance Agreement between the Company and Peter
Gerstheimer.
10(s) Severance Agreement between the Company and Ronald
Manna.
10(t) Employee Agreement dated September 1, 1995 between
the Company and Joseph Librizzi.
10(u) Option Agreement dated September 11, 1995 between
the Company and Medical Device Alliance Inc.
23
<PAGE>
10(v) Consent of independent public accountants to
inclusion of report in Form S-8 Registration
Statement.
10(w) Amendment to agreement with principal shareholders of
Labcaire Systems Ltd.
10(x) Employee Agreement dated July 24, 1996 between the
Company and Joseph Librizzi.
10(y) Development and Option Agreement dated August 27,
1996 between the Company and United States Surgical
Corporation.
10(z) License Agreement dated October 16, 1996 between
the Company and United States Surgical Corporation.
10(aa) Amendment No. 1 dated January 23, 1997 to
Underwriters' Warrant Agreement.
10(bb) 1996 Non-Employee Director Stock Option Plan.
10(cc) 1996 Employee Incentive Stock Option Plan.
10(dd) Employee Agreement dated August 5, 1997 between the
Company and Joseph Librizzi.
22 Subsidiaries of the Company (Incorporated by
reference to exhibit 22 of Form 10-K for the fiscal
year ended June 30, 1992)
23 Consent of independent public accountants to
inclusion of report in Form S-8 Registration
Statement.
b. No reports on Form 8-K have been filed by the registrant during the
fiscal quarter ended June 30, 1997.
24
<PAGE>
Annual Report on Form 10-KSB
Item 7
Consolidated Financial Statements
Misonix, Inc. and Subsidiaries
Farmingdale, New York
Year ended June 30, 1997
<PAGE>
Misonix, Inc. and Subsidiaries
Form 10-KSB
Item 7
Financial Statements
Year ended June 30, 1997
Contents
The following consolidated financial statements of Misonix, Inc. and
Subsidiaries are included in Item 7:
Report of Independent Auditors......................................... F-2
Consolidated Balance Sheet--June 30, 1997.............................. F-3
Consolidated Statements of Income--Years Ended
June 30, 1997 and 1996.............................................. F-4
Consolidated Statements of Stockholders' Equity--Years Ended
June 30, 1997 and 1996.............................................. F-5
Consolidated Statements of Cash Flows--Years Ended
June 30, 1997 and 1996.............................................. F-6
Notes to Consolidated Financial Statements............................. F-7
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Misonix Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Misonix, Inc. and
Subsidiaries (the "Company") as of June 30, 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Misonix, Inc. and
Subsidiaries at June 30, 1997, and the consolidated results of their operations
and their cash flows for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Melville, New York
August 1, 1997, except for
the first paragraph of Note 7,
as to which the date is
September 9, 1997
<PAGE>
Misonix, Inc. and Subsidiaries
Consolidated Balance Sheet
June 30, 1997
Assets
Current assets:
Cash and cash equivalents $ 5,409,830
Investments held to maturity 6,367,595
Accounts receivable, less allowance
for doubtful accounts of $65,876 2,748,566
Inventories 2,304,732
Prepaid expenses and other current assets 564,946
------------
Total current assets 17,395,669
Property and equipment, net 956,381
Goodwill, net of amortization of $50,170 293,228
Other assets 91,779
------------
Total assets $ 18,737,057
============
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 500,219
Accounts payable 2,203,012
Accrued expenses and other current liabilities 1,030,792
Current maturities of capital lease obligations 106,753
------------
Total current liabilities 3,840,776
Capital lease obligations, net of current portion 135,195
Deferred income 747,051
Minority interest 106,963
Commitments and contingencies (Notes 6, 9 and 12)
Stockholders' equity:
Common stock, $.01 par value--
shares authorized 10,000,000;
issued and outstanding 5,672,154 56,722
Additional paid-in capital 21,370,945
Deficit (7,519,465)
Foreign currency translation adjustment (1,130)
------------
Total stockholders' equity 13,907,072
------------
Total liabilities and stockholders' equity $ 18,737,057
============
See accompanying notes.
F-3
<PAGE>
Misonix, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended June 30
1997 1996
----------------------------
<S> <C> <C>
Net sales $ 17,560,041 $ 9,913,136
Cost of goods sold 7,591,510 5,181,222
----------------------------
Gross profit 9,968,531 4,731,914
Operating expenses:
Selling, general and administrative expenses 5,492,087 4,139,183
Research and development expenses 350,788 204,186
Non-cash compensation charge 4,544,600 --
----------------------------
Total operating expenses 10,387,475 4,343,369
----------------------------
(Loss) income from operations (418,944) 388,545
Other income (expense):
Interest income 191,176 54,209
Interest expense (40,953) (41,529)
Option/license fees 155,312 69,167
Royalty income 333,576 --
Miscellaneous 33,070 --
Foreign currency exchange gain (loss) 7,406 (11,890)
----------------------------
Income before minority interest and income taxes 260,643 458,502
Minority interest in net income of consolidated subsidiary (31,684) (69,075)
----------------------------
Income before income taxes 228,959 389,427
Income taxes 51,834 --
----------------------------
Net income $ 177,125 $ 389,427
============================
Net income per common and common equivalent share $ .03 $ .09
============================
Net income per common and common equivalent share
assuming full dilution $ .03 $ .09
============================
Weighted average common and common equivalent shares
outstanding 5,178,290 4,300,662
============================
Weighted average common and common equivalent shares
outstanding assuming full dilution 5,201,511 4,389,476
============================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Misonix, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
$.01 Par value
---------------------- Foreign
Additional Currency Total
Number Paid-in Translation Stockholders'
of Shares Amount Capital Deficit Adjustment Equity
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 4,200,000 $ 42,000 $ 11,086,793 $ (8,086,017) $ (34,226) $ 3,008,550
Foreign currency translation
adjustment -- -- -- -- (329) (329)
Net income -- -- -- 389,427 -- 389,427
----------------------------------------------------------------------------------------
Balance, June 30, 1996 4,200,000 42,000 11,086,793 (7,696,590) (34,555) 3,397,648
Exercise of outside director
options 61,500 615 44,485 -- -- 45,100
Exercise of employee options 106,500 1,065 52,185 -- -- 53,250
Exercise of warrants 1,093,692 10,937 5,644,987 -- -- 5,655,924
Exercise of underwriter rights 210,462 2,105 (2,105) -- -- --
Non-cash compensation charge -- -- 4,544,600 -- -- 4,544,600
Foreign currency translation
adjustment -- -- -- -- 33,425 33,425
Net income -- -- -- 177,125 -- 177,125
----------------------------------------------------------------------------------------
Balance, June 30, 1997 5,672,154 $ 56,722 $ 21,370,945 $ (7,519,465) $ (1,130) $ 13,907,072
========================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Misonix, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30
1997 1996
----------------------------
<S> <C> <C>
Operating activities
Net income $ 177,125 $ 389,427
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for net losses on accounts receivable 7,408 1,892
Depreciation and amortization 231,017 193,417
Loss on disposal of equipment 17,175 --
Minority interest in net income of subsidiary 31,684 69,075
Foreign currency loss 4,124 904
Noncash compensation charge 4,544,600 --
Changes in operating assets and liabilities:
Accounts receivable (717,973) (529,105)
Inventories (1,057,766) (125,690)
Prepaid expenses and other current assets (51,068) (380,455)
Deposits and other assets (26,718) 2,479
Accounts payable and accrued expenses 1,605,012 222,383
Deferred income 366,218 380,833
----------------------------
Net cash provided by operating activities 5,130,838 225,160
----------------------------
Investing activities
Proceeds from sale of equipment 32,234 --
Acquisition of property and equipment (382,958) (107,742)
Patent costs (14,424) --
Purchases of investments held to maturity (7,143,456) (353,053)
Sales of investments held to maturity 1,128,914 355,600
Purchase of Labcaire stock (102,099) --
----------------------------
Net cash used in investing activities (6,481,789) (105,195)
----------------------------
Financing activities
(Decrease) increase in short-term borrowings (54,114) 187,338
Principal payments on capital lease obligations (94,289) (39,221)
Proceeds from exercise of stock options 98,350 --
Proceeds from exercise of warrants, net of expenses 5,655,924 --
----------------------------
Net cash provided by financing activities 5,605,871 148,117
----------------------------
Effect of exchange rate changes on cash and cash equivalents 911 (27)
----------------------------
Net increase in cash and cash equivalents 4,255,831 268,055
Cash and cash equivalents at beginning of year 1,153,999 885,944
----------------------------
Cash and cash equivalents at end of year $ 5,409,830 $ 1,153,999
============================
Supplemental disclosure of cash flow information
Interest paid $ 40,953 $ 41,529
============================
Income taxes paid $ 51,834 $ --
============================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation, Organization and Business, and Summary of
Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of Misonix, Inc. ("Misonix") include the
accounts of Misonix, its 84.05% owned subsidiary, Labcaire Systems, Ltd.
("Labcaire"), and its 100% owned subsidiary, Misonix, Ltd. (collectively, the
"Company"). All significant intercompany balances and transactions have been
eliminated.
Organization and Business
Misonix was incorporated under the laws of the State of New York on July 31,
1967 and its principal revenue producing activities, from 1967 to date, have
been the manufacture and distribution of proprietary ultrasound equipment for
scientific and industrial purposes and environmental control equipment for the
abatement of air pollution. Misonix's products are sold worldwide. In December
1995 and October 1996, the Company entered into licensing agreements to further
develop two of its medical devices (see Note 13). Sales of these medical
devices, which were made to one customer, were $5,217,124 and $0 during the
years ended June 30, 1997 and 1996, respectively. Amounts receivable from this
customer were approximately $414,000 and $0 at June 30, 1997 and 1996,
respectively.
Labcaire, which began operations in February of 1992, is located in the United
Kingdom, and its core business is the innovation, design, manufacture, and
marketing of air handling systems for the protection of personnel, products and
the environment from airborne hazards. Net sales to unaffiliated customers, net
income and total assets related to Labcaire as of and for the year ended June
30, 1997 were approximately $5,470,000, $232,000 and $2,565,000, respectively.
For the year ended June 30, 1996, these amounts were approximately $4,712,000,
$369,000 and $2,263,000, respectively.
Misonix Ltd. was incorporated in the United Kingdom on July 19, 1993 and its
operations since inception have been insignificant to the Company.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
F-7
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation, Organization and Business, and Summary of
Significant Accounting Policies (continued)
Investments Held to Maturity
The Company's investments, maturing at various dates through June 1998, consist
primarily of U.S. Government Treasury Bills and Notes and are valued at
amortized cost which approximates market. In accordance with the provisions of
Financial Accounting Standards Board (FASB) Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the Company classifies its
investments as held-to-maturity as the Company has both the intent and ability
to hold these securities until maturity. The Company's investment policy gives
primary consideration to safety of principal, liquidity and return. At June 30,
1997 and 1996, unrealized gains on held-to-maturity marketable securities were
immaterial.
Concentration of Credit Risk
The Company's operations are located in New York and Clevedon, England. The
Company's policy is to review its customers' financial condition prior to
extending credit and, generally, collateral is not required. At June 30, 1997,
the Company's accounts receivable with customers outside the United States was
approximately $1,330,844 of which approximately $1,185,820 related to its
Labcaire operations. Where necessary, the Company utilizes letters of credit on
foreign or export sales. Credit losses relating to both domestic and foreign
customers have historically been minimal and within management's expectations.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives ranging from 3 to 10 years. Capital lease equipment and leasehold
improvements are amortized over the life of the lease or the useful life of the
related asset, whichever is shorter.
Long-Lived Assets
The Company periodically reviews the carrying value of its long-lived assets in
F-8
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation, Organization and Business, and Summary of
Significant Accounting Policies (continued)
determining the ultimate recoverability of their unamortized values using future
undiscounted cash flow analyses. Such a review has been performed by management
and does not indicate an impairment of such assets.
Revenue Recognition
Sales are recognized upon shipment of products. Fees from exclusive license
agreements are recognized ratably over the terms of the respective agreements.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired in connection with the Company's acquisition of 84.05% of
the common stock of Labcaire. The goodwill is being amortized by the
straight-line method over its estimated useful life of 25 years. The carrying
value of such costs is reviewed by management to determine whether an impairment
may have occurred. If this review indicates that such costs, or a portion
thereof, will not be recovered, as determined based on the estimated
undiscounted cash flows of Labcaire over the remaining amortization period, the
carrying value of these costs will be reduced by the estimated shortfall of cash
flows. Such a review has been performed by management and does not indicate an
impairment of such assets.
Income Taxes
The Company accounts for income taxes under the liability method in accordance
with FASB Statement No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is based on the weighted
average number of common shares outstanding plus dilutive common share
equivalents, retroactively adjusted for the effect of a subsequent stock split
(see Note 7).
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share"
(Statement 128), which is effective for both interim and annual financial
statements for periods ending
F-9
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation, Organization and Business, and Summary of
Significant Accounting Policies (continued)
after December 15, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options will be excluded. The impact of adopting
Statement 128 is not expected to be material.
Foreign Currency Translation
The Company follows the policies prescribed by FASB Statement No. 52 for
translation of the financial results of its foreign subsidiaries. Accordingly,
assets and liabilities are translated at the foreign currency exchange rate in
effect at the balance sheet date. Results of operations are translated using the
weighted average of the prevailing foreign currency rates during the fiscal
year. Stockholders' equity accounts are translated at historical exchange rates.
Gains and losses on foreign currency transactions are recorded in other income
and expense.
Research and Development
All research and development expenses related to the Company's products are
expensed as incurred and are included in operating expenses.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Stock-Based Compensation
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123") which the Company adopted in the fiscal year
ended June 30, 1997. The new standard defines a fair value method of accounting
for the issuance of stock options and other equity instruments. Under the fair
value method, compensation cost is measured at the stock options' grant date
based on the fair value of the stock option award and is recognized over the
service period, which is usually the
F-10
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation, Organization and Business, and Summary of
Significant Accounting Policies (continued)
vesting period. Pursuant to Statement 123, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee stock-based
transactions.
Companies are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") but are required to disclose in a note to the financial
statements pro forma net income and per share amounts as if the Company had
applied the new method of accounting. Statement 123 also requires increased
disclosures for stock-based compensation arrangements.
The Company has elected to continue to account for such transactions under APB
25 and to provide the pro forma information required under Statement 123 (see
Note 8).
2. Inventories
Inventories are summarized as follows:
June 30
1997
------------
Raw materials $ 1,353,144
Work-in-process 334,143
Finished goods 617,445
------------
$ 2,304,732
============
3. Property and Equipment
Property and equipment consist of the following:
June 30
1997
------------
Machinery and equipment $ 1,171,078
Furniture and fixtures 639,857
Autos 390,723
Leasehold improvements 279,884
------------
2,481,542
Less: accumulated depreciation and amortization 1,525,161
------------
$ 956,381
============
F-11
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
3. Property and Equipment (continued)
Included in machinery and equipment at June 30, 1997 is approximately $194,000
of data processing equipment and telephone equipment under capital leases with
related accumulated amortization of approximately $153,000. Also, included in
autos is approximately $391,000 under capital leases with accumulated
amortization of approximately $103,000. The Company purchased approximately
$189,000 of equipment under capital lease arrangements during the year ended
June 30, 1997.
4. Revolving Note Payable and Line of Credit
Since October 1992, Labcaire has had an overdraft facility with a United Kingdom
bank. As of June 30, 1997, the amount of this facility is (pound)350,000 and
bears interest at the United Kingdom prime rate (6.75% at June 30, 1997) plus
2%. This facility is secured by the assets of Labcaire and (pound)50,000 is
guaranteed by its directors. The facility expires in August 1998. At June 30,
1997, the balance outstanding under this overdraft facility was (pound)300,522
($500,219).
In October 1992, Misonix secured a $500,000 line of credit with a bank bearing
interest at the bank's prime (8.50% at June 30, 1997) plus 2%. The line of
credit, renewable on an annual basis, currently expires on June 30, 1998 and is
secured by all assets of Misonix. No amounts are outstanding under this line at
June 30, 1997.
5. Accrued Expenses and Other Current Liabilities
The following summarizes accrued expenses and other current liabilities:
June 30, 1997
------------
Accrued payroll and vacation $ 81,801
Accrued payroll taxes 53,001
Accrued commissions and bonuses 487,185
Accrued royalties 220,681
Income taxes payable 53,264
Other 134,860
------------
$ 1,030,792
============
F-12
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Leases
Misonix has entered into several noncancellable operating leases for the rental
of certain office space, equipment and automobiles expiring in various years
through 2001. The principal lease for office space provides for a monthly rental
amount of $20,427. The Company also leases certain office equipment and
automobiles under capital leases expiring through fiscal 2000.
The following is a schedule of future minimum lease payments, by year and in the
aggregate, under capital and operating leases with initial or remaining terms of
one year or more at June 30, 1997:
Capital Operating
Leases Leases
------------ ------------
1998 $ 131,269 $ 312,146
1999 108,297 107,209
2000 51,468 14,271
2001 -- 4,102
------------ ------------
Total minimum lease payments 291,034 $ 437,728
Amounts representing interest 49,086 ============
------------
Present value of net minimum lease payments
(Including current portion of $106,753) $ 241,948
============
Certain of the leases provide for renewal options and the payment of real estate
taxes and other occupancy costs.
Rent expense for all operating leases was approximately $308,000 and $282,000
for the years ended June 30, 1997 and 1996, respectively.
7. Stockholders' Equity
On September 9, 1997, the Board of Directors of the Company declared a
three-for-two stock split payable to the shareholders of record on October 10,
1997. All common stock data and per share data in the accompanying consolidated
financial statements, and notes thereto, give retroactive effect to this stock
split.
In January 1992, the Company completed an initial public offering of 2,400,000
shares of its common stock and 2,760,000 warrants to purchase 2,760,000 shares
of its common stock at $5.20 per share, for $8,686,024, net of expenses. On
February 3, 1997,
F-13
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Stockholders' Equity (continued)
1,093,692 of the previously issued warrants were exercised and a like number of
common shares were issued. The balance of these warrants expired. As a result of
the exercise, the Company received proceeds of $5,655,924, net of expenses of
approximately $31,000.
Also, in connection with this initial public offering, the Company granted the
underwriters a right through January 1997 to acquire an additional 240,000
shares of common stock at an exercise price of $7.15 per share and warrants to
acquire 240,000 shares of common stock in similar form to the public offering
warrants, but at an exercise price of $8.58 per share. In January 1997, this
arrangement was modified and, in leiu of the foregoing, the holders of the
underwriters' rights received the right to purchase 240,000 shares of common
stock at $ .67 per share which, by cashless purchase, resulted in the issuance
of 210,462 shares, and warrants to acquire an additional 240,000 shares of
common stock at a price of $6.00 per share, exerciseable through the close of
business on May 31, 1998.
In connection with a private placement which occurred in October 1991,
redeemable warrants entitling the holders the right to purchase 150,000 shares
of common stock at $5.20 were issued. These warrants expired in February 1997.
8. Stock Based Compensation Plans
In September 1991, the Board of Directors adopted and, in October 1991, the
shareholders approved, the 1991 Stock Option Plan (the "Option Plan"). The
Option Plan provides for the granting of, at the discretion of the Board of
Directors, options that are intended to qualify as incentive stock options
("Incentive Stock Options") within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code") to certain employees and options
not intended to so qualify ("Nonqualified Stock Options") to employees,
consultants and directors. The total number of shares of Common Stock for which
options may be granted under the Option Plan is 375,000 shares.
In March 1996, the Board of Directors adopted the 1996 Employee Incentive Stock
Option Plan covering an aggregate of 450,000 common shares of the Company and a
1996 Outside Directors Stock Option plan covering an aggregate of 1,125,000
common shares of the Company. The Board then granted options to acquire 120,000
shares at prices of $4.00 and $6.00 under the 1996 Employee Incentive Stock
Option Plan and options to acquire 778,500 shares at a price of $.73 under the
1996 Outside Directors Plan. Both of these Plans and the transactions under
which options to acquire 898,500 shares were granted were ratified and approved
at the annual meeting of shareholders on February 19, 1997. During the period
between the dates of grant by the Board and the
F-14
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Stock Based Compensation Plans (continued)
shareholder approval, the Company's market price per share increased thereby
causing the Company to be required to record a non-cash compensation charge in
the amount of $4,544,600, of which $185,000 was recorded during the fourth
quarter of fiscal 1997.
The exercise price of all stock options granted under the Plans must be at least
equal to the fair market value of such shares on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting rights
on the Company's outstanding capital stock, the exercise price of any incentive
stock option must be not less than 110% of the fair market value on the date of
grant. The maximum term of each option is ten years. Options shall become
exercisable at such time and in such installments as the Board shall provide in
the terms of each individual option.
The Company has elected to follow APB 25 in accounting for its stock options
because, as discussed below, the alternative fair value accounting provided for
under Statement 123 requires use of option valuation models that were not
developed for use in valuing such stock options. Under APB 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Proforma information regarding net income per share is required by Statement
123, and has been determined as if the Company has accounted for its stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions risk-free interest rate of
6.36 %; no dividend yields; volatility factor of the expected market price of
the Company's common stock of 93.7%; and a weighted-average expected life of the
options of 5 years at June 30, 1997 and 1996.
The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
F-15
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Stock Based Compensation Plans (continued)
The Company's pro forma information is as follows:
1997 1996
---- ----
Net Income: As Reported $ 177,125 $ 389,427
Pro Forma 3,949,685 329,227
Primary EPS: As Reported $ .03 $ .09
Pro Forma .68 .07
Fully Diluted EPS: As Reported $ .03 $ .09
Pro Forma .67 .07
As required by Statement 123, the fair value method of accounting has not been
applied to options granted prior to July 1, 1996. As a result, the pro forma
compensation cost may not by representative of that to be expected in future
years.
The following table summarizes information about stock options and warrants
outstanding at June 30, 1996 and 1997:
<TABLE>
<CAPTION>
Options Warrants
---------------------------------------------------------------------------------
Weighted Avg Weighted Avg
Shares Exercise Price Shares Exercise Price
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1995 283,500 $1.55 3,150,000 $5.46
Granted 91,500 $ .81 -- --
Exercised -- -- -- --
Cancelled -- -- -- --
---------------------------------------------------------------------------------
June 30, 1996 375,000 1.37 3,150,000 $5.46
Granted 898,500 1.27 240,000 4.00
Exercised (168,000) .59 (1,093,692) 5.20
Cancelled (6,750) 1.24 (2,056,308) 5.45
---------------------------------------------------------------------------------
June 30, 1997 1,098,750 $1.41 240,000 $4.00
=================================================================================
</TABLE>
1997 1996
---- ----
Weighted average fair value of options granted $ .85 $ .54
F-16
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Stock Based Compensation Plans (continued)
The following table summarizes information about stock options outstanding at
June 30, 1997:
Weighted Average
Options Options Remaining
Exercise Price Outstanding Exercisable Contractual Life (Yrs)
- --------------------------------------------------------------------------------
$ .50 - .96 900,750 885,750 9
2.17 - 4.00 78,000 78,000 9
4.33 - 6.00 120,000 120,000 7
--------- ---------
1,098,750 1,083,750
========= =========
As of June 30, 1997, 1,098,750 shares of common stock are reserved for issuance
under outstanding options and 676,500 shares of common stock are reserved for
the granting of additional options. All outstanding options are exercisable and
expire between February 2002 and March 2007.
9. Commitments and Contingencies
Employment Agreements
The Company has entered into an employment agreement with its chief executive
officer which expires September 30, 1998. This agreement provides for an annual
base compensation of $200,000 plus incentives as defined in the agreement.
Legal Proceedings
The Company, Medical Device Alliance, Inc. ("MDA"), and MDA's wholly owned
subsidiary, Lysonix, Inc. are being sued for alleged patent infringement by
Mentor Corporation. Both the Company and its licensee (MDA) are aggressively
contesting Mentor's claim. Based upon the current status of matters, management
believes that the outcome of this suit will not have a material adverse effect
on the consolidated financial statements included in this report.
F-17
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
10. Geographic Information
The Company's revenues are generated from various geographic regions. The
following is an analysis of net sales by geographic region:
Year ended June 30
1997 1996
-----------------------------------
United States $11,094,368 $4,270,035
Canada & Mexico 122,058 94,993
Europe 4,894,074 4,532,986
Asia 934,313 703,371
Middle East 179,520 146,086
Other 335,708 165,665
-----------------------------------
$17,560,041 $9,913,136
===================================
11. Income Taxes
The Company has available net operating loss carryforwards of approximately
$2,000,000 as of June 30, 1997 which may be used to reduce taxable income in
future years. The utilization of these losses in the future will depend on the
generation of sufficient taxable income prior to the expiration of the net
operating losses. Additionally, based on ownership changes as a result of the
public offering consummated in January 1992 (Note 7), it is expected that the
annual utilization of the otherwise available net operating losses will be
limited by the provisions of Section 382 of the Internal Revenue Code, as
amended. As such, the Company may be restricted as to the utilization of its
pre-fiscal 1992 net operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-18
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes (continued)
Significant components of the Company's deferred tax assets at June 30 are as
follows:
1997 1996
-------------------------------
Deferred tax assets:
Depreciation $ 4,600 $ 11,800
Bad debt reserves 26,400 28,500
Inventory valuation 29,900 19,800
License fee income 299,000 119,000
Net operating loss carryforwards 826,200 2,561,000
Other 90,000 --
-------------------------------
Total deferred tax assets 1,276,100 2,740,100
Valuation allowance (1,186,100) (2,740,100)
-------------------------------
Net deferred tax asset $ 90,000 $-
===============================
Significant components of the provision for income taxes attributable to
operations for the years ended June 30 are as follows:
1997 1996
-------------------------------
Current:
Federal $ 90,000 $ --
State -- --
Foreign 51,834 --
-------------------------------
Total current 141,834 --
Deferred:
Federal (90,000) --
State -- --
Foreign -- --
-------------------------------
Total deferred (90,000) --
-------------------------------
$ 51,834 $-
===============================
F-19
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes (continued)
Effective July 1, 1997, the Company has changed its year end for tax purposes
from December 31 to June 30.
The reconciliation of income tax expense computed at the federal statutory tax
rates to income tax expense for the periods ended June 30 is as follows:
1997 1996
-------------------------------
Tax at statutory rates $ 77,900 $ 132,500
Non cash compensation charge 1,548,600 --
Foreign tax rate differential (28,184) (97,100)
Valuation allowance (1,554,000) (42,000)
Other 7,518 6,600
-------------------------------
$ 51,834 $-
===============================
12. Acquisition
In prior years, the Company acquired an 81.4% interest in Labcaire Systems,
Ltd., a U.K. company, for $545,169. The total acquisition cost exceeded the fair
value of the net assets acquired by $241,299, which is being amortized over 25
years. The balance of the capital stock of Labcaire is owned by four executives
of Labcaire who had the right, under the original purchase agreement (the
"Agreement"), to require the Company to repurchase such shares at a price equal
to its pro rata share of 8.5 times Labcaire's earnings, before interest, taxes
and management charges for the preceding fiscal year.
In June 1996, this Agreement was amended and each of the four directors agreed
to sell one-seventh of his total holding of Labcaire shares to the Company in
each of the next seven consecutive years, commencing with fiscal year 1996. The
price to be paid by the Company for these shares is based on the formula
outlined in the original Agreement. Pursuant to the Agreement, 9,284 shares
(2.65%) of Labcaire common stock was purchased by the Company in October 1996
for (pound)62,388 (approximately $102,100) representing the fiscal 1996 buy-back
portion, and 9,286 shares (2.65%) of Labcaire common stock will be purchased by
the Company in October 1997 for (pound)70,666 (approximately $114,500)
representing the fiscal 1997 buy-back portion. The cost of these purchases of
Labcaire common stock has been recorded as goodwill.
F-20
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
13. Licensing Agreements For Medical Technology
In December 1995, the Company entered into a licensing agreement with Medical
Device Alliance, Inc. ("MDA"), for a ten year period, covering the further
development and commercial exploitation of the Company's medical technology
relating to soft tissue removal. This agreement primarily focuses on the
Company's patent for a liposuction apparatus granted in May 1995 and its 510(K)
approval from the United States Food and Drug Administration to market and sell
a device for ultrasonic soft tissue removal. The licensing agreement gives MDA
exclusive world-wide marketing and sales rights for the device, with
manufacturing to be performed by the Company. Pursuant to the license agreement,
the Company received $500,000 in licensing fees (which is being recorded as
income over the term of the agreement) and will receive royalties based upon net
sales of such products. Also as part of the agreement, the Company was
reimbursed for certain pre-marketing costs and a maximum of $30,000 per month
(from September 1995 to January 1997) for product development expenditures (as
defined in the agreement). The amount of reimbursements for the years ended June
30, 1997 and 1996 were $127,487 and $320,363, respectively.
In October 1996, the Company entered into a License Agreement with United States
Surgical Corporation ("USS") covering the further development and commercial
exploitation of the Company's medical technology relating to ultrasonic cutting,
which uses high frequency sound waves to coagulate and divide tissue for both
open and laproscopic surgery. The license agreement gives USS exclusive
world-wide marketing and sales rights for this technology. The Company received
$100,000 under the option agreement preceding the license agreement. This amount
was recorded into income in fiscal 1997. Under the license agreement, the
Company is entitled to receive aggregate fees of approximately $500,000, subject
to attaining certain milestones over the term of the agreement, plus royalties
based upon net sales of such products. As of June 30, 1997, the Company has
received $275,000 under this license agreement. This amount is being recorded as
income over the term of the agreement.
The Company has settled a dispute with two individuals who claimed that they,
together with the Company's founder, were joint inventors of the technology
covered under the Patent for Liposuction Method and Apparatus. As a result, the
two individuals have reconfirmed their assignment of the patent rights to the
Company in exchange for 5% of all net sales and royalties received by the
Company from this technology, including those received from the MDA license.
F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: September 22, 1997
Misonix, Inc.
By: /s/Joseph Librizzi
--------------------------
Joseph Librizzi,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Gary Gelman Chairman of the Board September 22, 1997
- ---------------------- Director
Gary Gelman
/s/Joseph Librizzi President, Chief Executive September 22, 1997
- ---------------------- Officer, and Director
Joseph Librizzi (principal executive
officer)
/s/Peter Gerstheimer Vice President and September 22, 1997
- ---------------------- Chief Financial Officer
Peter Gerstheimer (principal financial and
accounting officer)
/s/Howard Alliger Director September 22, 1997
- ----------------------
Howard Alliger
/s/Arthur Gerstenfeld Director September 22, 1997
- ----------------------
Arthur Gerstenfeld
<PAGE>
EXHIBIT 10(y)
DEVELOPMENT AND OPTION AGREEMENT
This Agreement, dated as of August 27, 1996, is by and between Misonix
Incorporated, a New York corporation, with its principal place of business at
1928 New Highway, Farmingdale, New York 11735 ("Misonix"), and United States
Surgical Corporation, a Delaware corporation, with its principal place of
business at 150 Glover Avenue, Norwalk, Connecticut 06856 ("USSC").
WHEREAS, Misonix designs and develops ultrasonic medical devices and
desires to further develop its proprietary ultrasonic cutting, sealing and
dissection technology (the "Technology"); and
WHEREAS, USSC develops, manufactures, markets and sells medical products;
and
WHEREAS, subject to the terms and conditions hereof, Misonix and USSC
(collectively, the "parties") desire that Misonix conduct development of the
Technology; and
WHEREAS, subject to the terms and conditions hereof, the parties also
desire that USSC be permitted to evaluate the Technology, and that USSC be
granted an option for an exclusive worldwide license in and to the Technology,
and obtain certain other rights as hereinafter specifically provided.
NOW THEREFORE, in consideration of the mutual promises, covenants,
undertakings and obligations set forth herein and for other good and valuable
consideration the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 For the purposes of this Agreement, the definitions set forth below
shall be applicable.
Affiliate - The term "Affiliate" means a corporation or other entity
controlled by, controlling or under common control with another person,
corporation or other entity. For the purpose of this Agreement, "control" means:
(i) the ownership, directly or indirectly, of 50% or more of the voting stock or
analogous interest in a corporation or other entity, by another person,
corporation or other entity; or (ii) the commonality of 50% or more of the
directors on the Board of a corporation or other entity with the directors on
the
<PAGE>
Board of another corporation or other entity; or (iii) the commonality of
50% or more of the directors on the Board of such corporation or other entity
with the executive officers, or holders of 5% or more of any class of the
outstanding capital stock of another corporation or other entity; or (iv) the
commonality of 50% or more of the partners (general or limited), principals, or
other controlling parties of any entity, with the partners (general or limited),
principals or other controlling parties of another entity; or (v) the existence
of any other relationship between a corporation or other entity and such other
person, corporation or other entity which results in effective managerial
control by one over the other, regardless of the level of commonality of the
number of directors, partners, principals or other controlling parties or
whether such control is continuously exercised.
Field - The term "Field" means all human and veterinary medical
applications.
Know-How - The term "Know-How" means any and all secret or confidential
information, trade secrets, specifications, test results, analyses and data,
inventions, methods, processes, formulae, mixtures, compositions, designs,
techniques, applications, ideas or concepts, whether or not reduced to practice,
relating directly or indirectly to the Products, including, but not limited to,
technology that is or could be the subject matter of a foreign or domestic
patent or patent application, whether or not reduced to writing in a patent
application.
Patents and Trademarks - The term "Patents and Trademarks" means all
patents, patent applications, registered trademarks and trademark applications
relating to the Technology to be utilized in the Field and identified on
Schedule 1 hereto, all other foreign and domestic patents, patent applications,
registered trademarks and trademark applications filed by or assigned to Misonix
prior or subsequent to the date hereof and covering or relating to an invention,
method, process, formula, mixture, and composition, having application to a
Product, and all foreign and domestic patents and registered trademarks issuing
on any of the foregoing patent applications and trademark applications, and all
continuations, continuations-in-part, divisions, reissues, reexaminations,
additions and renewals thereof.
Products - The term "Product" or "Products" means any instrument, device or
system usable in the Field (defined above) which involve or relate to the
Technology and embody or utilize any or all of the following in which
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Misonix has or, during the Term (defined below), acquires a proprietary
interest: (i) the inventions, methods, processes, formulae, mixtures, and
compositions disclosed and/or claimed in the Patents and Trademarks (defined
below), and any invention, method or process, formula, mixture, or composition
similar or related to, or designed for use with, any of the foregoing; (ii)
every part, subassembly, component or accessory of, and addition or improvement
to, any of the foregoing; (iii) Know-How (defined below); and (iv) all
registered trademarks and trademark applications within Patents and Trademarks
and all good will associated with such registered trademarks and trademark
applications. Attachment 1 to this Agreement sets forth the parties current,
mutual understanding for the Product.
Trademarks - The term "Trademark" means all registered trademarks and
trademark applications within Patents and Trademarks.
ARTICLE 2 - DEVELOPMENT WORK
2.1 Attached to this Agreement as Attachment 2 is a description of the
development work which the parties have agreed that Misonix shall undertake
under this Agreement. During the Term, Misonix shall pursue the development work
described in Attachment 2 in a competent and professional manner, to meet the
objectives set forth therein prior to the end of the term of this Agreement for
the consideration set forth in Article 4. The development work shall not be
changed in any material respect, except by mutual written agreement of the
parties.
2.2 The parties acknowledge the importance and benefit of providing first
generation Working Prototypes suitable in appearance and performance for
presentation as investigational devices at the American College of Surgeon
meeting in October, 1996 and that the target date for full production is April
1, 1997. Misonix hereby undertakes to use reasonable efforts to develop and
deliver to USSC ten clamping/sealing probes/tips and five hook/cutting
probes/tips by September, 15, 1996.
ARTICLE 3 - DEVELOPMENT REPORTS AND IMPROVEMENTS
3.1 Misonix shall keep USSC informed and shall communicate with USSC on an
ongoing basis concerning the results of development work undertaken pursuant to
this Agreement. In addition to the foregoing, during the term of this Agreement,
Misonix, shall, upon USSC's request, meet with USSC representative at times
during and places mutually agreed upon but no less
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frequently than monthly, to discuss the progress and results of the development
work, as well as ongoing plans, or changes therein. Misonix shall also permit
USSC's representatives to visit the facilities where the development work is
being conducted from time to time upon reasonable prior notice during the term
of this Agreement during normal business hours.
3.2 If, during the Term, Misonix solely conceives or develops, whether
under this Agreement or otherwise, any new invention, method, process, formula,
mixture, composition, modification or improvement relating to a Product or
Know-How, or the use or manufacture of any thereof, Misonix shall furnish full
details thereof to USSC, including all conceptual, technical and design
information, specifications, test results, analyses, data, prototypes, drawings,
formulas, mixtures, compositions, delivery systems and any other useful
information. Such inventions, methods, processes, formulae, mixtures,
compositions, modifications and improvements relating to a Product, or the use
or manufacture of any thereof, shall be deemed included in the License Option
(defined below) except insofar as USSC agrees in writing to exclude from the
Exhibit A License (defined below)all or any po?tion of such inventions, methods,
processes, formulas, mixtures, compositions, modifications or improvements.
3.3 All Patents and Trademarks and all inventions, methods, processes,
formulae, mixtures, compositions, modifications or improvements referred to in
Section 3.2 above, shall be the exclusive property of Misonix, and, upon USSC's
exercise of the License Option, subject to the Exhibit A License.
3.4 Misonix covenants and agrees for as long as this Agreement shall be and
remain in effect, that it shall not grant to any other or different person or
entity any other right, option or license to evaluate, develop, test, conduct
clinical trials, obtain governmental approvals, make, have made, use, practice,
manufacture, have manufactured, sell, transfer or commercialize any Product or
any new inventions, methods, processes, formulae, mixtures, compositions,
modifications or improvements thereon relating to ~e Technology in the Field or,
to practice or use Know-How anywhere in the world.
ARTICLE 4 - CONSIDERATION
4.1 The total consideration to be paid by USSC for the development work to
be performed under this Agreement, the grant of the License Option and the other
rights granted hereunder and the non-compete agreement pursuant to Article 8
shall be the payment to Misonix of Fifty Thousand Dollars ($50,000.00)
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which Misonix hereby acknowledges was paid to Misonix prior to the execution of
this Agreement by both parties.
4.2. This is a fixed fee agreement and USSC has no obligation to pay or
reimburse Misonix for any further amount (in addition to the amounts set forth
in Section 4.1 above and this Section 4.2) involving the Development Work under
this Agreement. While Misonix presently believes it can produce the Working
Prototype described in Attachment 2 to USSC's satisfaction for such fixed fee,
it does not represent or warrant that it will be able to do so. To further
incent Misonix to provide first generation Working Prototypes which, in USSC's
view, are suitable in appearance and performance for presentation as
investigational devices at the American College of Surgeons meeting in October,
1996, USSC shall, in addition, pay Misonix the following: (a) Twenty-Five
Thousand Dollars ($25,000.00) if Misonix develops and delivers to USSC one
clamping/sealing probe/tip and one hook/cutting probe/tip, by September 10,
1996, and (b) Fifty Thousand Dollars ($50,000.00) if Misonix develops and
delivers to USSC ten damping/sealing probes/tips and five hook/cutting
probes/tips, by September 15;1996. Notwithstanding anything to the contrary
contained in this Agreement or in any of the Attachments thereto, the Working
Prototypes to be developed and delivered by Misonix are to be development and
evaluation models oniy and not suitable necessarily for clinical tests of such
Working Prototypes.
ARTICLE 5 - EVALUATION OF PROTOTYPE AND OPTION
5.1 For a ninety (90) day period following receipt by USSC of a Working
Prototype, USSC shall be permitted to evaluate and test the same throughout the
world (the "Exclusive Evaluation Period"). In connection therewith, Misonix
shall promptly answer questions USSC may have related thereto and provide to
USSC test results, analysis and other Know-How in Misonix's possession or
control which may be useful in connection with USSC's evaluation. Without
limiting or being limited by the foregoing, the Exclusive Evaluation Period may
be extended by USSC, at its option, for one additional thirty (30) day period in
the event of any one or more of the following: (a) USSC requires, in the
reasonable opinion of its counsel, additional time to evaluate the intellectual
property rights issues related to the Product or Know-How, or (b) USSC requires,
in its reasonable judgment, additional time to evaluate the Product or the
Know-How
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5.2 Misonix hereby grants to USSC, and USSC hereby accepts from Misonix, an
exclusive paid up option (the "License Option") exercisable in USSC's sole and
absolute discretion to acquire the license and other rights set forth in Exhibit
A (the "Exhibit A License") in the Field. The License Option shall be subject to
exercise by USSC by notice to Misonix at any time prior to the end of such
ninety (90) day period or such one hundred and twenty day (120) period referred
to in 5.1, as the case may be, that USSC is exercising the License Option. Upon
delivery of such notice and the cash consideration required to be delivered by
USSC, the license in the form of Exhibit A shall be deemed executed by, binding
upon and enforceable against the parties thereto covering the Exhibit A License
Field. However, within thirty (30) days thereafter, the parties thereto shall
execute copies of the Exhibit A License for their records. Failure to so execute
copies of the Exhibit A License for the records of the parties shall not affect
the effectiveness or enforceability of the provisions thereof.
5.3 The provisions of this Article 5 shall survive termination of this
Agreement.
ARTICLE 6 - PROPRIETARY INFORMATION
6.1 USSC hereby covenants and agrees that it will not, directly or
indirectly, disclose, either during or for five (5) years subsequent to the
Term, any Confidential Information of Misonix to any other person or entity,
except to its attorneys and accountants as may be required in connection with
this Agreement who have been or will be instructed to maintain its
confidentiality and to third parties who shall execute binding written
agreements requiring such parties not to disclose Confidential Information
disclosed to them by USSC. In addition to the foregoing, USSC hereby covenants
and agrees that it will not, directly or indirectly, during the term of this
Agreement, use the Working Prototype or any Know-How developed by Misonix except
as permitted by this Agreement. USSC further covenants and agrees that,
following termination of this Agreement, except in the event it has exercised
the License Option and entered into the License referred to herein (and as
permitted by such License), USSC shall not use, directly or indirectly, the
Working Prototype or any Know-How disclosed by Misonix for five (5) years
thereafter to the extent and for so long as it constitutes Misonix Confidential
Information.
6.2 Misonix hereby covenants and agrees that it will not, directly or
indirectly, disclose during or for five (5) years subsequent to the Term, any
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Confidential Information of USSC to any other person or entity, except to
Misonix's attorneys and accountants as may be required in connection with this
Agreement who have been or will be instructed to maintain its confidentiality.
6.3 It is not intended by this Article 6 that USSC or Misonix shall be
required to obtain specific written commitments in relation to this Agreement
from materials and/or component suppliers where only specifications are
disclosed to said materials and/or component suppliers by USSC and by Misonix.
6.4 For purposes of this Agreement, "Confidential Information" shall mean
verbal and written disclosures from Misonix, on the one hand, or USSC, on the
other hand, (the "Discloser") to the other party (the "Disclosee"), which
concern the Discloser including, without limitation, information which concerns
the Discloser's business, operations, products or research and development
efforts, or which concern the Products or Know-How, but shall not include
information which: (a) at the time of disclosure is published or otherwise
becomes a part of the public domain through no fault of Disclosee (but only
after, and only to the extent that, it is published or otherwise becomes a part
of the public domain); (b) Disclosee can show was known to it at the time of
disclosure, free of restriction; (c) has been or hereafter is disclosed to
Disclosee without any obligation of confidentiality by a third party who is in
lawful possession of such information and has the right to disclose it to
Disclosee; (d) has been or hereafter is disclosed by Discloser to a third party
free of any obligations of confidentiality; (e) was independently developed by
the Disclosee, or (f) is disclosed by Disclosee pursuant to the order or
requirement of a court, administrative agency or other governmental body,
provided that the Disclosee promptly informs the Discloser of its intent to make
such disclosure, takes all reasonable steps to limit such disclosure and does
not inhibit the Discloser in taking whatever lawful steps the Discloser
considers necessary to attempt to preserve the confidentiality of such
information. Disclosures made to Disclosee by Discloser which are specific shall
not be deemed to be within the foregoing exceptions merely because they are
embraced by general disclosures in the public domain or in the possession of
Disclosee. The existence, terms and condition of this Agreement shall be deemed
Confidential Information of the parties to this Agreement.
6.5 Misonix and USSC covenant and agree with each other and shall ensure
that each individual and entity involved with the Development Work
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described in Attachment 2 (including, its employees, outside vendors and
consultants) are bound in writing to maintain the confidentiality of the other
party's Confidential Information.
6.6 During the Term each of Misonix and USSC shall put in place and
maintain procedures and take precautions to safeguard the existence, integrity
and confidentiality of the other's knowledge respecting the matters covered
hereby. Nothing in this Article 6 is intended to require Misonix to obtain
specific written commitments in relation to this Agreement from material and/or
component suppliers where only specifications are disclosed to said material
and/or component suppliers by Misomx.
6.7 The parties hereby acknowledge and agree that any breach of this
Article 6 by Misonix, on the one hand, or USSC, on the other hand, would likely
cause irreparable injury to the other party and that such other party's remedy
at law for any such breach would be inadequate. Accordingly, the parties agree
that, in addition to any other remedies provided for herein or otherwise
available at law, temporary and permanent injunctive relief and other equitable
relief may be granted in any action, suit or proceeding brought by either party
to enforce the provisions of this Article 6 without the necessity of proof of
actual damage. Each party agrees promptly to seek temporary and permanent
injunctive relief against any of its directors, officers, employees or
consultants who breach the aforesaid obligations with respect to any matter
relating to this Agreement.
6.8 The provisions of this Article 6 shall survive termination of this
Agreement for five (5) years.
ARTICLE 7 - INVENTIONS
7.1 It is recognized and understood that certain existing inventions and
technologies are the separate property of USSC and Misonix and are not affected
by this Agreement, and none of the parties shall have any claims or rights in
such separate inventions and technologies. All patentable and unpatentable
inventions, discoveries and ideas ("Inventions") which are made or conceived
solely by Misonix during the Term and as a result of work performed under this
Agreement ("Misonix Inventions") shall be the property of Misonix but shall be
subject to USSC's rights set forth in this Agreement and the Exhibit A License
upon the execution or effectiveness thereof in accordance with this Agreement.
All Inventions which are made or conceived solely by employees of USSC or other
persons employed or retained by USSC during the Term (other than Misonix and/or
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others under its direction) and as a result of work performed under or in
connection with this Agreement including, without limitation, Inventions made or
conceived by such persons ("USSC Inventions") shall be the sole property of
USSC. All Inventions which are made or conceived jointly by Misonix (and/or
others under its direction) and USSC (and/or others under its direction) during
the Term and as a result of work performed under this Agreement ("Joint
Inventions") shall be owned jointly by Misonix and USSC, but Misonix's rights
therein shall be subject to USSC's rights set forth in this Agreement and the
Exhibit A License upon the execution or effectiveness thereof in accordance with
this Agreement. If the Exhibit A License is executed, USSC shall have the sole
and exclusive right to apply for and obtain patent protection at its sole
discretion and shall be solely responsible at its expense for the filing,
prosecution and maintenance of patent applications and patents regarding Joint
Inventions. Misonix shall do such acts and sign such documents as are reasonably
necessary to permit USSC to perform its patent function under the Exhibit A
License regarding Joint Inventions and USSC shall provide copies of proposed
filings regarding Joint Inventions with any patent counsel for Misonix in
reasonably sufficient time to allow Misonix to comment on such proposed filings.
A Misonix Invention disclosure for each Misonix Invention shall be promptly sent
in writing by Misonix to USSC and not sent to or discussed by any of them,
directly or indirectly, with any third party. The parties shall mutually notify
each other regarding any Joint Invention.
7.2 The provisions of this Article 7 shall survive termination of this
Agreement.
ARTICLE 8 - NON-COMPETE
8.1 Misonix hereby agrees that during the term of this Agreement except as
expressly permitted by this Agreement, it shall not, directly or indirectly,
develop, manufacture, or sell any Product, or any similar or related instrument,
device or system, or Know-How to any third person or entity, or to consult with
or provide technical assistance or advice to any third person or entity with
respect to the design, development, manufacture or sale of any Product or
similar instrument, device, or system without USSC's prior written consent in
USSC's sole and absolute discretion. USSC has been advised by Misonix and
acknowledges that Misonix is engaged in an undertaking with Medical Device
Alliance, Inc. ("MDA") in connection with the development of
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devices used in ultrasonic soft tissue aspiration and related endeavors and that
such efforts shall not be deemed to fall within the foregoing precluded area.
8.2 The parties acknowledge and agree that any breach of any of the
provisions of this Article 8 by Misonix will cause immediate and irreparable
injury to USSC and that USSC's remedy at law for any such breach would be
inadequate. Accordingly, the parties agree that, in addition to any other
remedies provided for herein or otherwise available at law, temporary and
permanent injunctive relief and other equitable relief may be granted in any
action, suit or proceeding which may be brought by USSC to enforce the
provisions of this Article 8 without the necessity of proof of actual damage.
8.3 The provisions of this Article 8 shall survive termination of this
Agreement.
ARTICLE 9 - INDEMNIFICATION
9.1 Subject to the fulfillment by Misonix of its obligations pursuant to
Section 9.2 below, USSC agrees to defend, indemnify and hold harmless Misonix
and each of Misonix's directors, officers, employees, agents, and
representatives, from and against any claims, demands, judgments, executions,
awards, or damages, including reasonable attorney's fees and expenses incurred
by Misonix in defending the same, constituting a product liability action or
other action, suit or proceeding arising as a result of the design, manufacture
or use of a Product by USSC. In furtherance of the foregoing, USSC shall include
Misonix as a covered person on USSC's product liability insurance in an amount
of at least $5,000,000, with waiver of subrogation. In satisfaction of the
foregoing indemnification and hold harmless agreement, USSC may pay directly to
the claimant or plaintiff in any such claim, action, suit or proceeding, the
amount of any award, judgment, settlement or recovery, or execution rendered
thereon, and may pay to Misonix and Misomx 5 directors, officers, employees,
agents, and representatives, any other damages or reasonable expenses sustained
by them in defending any such claim, action, suit or proceeding. USSC shall have
the right to conduct the legal defense, or to enter into any settlement
agreement, as it, in its sole discretion, deems appropriate. Misonix may
participate in such action, suit or proceeding through its own attorneys at its
sole cost and expense.
9.2 In the event that any claim is asserted against Misonix or Misonix's
directors, officers, employees, agents or representatives, or such person is
made a party defendant in any action, suit or proceeding involving a matter
which is the
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subject of USSC's indemnification and hold harmless agreement as set forth above
in Section 9.1, then within ten (10) days of the receipt by any of such persons
of notice of such event and within seven (7) days of receipt of a complaint or
other formal pleading regarding such event, such persons shall give written
notice of such claim, action, suit or proceeding to USSC, and USSC shall be
given an opportunity to assume the defense and control any settlement on behalf
of such persons. Misonix shall provide its full cooperation to USSC in
connection with the defense of such claim, action, suit or proceeding.
9.3 Subject to the fulfillment by USSC of its obligations pursuant to
Section 9.4 below, Misonix agrees to defend, indemnify and hold harmiess USSC
and each of USSC's directors, officers, employees, agents, and representatives,
from and against any claims, demands, judgments, executions, awards, or damages,
including reasonable attorney's fees and expenses incurred by USSC in defending
the same, to the extent constituting liability for personal injury (on whatever
legal theory) action, suit or proceeding arising on Misonix's premises in
connection with this Agreement. In satisfaction of the foregoing indemnification
and hold harmiess agreement, Misonix may pay directly to the claimant or
plaintiff in any such claim, action, suit or proceeding, the amount of any
award, judgment, settlement or recovery, or execution rendered thereon, and may
pay to USSC and USSC's directors, officers, employees, agents, and
representatives, any other damages or reasonable expenses sustained by them in
defending any such claim, action, suit or proceeding. Misonix shall have the
right to conduct the legal defense, or to enter into any settlement agreement,
as it, in its sole discretion, d~ems appropriate. USSC may participate in such
action, suit or proceeding through its own attorneys at its sole cost and
expense.
9.4 In the event that any claim is asserted against USSC or USSC's
directors, officers, employees, agents or representatives, or such person is
made a party defendant in any action, suit or proceeding involving a matter
which is the subject of Misonix's indemnification and hold harmless agreement as
set forth above in Section 9.3, then within ten (10) days of the receipt by any
of such persons of notice of such event and within seven (7) days of receipt of
a complaint or other formal pleading regarding such event, such persons shall
give written notice of such claim, action, suit or proceeding to Misonix, and
Misonix shall be given an opportunity to assume the defense and control any
settlement on behalf of such persons. USSC shall provide their full cooperation
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to Misonix in connection with the defense of such claim, action, suit or
proceeding.
9.5 The provisions of this Article 9 shall survive termination of this
Agreement.
ARTICLE 10 - FDA INTERACTION
10.1 Interaction with the regulatory agencies in any country including, but
not limited to, the U.S. Food and Drug Administration (collectively, "FDA")
concerning the Products shall be conducted by USSC, and for purposes of any
filings with the FDA concerning the Products, subject to USSC's exercise of the
License Option, USSC shall be the official company sponsor. In the event of a
dispute between USSC and Misonix concerning any matter relating to interaction
with the FDA, USSC shall have final authority to act as USSC, in its sole
discretion1 deems appropriate with respect to the matter in dispute.
10.2 During the Term of this Agreement, Misonix, at USSC's request, shall
assist USSC during FDA interaction concerning the Products; provided that USSC
shall reimburse Misonix for all its documented and prior approved out-of-pocket
expenses, other than attorneys fees, incurred by Misonix in providing such
assistance.
10.3 Notwithstanding any provision of this Agreement to the contrary, USSC
shall not be obligated to, and shall have no liability to Misonix for failure to
evaluate, develop, test, conduct clinical trials, make, have made, use,
practice, manufacture or have manufactured any Product or practice or use the
Know-How or for failure to seek or pursue any FDA or other regulatory approvals.
USSC shall have the unqualified right, at any time to cease or suspend all
efforts to obtain FDA or other regulatory approvals.
ARTICLE 11 - PATENTS
11.1 Upon or prior to the date of this Agreement, Misonix shall deliver to
USSC copies of ail Patents and Trademarks in its possession or control and all
related documents and correspondence in its possession or control relating to
the Products or Know-How.
ARTICLE 12 - REPRESENTATIONS AND WARRANTIES
12.1 Each of the parties hereby represents and warrants that (a) it has
full right, power and authority to enter into and by bound by the terms and
conditions of this Agreement, to transfer the rights and to carry out their
respective obligations under this Agreement, without the approval or consent of
any other person or
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entity; (b) the entering into of this Agreement, the transfer of rights and the
carrying out of their respective obligations under this Agreement is not
prohibited, restricted or otherwise limited by any contract, agreement or
understanding entered into by any of them or their directors, officers,
employees or consultants, or by which any of such persons or entities is bound,
with any other person or entity, including, without limitation, any federal,
state or local governmental body, agency or authority; (c) there is no contract,
agreement or understanding entered into by them or their directors, officers,
employees or consultants, or by which any of such persons or entities is bound,
which if enforced, terminated or modified, would be in derogation of, contrary
to, or adversely affect the rights acquired or to be acquired hereunder by USSC;
and (d) there is no action, suit, proceeding or investigation pending or
currently threatened against any of them which, if adversely determined, would
restrict or limit the right of any of them to enter into this Agreement,
transfer the rights or carry out their respective obligations under this
Agreement,
12.2 Misonix hereby further represents, warrants and covenants that (a) it
has not granted, assigned, sold or otherwise transferred, and it is not
obligated to grant, assign, sell or otherwise transfer, and it shall not, except
to the extent and in the manner expressly permitted by this Agreement, grant,
assign, sell or otherwise transfer during the term of this Agreement any right,
title, interest, license or option in, to, or under, any Patents and Trademarks,
Products, or Know-How to any other person or entity including, without
limitation, any federal, state or local governmental body, agency or authority;
(b) no other person or entity has, or during the term of this Agreement shall
have, except to the extent and in the manner expressly permitted by this
Agreement, the right to acquire any right, title, interest, license or option
in, to or under any Patents and Trademarks, Products, or Know-How; (c) it has
not filed any patent application or trademark application or been issued or
assigned any patent or registered trademark on or prior to the date of this
Agreement for any instrument, device or system similar to a Product, other than
the Patents and Trademarks.
12.3 All representations, warranties and covenants made by the parties
shall be considered to have been relied upon by the other parties hereto
regardless of any discussion, review, or investigation made by, or on behalf of,
the other party.
12.4 The provisions of this Article 12 shall survive termination of this
Agreement.
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ARTICLE 13 - TERM AND TERMINATION
13.1 The term of this Agreement (the "Term") shall commence upon the date
hereof and shall terminate upon the earliest of the following:
(a) one (1) business day following the end of the Exclusive Evaluation
Period;
(b) Upon the written agreement of USSC and Misonix; and
(c) Notwithstanding any other provision of this Agreement, USSC at all
times shall have the right for any or no reason to terminate this Agreement upon
ten (10) days prior written notice to Misonix. In the event USSC effects
termination in accordance with this Section 13.1(c), there shall not be due to
Misonix any termination penalty or similar payment.
ARTICLE 14 - RIGHTS AFTER TERMINATION
14.1 All rights and obligations of the parties which accrue on or before
the effective termination date shall be fully enforceable by either party after
termination.
14.2 The provisions of this Article 14 shall survive termination of this
Agreement.
ARTICLE 15 - PUBLICITY RELEASES
15.1 Misonix shall not issue any press release or make any public
disclosure, announcement, comment or statement concerning the existence or the
terms and conditions of this Agreement without first advising and receiving the
written consent of USSC in its discretion, except to the extent necessary under
applicable laws or regulations or the requirements of any exchange on which
Misonix's securities are traded in the reasonable opinion of its counsel, in
which event Misonix shall in each instance provide USSC with a copy of the
proposed press release or public disclosure as far in advance as is reasonably
possible under the circumstances.
ARTICLE 16 - INDEPENDENT CONTRACTORS
16.1 In the performance of all development work hereunder, Misonix shall be
deemed to be and shall be an independent contractor and, as such, none of
Misonix or its employees shall be entitled to any benefits or rights applicable
to employees of USSC. Neither Misonix, on the one hand, nor USSC, on the other
hand, is authorized or empowered to act as agent for the other for any purpose
and shall not on behalf of the other enter into any contract, warranty, or
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representation as to any matter. Neither shall be bound by the acts or conduct
of the other.
ARTICLE 17 - WAIVER
17.1 No waiver by any party, express or implied, or any breach of any term,
condition, or obligation of this Agreement by any party shall be construed as a
waiver of any subsequent breach of any term, condition, or obligation of this
Agreement, whether of the same or different nature.
ARTICLE 18 - NOTICES
18.1 Any notice required or permitted to be given hereunder shall be in
writing and shall be mailed by certified mail, return receipt requested, or
delivered by messenger or air courier, and all payments shall be delivered, to
the party to whom such notice or payment is required or permitted to be given~at
its address set forth as follows: if given to Misonix, to: Misonix Incorporated,
1938 New Highway, Farmingdale, New York 11735; or, if given to USSC, to: Attn.:
Thomas R. Bremer, Vice President and General Counsel, United States Surgical
Corporation, 150 Glover Avenue, Norwalk, CT 06856. Any such notice shall be
considered given when delivered, as indicated by signed receipt or other written
delivery record. A party may change that address to which notice to it is to be
given by notice as provided herein.
ARTICLE 19 - ASSIGNMENT
19.1 Neither this Agreement nor the performance of any part hereof may be
assigned or transferred by Misonix, on the one hand, and USSC, on the other
hand, without the prior written consent of the other party in its sole and
absolute discretion, except that USSC may assign this Agreement and the
performance of any part hereof without such consent to an Affiliate of USSC.
ARTICLE 20 - CONSTRUCTION
20.1 This Agreement shall be construed and enforced in accordance with the
Laws of the State of New York and any action, suit or proceeding brought under
this Agreement shall be brought only in, and the parties hereby consent to the
jurisdiction of, the federal and state courts located in the State of New York.
20.2 The provisions of this Article 20 shall survive termination of this
Agreement.
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ARTICLE 21 - ENTIRE UNDERSTANDING/AMENDMENT
21.1 This Agreement and the attached schedules and exhibits constitute the
entire understanding and agreement between the parties, and supersedes all
previous agreements (whether written or oral) concerning the subject matter
hereof. This Agreement shall not be modified, amended, or supplemented except by
a written document executed by both parties.
ARTICLE 22 - HEADINGS
22.1 The headings in this document are for information purposes only and
are not meant to have any legal effect in interpreting this document.
ARTICLE 23 - SEVERABILITY; FURTHER ASSURANCES
23.1 The invalidity or unenforceability of any Article, Section provision
of this document shall not affect the validity or enforceability one or more of
the other Articles, Sections or provisions.
23.2 The parties hereto will execute any further instruments or perform any
acts which are or may be necessary to effectuate each of the terms and
provisions of this Agreement.
ARTICLE 24 - COUNTERPARTS
24.1 This Agreement may be executed in any number of counterparts1 each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
16
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
MISONIX INCORPORATED
By: /s/ Joseph Librizzi
------------------------------------------
Name: Joseph Librizzi
----------------------------------------
Title: PRESIDENT & CEO
---------------------------------------
UNITED STATES SURGICAL CORPORATION
By: /s/ Eitan Nahum
------------------------------------------
Name: Eitan Nahum
----------------------------------------
Title: Vice President, Strategic Planning and
---------------------------------------
Business Development
17
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ATTACHMENT 1
ULTRASONIC SURGERY SYSTEM
(Intentionally Omitted)
18
<PAGE>
ATTACHMENT 2
DESCRIPTION OF WORKING PROTOTYPE OF ULTRASONIC
TISSUE ABLATOR AND CAUTERIZER
The following is a description of a Working Prototype for the Ultrasonic Tissue
Ablator and Cauterizer offered under this contract. The unit is envisioned to be
suitable for lab tests in vitro or in live lab animals for demonstration of
cutting, ablating and coagulation performance.
GENERATOR
The Generator section will include circuitry to generate sinusoidal signals at
sufficient voltage and current to power handpiece. Working frequency tracking
and amplitude control will be provided. All indicators, such as Electrical
Fault, Mechanical Fault and Overload will be provided. All indicators, such as
Electrical Fault, Mechanical Fault and Overload will be provided. Ultrasonic
Time Meter and Reset will be installed. Although these features will be
functional, it is not guaranteed that performance suitable for production units
will be attained. Further engineering may deemed necessary after analysis of
results of first series of tests.
Generator will be mounted in a Sonicator XL-2020 type enclosure with custom
front fascias. Standard Misonix Inc. Colors will be used. Connectors for
Handpiece Cable (12ft) and other devices such as Footswitch will be of readily
available types, which may be different from what is ultimately chosen for
production systems.
Unit will be able to be run on 115VAC 60Hz or 230VAC 50Hz only.
GENERATOR WILL NOT BE CONSTRUCTED TO UL 2601-1 OR IEC 601-1 STANDARDS. FCC OR CE
COMPLIANCE CANNOT BE GUARANTEED. UNIT NOT GUARANTEED TO BE SUITABLE FOR USE IN
HUMAN CLINICALS.
Circuit cards may be engineering breadboards, not suitable for shipping by air.
Although Misonix will use as many 'off-the-shelf' components as possible,
prototype assembly techniques will be used throughout construction.
CONFIDENTIAL
MISONIX, INC., 1938 NEW HIGHWAY, FARMINGDALE, N.Y. 11735
- --------------------------------------------------------------------------------
<PAGE>
ATTACHMENT 2
HANDPIECE
Handpiece will be resonant at frequency of operation and be suitable for
attaching and driving Probes at their resonant frequency and provide amplitudes
which will demonstrate cutting, coag and ablation. The Handpiece will be
constructed of titanium and crystal elements. The case will be either aluminum,
engineering plastic or resin. Provisions for mounting Sheaths will be available.
A machined case is envisioned. No moldings will be provided.
THE HANDPIECE IS NOT GUARANTEED TO BE ABLE TO BE STERILIZED BY STEAM AUTOCLAVE.
ETO STERILIZATION MAY BE USED, DEPENDING UPON THE MATERIAL OF CONSTRUCTION.
Although an effort will be made to provide a unit which is ergonomically sound,
refinements may have to be made after clinical feedback.
PROBES AND SHEATHS
A Ball tip, a Hook cutting tip and a Clamping/Sealing tip will be provided.
Sheaths for use with each Probe/Tip will be provided. Sheath material(s) To Be
Determined, but machining techniques will be used for construction. No moldings
will be provided.
The initial prototype desired is three types of probes that would be compatible
with existing generators, cables and handpieces. Most important is a clamping
device which can be used to clamp, seal and divide tissue. Such a device would
meet the design criteria enclosed which was described at the 3/20/96 meeting and
which can be demonstrated in tissue to be equally efficacious as existing
ultrasonic clamping devices.
ACCESSORIES
Handpieces, Cables, Shipping Cartons (if needed), wrenches and special cleaning
materials( if needed) will be provided. Rudimentary documentation on use and
care will be provided. All power cords will be provided.
NO FDA, UL, CE OR OTHER REGULATORY BODY APPROVALS OR CERTIFICATIONS WILL BE
PROVIDED. NO SUBMISSIONS TO SUCH ORGANIZATIONS WILL BE PREPARED. VALIDATIONS OF
STERILITY PROTOCOLS OR MATERIAL BIOCOMPATABILITY WILL NOT BE CONDUCTED.
CONFIDENTIAL
MISONIX, INC., 1938 NEW HIGHWAY, FARMINGDALE, N.Y. 11735
- --------------------------------------------------------------------------------
<PAGE>
UNITED STATES SURGICAL CORPORATION
CONFIDENTIAL
To use the device to divide tissue, two embodiments are considered:
1) A hinged component which compressed tissue between it and the angled
tip, such that vibration seals and divides tissue.
[DIAGRAM OF A HINGE]
2) A sliding component whose angle matches the angled tip such that
vibration seals and divides tissue when the sliding angled component
is advanced to compress tissue between it and the angled tip.
[DIAGRAM OF A HINGE]
<PAGE>
SCHEDULE 1
----------
Patent/Trademark
Title Country No. Status Date
- ----- ------- ---------------- ------ ----
PATENTS
- -------
TRADEMARKS
- ----------
30
<PAGE>
EXHIBIT A
---------
LICENSE AGREEMENT
This Agreement, dated as of _________________________ , 19__, is by and
between Misonix Incorporated, a New York corporation, with its principal place
of business at 1838 New Highway, Farmingdale, New York 11735 ("Misonix"), and
United States Surgical Corporation, a Delaware corporation, with its principal
place of business at 150 Clover Avenue, Norwalk, Connecticut 06856 ("USSC").
WHEREAS, Misonix designs and develops ultrasonic medical devices and
desires to further develop its proprietary ultrasonic cutting, sealing and
dissection technology (the "Technology"); and
WHEREAS, USSC develops, manufactures, markets and sells medical products.
NOW THEREFORE, in consideration of the mutual promises, covenants,
undertakings and obligations set forth herein and for other good and valuable
consideration the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1 - DEFINITION
1.1 For the purposes of this Agreement, the definitions set forth below
shall be applicable.
Affiliate - The term "Affiliate" means a corporation or other entity
controlled by, controlling or under common control with another person,
corporation or other entity. For the purpose of this Agreement, "control" means:
(i) the ownership, directly or indirectly, of 50% or more of the voting stock or
analogous interest in a corporation or other entity, by another person,
corporation or other entity; or (ii) the commonality of 50% or more of the
directors on the Board of a corporation or other entity with the directors on
the Board of another corporation or other entity; or (iii) the commonality of
50% or more of the directors on the Board of a corporation or other entity with
the executive officers, or holders of 5% or more of any class of the outstanding
capital stock, of another corporation or other entity; or (iv) the commonality
of 50% or more of the partners (general or limited), principals, or other
controlling parties of any entity, with the partners (general or limited),
principals or other controlling parties of another entity; or (v) the existence
of any other relationship
<PAGE>
between a corporation or entity and another person, corporation or other entity
which results in effective managerial control by one over the other, regardless
of the level of commonality of the number of directors, partners, principals or
other controlling parties or whether such control is continuously exercised.
Field - The term "Field" means all human and veterinary medical
applications.
Know-How - The term "Know-How" means any and all secret or confidential
information, trade secrets, specifications, test results, analyses and data,
inventions, methods, processes, formulae, mixtures, compositions, designs,
techniques, applications, ideas or concepts, whether or not reduced to practice,
relating directly or indirectly to the Products, including, but not limited to,
technology that is or could be the subject matter of a foreign or domestic
patent or patent application, whether or not reduced to writing in a patent
application.
Net Sales - (i) The term "Net Sales" means gross sales of the Products
billed and shipped by USSC or its Subsidiaries, Affiliates, Sublicensees, or
permitted assignees, less allowances and discounts actually allowed (other than
advertising allowances, or fees or commissions to salesmen or sales
representatives), returns, billed taxes and customs duties paid by USSC, freight
and transit insurance, and shall not include samples or demonstration materials
or any sale to USSC employees for any reason other than resale. The term "Net
Sales" shall not include sales between the parties, sales by independent
distributors, or sales between USSC and its Affiliates, Subsidiaries,
Sublicensees or permitted assignees.
(ii) For the purposes of this Section 1.1(e), the term "Products" shall
also include Products sold in packages, trays, or other groups of items
consisting of one or more Products and one or more non-Products (the "Package"
or "Packages"). The Net Sales price of any Product sold in a Package shall bear
the same ratio to the Net Sales price of the Package, as the individual retail
list price of the Product bears to the sum of all individual retail list prices
of every item in the Package if all of such items were sold separately.
Patents and Trademarks - The term "Patents and Trademarks" means all
patents, patent applications, registered trademarks and trademark applications
identified on Schedule 1 hereto, all other foreign and domestic patents, patent
applications, registered trademarks and trademark applications filed by or
assigned in whole or in part to Misonix prior or subsequent to the date hereof
2
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and covering or relating to any Invention (defined below) having application to
a Product, all foreign and domestic patents and registered trademarks issuing on
any of the foregoing patent applications and trademark applications, and all
continuations, continuations-in-part divisions, reissues, reexaminations,
additions, and renewals thereof.
Products - The term "Product" or "Products" means any instrument, device or
system usable in the Field (defined below) which involve or relate to the
Technology and embody or utilize any or all of the following in which Misonix
has or, during the term of this Agreement, acquires a proprietary interest: (i)
the inventions, methods, processes, formulae, mixtures, and compositions
disclosed and/or claimed in the Patents and Trademarks (defined below), and any
invention, method, process, formula, mixture, or composition similar or related
to, or designed for use with, any of the foregoing; (ii) every part,
subassembly, component or accessory of, and addition or improvement to, any of
the foregoing; (iii) Know-How (defined below); and (iv) all registered
trademarks and trademark applications within Patents and Trademarks and all good
will associated with such registered trademarks and trademark applications.
Sublicensee - The term "Sublicensee" means any third party to whom USSC
grants a sublicense to manufacture or sell the Products.
Subsidiary - The term "Subsidiary" means any corporation, partnership or
other entity, 50% or more of the outstanding shares of any class of stock,
general partnership interest, or other equity of which is owned by USSC; and any
operating division of USSC not separately incorporated or organized as an
independent business entity.
Trademarks - The term "Trademarks" means all registered trademarks and
trademark applications within Patents and Trademarks.
ARTICLE 2 - THE GRANT
2.1 Misonix hereby grants to USSC, and USSC hereby accepts from Misonix, an
exclusive worldwide right and license during the term of this Agreement (and for
five (5) years after the Unilateral Termination Date in the event of a
termination of this Agreement under Section 14.1(c) below), including the right
to grant sublicenses, to evaluate, develop, test, conduct clinical trials,
obtain governmental approvals, make, have made, use, practice, manufacture, have
manufactured, sell, transfer or commercialize Products and to practice and use
the Know-How and the Trademarks throughout the world (the "License").
3
<PAGE>
ARTICLE 3 - IMPROVEMENTS IN THE FIELD; PRODUCT MANUFACTURE
3.1 If, during the term of this Agreement, Misonix conceives, develops or
acquires any new invention1 method, process, design, formula, mixture,
composition, modification or improvement relating to a Product, or the use or
manufacture thereof (collectively "Invention"), Misonix shall furnish full
details thereof to USSC, including all conceptual, technical and design
information, specifications, test results, analyses and data, prototypes,
drawings, formulae, mixtures, compositions and any other useful information.
Such inventions, methods, processes, formulae, mixtures, compositions,
modifications and improvements shall be deemed, without any compensation being
due thereby, included in the License except insofar as USSC, upon request
by Misonix, agrees in writing to exclude from the License all or any portion of
such inventions, methods, processes, formulae, mixtures, compositions,
modifications or improvements.
3.2 All Patents and Trademarks and all inventions, methods, processes,
formulae, mixtures, compositions, delivery systems, modifications or
improvements thereto referred to in Section 3.1 above, shall be the exclusive
property of Misonix, subject to the License hereby granted.
3.3 Misonix hereby covenants and agrees for as long as this Agreement shall
be and remain in effect, that it shall not grant to any other or different
person, or entity, any other right, option or license to evaluate, develop,
test, conduct clinical trials, obtain governmental approvals, make, have made,
use, practice, manufacture, have manufactured, sell, transfer or commercialize
any Product, or any new inventions, methods, processes, formulae, mixtures,
compositions, modifications or improvements thereon, or, to practice or use the
Know-How or to use the Trademarks, anywhere in the world.
3.4 The parties acknowledge that USSC has substantial expertise in the
manufacture of surgical products. USSC shall have the right, in its discretion,
to manufacture or have one or more third parties selected by it, in its
discretion, to manufacture the Product. However, if during the term of this
Agreement, USSC wishes to have a party other than USSC manufacture the Product,
it shall notify Misonix in writing thereof and shall for a period of thirty (30)
days thereafter negotiate with Misonix in good faith concerning a manufacturing
agreement on terms and conditions mutually acceptable to both parties in their
discretion.
4
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ARTICLE 4 - CONSIDERATION
4.1 The total consideration to be paid by USSC for the license and other
rights granted hereunder and the non-compete agreement pursuant to Article 8
shall be a license fee (the "License Fee"), milestone payments (the "Milestone
Payments") and a periodic royalty (the "Royalty"), all calculated and payable in
accordance with this Article 4.
4.2 The License Fee shall be in the amount of Two Hundred and Seventy Five
Thousand Dollars ($275,000) and shall be payable with execution and delivery of
this Agreement.
4.3 The Milestone Payments shall be as follows:
(a) One Hundred Thousand Dollars ($100,000) payable within three (3)
business days of USSC's completion of the first full production units of both
the hook probe and the clamping/sealing probe (the "First Generation"), but no
less than fifty percent (50%) of such amount on the date which is one year from
the date hereof;
(b) One Hundred Thousand Dollars ($100,000) if USSC completes the first
full production units of the First Generation on or before March 1, 1997; and
(c) One Hundred Thousand Dollars ($100,000) payable within three (3)
business days of (i) receipt by USSC of FDA Approval to market the Product or
(ii) approval of USSC's application to market the Product in any country in the
world.
4.4 The Royalty shall be as follows:
(a) an amount equal to five percent (5%) of Net Sales of a Product
occurring during the term of this Agreement; and
(b)
(i) if USSC terminates this Agreement under Section 14.1(c) and on
such termination date (the "Unilateral Termination Date") neither Misonix
nor any Affiliate of Misonix owns or has exclusive license rights to a
issued patent covering the Product, which patent is unexpired and has not
been held invalid by a court of competent jurisdiction from which no appeal
can be taken, an amount equal to five percent (5%) of Net Sales of a
Product for a period of five (5) years after the Unilateral Termination
Date, provided, and for so long as, in either case, USSC has the License;
or
5
<PAGE>
(ii) if USSC terminates this Agreement under Section 14.1(c) and on
the Unilateral Termination Date either Misonix or any Affiliate of Misonix
owns or has exclusive license rights to a issued patent covering the
Product, which patent is unexpired and has not been held invalid by a court
of competent jurisdiction from which no appeal can be taken, an amount
equal to five percent (5%) of Net Sales of a Product for the Unilateral
Termination Patent Protected Period (defined below), provided and for so
long as, in either case, USSC has the License. For purposes of the
immediately preceding sentence the "Unilateral Termination Patent Protected
Period" shall mean the number of years following the Unilateral Termination
Date which shall be equal to (x) five years, minus (y) the longest number
of years, not to exceed five years, which remain on the life of a patent
which (aa) as of the Unilateral Termination Date either Misonix or any
Affiliate of Misonix owns or under which either Misonix or any Affiliate of
Misonix has exclusive license rights, and (bb) which patent covers the
Product. The Unilateral Termination Patent Protected Period and USSC's
rights granted by Misonix under this Agreement to sell Products shall in no
event extend longer than five (5) years from the Unilateral Termination
Date.
4.5 The Royalty shall accrue as and when a sale subject to a royalty is
recorded by USSC in accordance with Section 1.1(e), and shall be paid to Misonix
quarterly on or before forty-five (45) days after each calendar quarter during
which a sale is recorded.
ARTICLE 5 - PAYMENT, REPORTING AND RECORDS
5.1 USSC agrees to deliver quarterly written reports to Misonix for each
three (3) month period ending on the last day of the months of March, June,
September, and December of each year, within forty-five (45) days after the end
of each such period. The report shall set forth the number of Products sold by
USSC, its Subsidiaries, Affiliates, Sublicensees and permitted assignees during
the immediately preceding calendar quarter, Net Sales applicable to all such
Products, and the amount of License Fees and Royalties (and including any
catchup adjustments) then payable to Misonix. All information contained in such
quarterly reports shall be treated as USSC's Confidential Information (defined
below) subject to Article 6.
5.2 Simultaneously with the submission of each report, USSC shall pay to
Misonix by check or bank transfer the full amount of License Fees and
6
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Royalties due to Misonix for the report period under the terms of this
Agreement. USSC shall maintain records in sufficient detail and, upon reasonable
notice, allow any independent certified public accounting firm of nationally
recognized standing, appointed by Misonix, and reasonably acceptable to USSC, to
examine its consolidated books and records, and the books and records of its
Sublicensees and permitted assignees pertaining to the Products. Such
examinations shall occur on or after February 15 of any calendar year (or, if
Misonix appoints for purposes of such examination the accounting firm employed
by USSC to conduct its regular annual audit, prior to February 15,) only during
business hours, and not more than once a year, and shall be solely for the
purpose of verifying the calculation of License Fees and Royalties due under
this Agreement. A final such examination may occur once during the year
immediately succeeding termination of this Agreement. In the event Misonix
appoints for the purpose of examining USSC's consolidated books and records the
accounting firm employed by USSC to conduct its regular annual audit, and if the
examination provided for herein is performed at substantially the same time as
such regular annual audit, the fees and expenses of the accounting firm
performing the examination shall be borne by USSC. In any other event, the fees
and expenses of the accounting firm performing the examination shall be borne by
Misonix. Unless written objection is made by Misonix and delivered to USSC
within thirty (30) days after completion of such examinations, the calculation
of License Fees and Royalties paid by USSC prior to the date of such examination
shall be final and binding on the parties, except insofar as adjusted or
corrected as a result of USSC's regular annual audit. It is understood that USSC
shall not be required to furnish or permit the examination of the identities, at
any time, of customers or prices or other information as to specific sales. Any
information provided to Misonix or its accountants pursuant hereto shall be
treated as USSC's Confidential Information subject to Article 6.
ARTICLE 6 - PROPRIETARY INFORMATION
6.1 USSC hereby represents and warrants that it will not, directly or
indirectly, disclose, either during or for three (3) years subsequent to the
term of this Agreement, any Confidential Information of Misonix to any other
person or entity, except to its attorneys and accountants as may be required in
connection with this Agreement who have been or will be instructed to maintain
its confidentiality and to third parties who shall execute binding written
agreements
7
<PAGE>
requiring such third parties not to disclose Confidential Information disclosed
to them by USSC. Notwithstanding the foregoing, USSC shall have the right to use
Confidential Information of Misonix without obtaining such written agreements in
connection with any regulatory and patent filings involving or relating to
matters covered by this Agreement.
6.2 Misonix hereby agrees that it will not, directly or indirectly,
disclose during or for three (3) years subsequent to the term of this Agreement,
any Confidential Information of USSC, to any other person or entity, except to
the Misonix's attorneys and accountants as may be required in connection with
this Agreement who have been and will be instructed to maintain its
confidentiality and, to the extent necessary in the reasonable opinion of
Misonix's counsel, to be publicly disclosed and/or included in any filings
required under applicable securities laws involving or relating to matters
covered by this Agreement, provided, that in any such event, Misonix shall
advise USSC thereof as far in advance as is reasonably possible under the
circumstances to permit USSC to comment thereon and to take any action which it
may deem appropriate to limit the scope and extent of such disclosure.
6.3 It is not intended by this Article 6 that USSC or Misonix shall be
required to obtain specific written commitments in relation to this Agreement
from materials and/or component suppliers where only specifications are
disclosed to said materials and/or component suppliers by USSC or Misonix.
6.4 For purposes of this Agreement, "Confidential Information" shall mean
verbal and written disclosures from Misonix, on the one hand, or USSC, on the
other hand, (the "Discloser") to the other party (the "Disclosee"), which
concern the Discloser including, without limitation, information which concerns
the Discloser's business, operations, products or research and development
efforts, or which concern the Products or Know-How, but shall not include
information which: (a) at the time of disclosure is published or otherwise
becomes a part of the public domain through no fault of Disclosee (but only
after, and only to the extent that, it is published or otherwise becomes a part
of the public domain); (b) Disclosee can show was known to it at the time of
disclosure, free of restriction; (c) has been or hereafter is disclosed to
Disclosee without any obligation of confidentiality by a third party who is in
lawful possession of such information and has the right to disclose it to
Disclosee; (d) has been or hereafter is disclosed by Discloser to a third party
free of any
8
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obligations of confidentiality; (e) is independently developed by Disclosee; or
(f) is disclosed by Disclosee pursuant to the order or requirement of a court,
administrative agency or other governmental body, provided that the Disclosee
promptly informs the Discloser of its intent to make such disclosure, takes all
reasonable steps to limit such disclosure and does not inhibit the Discloser in
taking whatever lawful steps the Discloser considers necessary to attempt to
preserve the confidentiality of such information. Disclosures made to Disclosee
by Discloser which are specific shall not be deemed to be within the foregoing
exceptions merely because they are embraced by general disclosures in the public
domain or in the possession of Disclosee. The existence, terms and conditions of
this Agreement shall be deemed Confidential Information of the parties to this
Agreement.
6.5 The parties hereby acknowledge and agree that any breach of this
Article 6 by Misonix, on the one hand, or USSC, on the other hand, would likely
cause irreparable injury to the other party and that such other party?5 remedy
at law for any such breach would be inadequate. Accordingly, the parties agree
that, in addition to any other remedies provided for herein or otherwise
available at law, temporary and permanent injunctive relief and other equitable
relief may be granted in any action, suit or proceeding which may be brought by
either party to enforce the provisions of this Article 6 without the necessity
of proof of actual damage. Each party agrees promptly to seek temporary and
permanent injunctive relief against any of its directors, officers, employees or
consultants who breach the aforesaid obligations with respect to any matter
relating to this Agreement.
6.6 The provisions of this Article 6 shall survive termination of this
Agreement for three (3) years.
ARTICLE 7 - INVENTIONS
7.1 All patentable and unpatentable inventions, discoveries and ideas
("Inventions") relating to Products which are made or conceived solely by
employees of USSC or other persons or entities or retained by USSC during the
term of this Agreement shall be the property of USSC. All Inventions which are
made or conceived solely by Misonix or by other persons or entities retained by
Misonix shall be the property of Misonix, but subject to USSC's rights set forth
in this Agreement. All Inventions which are made or conceived by Misonix (and/or
other persons or entities retained by Misonix), on the one hand, and
9
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USSC (and/or other persons or entities retained by USSC), on the other hand,
shall be owned jointly by Misonix and USSC, but subject to USSC's rights set
forth in this Agreement.
ARTICLE 8 - NON-COMPETE
8.1 Misonix agrees that during the term of this Agreement, except as
expressly permitted by this Agreement, it shall not, directly or indirectly,
develop, manufacture, or sell any Product, or similar or related instrument,
device or system, or Know-How to any third person or entity, or to consult with
or provide technical assistance or advice to any third person or entity with
respect to the design, development, manufacture or sale of any Product or
similar instrument, device, or system without USSC's prior written consent in
USSC's sole and absolute discretion. The foregoing shall not be construed to
prohibit Misonix from engaging in its own development of Products and Know-How,
subject to the rights of USSC with respect thereto as set forth in this
Agreement. In addition, Misonix shall have the right to continue its undertaking
with Medical Device Alliance, Inc. ("MDA") in connection with the development of
devices used in ultrasonic soft tissue aspiration and related endeavors provided
it does not involve the Technology or violate Article 6 above.
8.2 The parties acknowledge and agree that any breach of this Article 8 by
Misonix would likely cause irreparable injury to USSC and that USSC's remedy at
law for any such breach would be inadequate. Accordingly, the parties agree
that, in addition to any other remedies provided for herein or otherwise
available at law, temporary and permanent injunctive relief and other equitable
relief may be granted in any action, suit or proceeding which may be brought by
USSC to enforce any provision of this Article 8 without the necessity of proof
of actual damage.
ARTICLE 9 - INDEMNIFICATION
9.1 Subject to the fulfillment by Misonix of its obligations pursuant to
Section 9.2 below, USSC agrees to defend, indemnify and hold harmless Misonix
and each of Misonix's directors, officers, employees, agents, and
representatives, from and against any claims, demands, judgments, executions,
awards, or damages, including reasonable attorney's fees and expenses incurred
by USSC in defending the same, constituting a product liability action or other
action, suit or proceeding arising as a result of the design, manufacture, use
or sale of a Product
10
<PAGE>
by USSC, its Subsidiaries Affiliates, Sublicensees or permitted assigns. In
furtherance of the foregoing, USSC shall include Misonix as a covered person on
USSC's product liability insurance in an amount of at least $5,000,000, with
waiver of subrogation. In satisfaction of the foregoing indemnification and hold
harmless agreement, USSC may pay directly to the claimant or plaintiff in any
such claim, action, suit or proceeding, the amount of any award, judgment,
settlement or recovery, or execution rendered thereon, and may pay to Misonix
and Misonix's directors, officers, employees, agents, and representatives, any
other damages or reasonable expenses sustained by them in defending any such
claim, action, suit or proceeding. USSC shall have the right to conduct the
legal defense, or to enter into any settlement agreement, as it, in its sole
discretion, deems appropriate. Misonix may participate in such action, suit or
proceeding through its own attorneys at their sole cost and expense.
9.2 In the event that any claim is asserted against Misonix or Misonix's
directors, officers, employees, agents or representatives, or such person is
made a defendant in any action, suit or proceeding involving a matter which is
the subject of USSC's indemnification and hold harmless agreement as set forth
above, then within ten (10) days of such person 5 receipt of notice of such
event and within seven (7) days of receipt of a complaint or other formal
pleading regarding such event, such persons shall give written notice of such
claim, action, suit or proceeding to USSC, and USSC shall be given an
opportunity to assume the defense and control any settlement on behalf of such
persons. Misonix shall provide their full cooperation to USSC in connection with
the defense of such claim, action, suit or proceeding.
9.3 Misonix shall provide indemnifications to USSC with respect to product
liability (on any legal theory) actions, suits and proceedings to the same
extent as set forth above in this Article 9 for Products which Misonix may, in
Misonix's discretion, sell or transfer to USSC. For purposes of this Section
9.3, Misonix's collection of royalties hereunder shall not be deemed to
constitute the sale or transfer of Products.
9.4 The provisions of this Article 9 shall survive termination of this
Agreement.
ARTICLE 10 - FDA INTERACTION
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10.1 Interaction with the regulatory agencies in any country including, but
not limited to, the U.S. Food and Drug Administration (collectively, "FDA")
concerning the Products shall be conducted by USSC, and for purposes of any
filings with the FDA concerning the Products USSC shall be the official company
sponsor. In the event of a dispute between USSC and Misonix concerning any
matter relating to interaction with the FDA, USSC shall have final authority to
act as USSC, in its sole discretion, deems appropriate with respect to the
matter in dispute.
10.2 During the term of this Agreement, Misonix shall, at USSC's request,
assist USSC during FDA interaction concerning the Products; provided that USSC
shall reimburse Misonix for all out-of-pocket expenses, other than attorneys
fees, incurred by Misonix in providing such assistance.
10.3 Notwithstanding any provision of this Agreement to the contrary, USSC
shall not be obligated to, and shall have no liability to Misonix for failure to
evaluate, develop, test, conduct clinical trials, make, have made, use,
practice, manufacture or have manufactured any Product or practice or use the
Know-How or for failure to seek or pursue any FDA or other regulatory approvals.
USSC shall have the unqualified right, at any time to cease or suspend all
marketing efforts and all efforts to obtain FDA or other regulatory approvals.
Nothing herein shall prevent USSC from setting its own prices for Products or
determining USSC's marketing policies and practices in its sole discretion.
ARTICLE 11 - PATENT AND TRADEMARK PROSECUTION AND INFRINGEMENT
11.1 Upon or prior to the date of this Agreement, Misonix shall deliver to
USSC copies of all Patents and Trademarks in its possession or control and all
related documents and correspondence in its possession or control to the extent
not delivered by the date of this Agreement. During the term of this Agreement
and subject to Section 11.3, USSC shall, at its own expense, use reasonable
efforts to obtain and maintain patents and trademark registration based on the
Patents and Trademarks in the United States. USSC shall also assume prosecution
and all future costs incurred and due during the term of this Agreement in
connection with the Patents and Trademarks filed prior to the date hereof set
forth in Schedule 1. Misonix agrees to fully cooperate with USSC in the
preparation, filing and prosecution of all applications for letters patent and
trademark registrations which USSC may in its sole discretion file and prosecute
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in the United States and foreign countries in accordance with this Section 11.1,
and in the prosecution of the Patents and Trademarks, and, in connection with
such applications and the Patents and Trademarks, Misonix further agrees to
execute and deliver all documents which USSC may deem necessary or desirable.
11.2 Misonix, on the one hand, and USSC, on the other hand, shall promptly
give written notice to the other of any apparent infringement discovered by it
with respect to any patent or trademark issuing from the Patents and Trademarks.
Such notice shall set forth the facts of the apparent infringement in reasonable
detail. In such event, Misonix agrees to cooperate with USSC and to jo USSC
shall have the right to bring or settle, in USSC's sole discretion, any action,
suit or proceeding with respect to such apparent infringement at its own expense
and for its own benefit; provided, however, that after recovery by USSC of its
litigation costs, including reasonable outside attorneys fees, USSC shall pay to
Misonix at the Royalty rate set forth in Article 4 from the amount actually
received by USSC in connection with the settlement or a judgment in such
litigation. in in such action, suit or proceeding as a party plaintiff if
requested to do so by USSC and to give USSC all needed information, assistance
and authority to file and prosecute such suit; provided that USSC shall
reimburse Misonix for all out-of-pocket expenses incurred by it in providing
such assistance, other than attorneys' fees and expenses, incurred by Misonix.
11.3 If USSC or Misonix receives notice of a claim, action, suit or
proceeding by a third party alleging infringement of such third party's rights
in connection with the manufacture, use or sale of a Product by USSC, its
Affiliates, Subsidiaries, Sublicensees or permitted assignees, USSC shall have
the right to conduct the legal defense, and to enter into any disposition with
respect thereto, as USSC in its sole discretion deems desirable. Misonix shall
fully cooperate with USSC in its defense of such infringement claim, provided
that USSC shall reimburse Misonix for all out-of-pocket expenses, other than
attorneys' fees and expenses, incurred by it in providing such cooperation.
11.4 Subject to the fulfillment by Misonix of its obligations pursuant to
Section 11.6 below, USSC shall defend Misonix against a third party infringement
claim which results from the manufacture, use or sale of a Product by USSC, its
Affiliates, Subsidiaries, Sublicensees or permitted assignees, and indemnifv
Misonix against the cost of such defense undertaken by USSC, including
reasonable attornevs' fees and court costs, and damages awarded or amounts paid
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in settlement in any such action. However, notwithstanding the foregoing, if
Misonix had actual knowledge on or prior to the date of the Development and
Option Agreement of a claim by a third party for infringement, USSC shall have
no obligation to defend or indemnify Misonix. USSC shall at all times keep
Misonix apprised of the status of any such claim, action, suit or proceeding and
allow Misonix to participate in all major decisions regarding the conduct of
such litigation including without limitation any decision to settle or pursue
the case to trial, provided, however, that USSC shall retain exclusive authority
to make all decisions regarding the conduct of such litigation or the
negotiation and consummation of any settlement.
11.5 The cost of USSC's defense of any claim referred to in Section 11.4
above, and any damages awarded or any amount paid in settlement or other
disposition of such claim, shall be set off against and, thereby, reduce, as set
forth in this Section 11.5, fifty percent (50%) the outstanding and future
Royalties due from USSC to Misonix.
(a) Except with respect to circumstances set forth in Section 11.5(b)
during the pendency of any such claim, action, suit or proceeding, USSC shall
have the right to deposit with a bank escrow agent the payments then due and
thereafter becoming due under the terms of this Agreement. USSC shall instruct
such escrow agent to deposit such payments in an interest-bearing account and to
release the same to the third party(s), if any, awarded damages in such action,
suit or proceeding pursuant to such award of damages, or to the third party(s),
if any, with whom USSC settles pursuant to this Section 11.5(a), to the extent
required by the terms of such settlement, and pay USSC's legal costs and
expenses as and when billed to USSC in connection with any such claim, action,
suit or proceeding and the balance, if any, of the principal and interest to
Misonix after final determination of and any reduction for all of the foregoing.
Such future Royalties shall be subject to escrow in accordance with this Section
11.5(a).
(b) Notwithstanding Section 1.5(a) above, in the event that Misonix commits
or has committed any fraud upon USSC in connection with this Agreement or
misrepresentation or breach of warranty of any matter which is the subject of
any of Misonix's representations and warranties contained herein1 in addition to
all other remedies available to it at law or in equity, USSC shall have the
right upon the receipt of any claim or the commencement of any action, suit or
proceeding, by either party hereto or any third party, relating to or
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arising gout of such fraud or misrepresentation or breach of warranty, deposit
with a bank escrow agent the payments then due and thereafter becoming due under
the terms of this Agreement. USSC shall instruct such escrow agent to deposit
such payment in an interest-bearing account and to release the same to the third
party(s), if any, awarded damages in such action, suit or proceeding pursuant to
such award of damages or to the third party(s), if any, with whom USSC settles
pursuant to this Section 11.5(b), to the extent required by the terms of such
settlement, and to pay USSC's legal costs and expenses as and when billed to
USSC in connection with any such claim, action, suit or proceeding and the
balance, if any, of the principal and interest to Misonix after final
determination if and any reduction for all of the foregoing, the liability of
Misonix and the Principals for such award, amounts paid in settlement and USSC's
legal costs and expenses shall be up to the entire amount in escrow pursuant to
this Section 11.5(b), plus all future Royalties payable by USSC under this
Agreement. Such future Royalties shall be subject to escrow in accordance with
this Section 11.5(b). Notwithstanding the foregoing, the parties agree that any
such withholding of payments shall not limit the liability of Misonix for
damages in the event of any fraud, misrepresentation or breach of warranty
specified in this Section 11.5(b) or in the event of any other breach of this
Agreement by any of them, and shall not affect any right or license granted to
USSC hereunder or any other provisions of this Agreement or any party's
available remedies.
11.6 In the event that any claim is asserted against Misonix or USSC, or
any of their respective officers, directors, employees, agents or
representatives, or such person is made a party defendant in any action or
proceeding involving a matter which is the subject of USSC's indemnification and
hold harmless agreement as set forth above, or Misonix becomes the subject of a
claim of infringement against USSC, its Subsidiaries, Affiliates, Sublicensees
or permitted assignees as a result of their manufacture, use or sale of a
Product, then within 10 days of receipt by any Misonix or by USSC of notice of
any such event, and within 7 days of such party's receipt of a written complaint
or other formal pleading regarding any such event, such party shall give the
other party hereto written notice of such claim, action, suit, proceeding,
patent or patent application.
ARTICLE 12 - RIGHT OF FIRST REFUSAL
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12.1 Misonix hereby grants to USSC, and USSC hereby accepts, the right of
first refusal set forth herein. In accordance with such right of first refusal,
Misonix hereby agrees that, during the term of this Agreement and except
pursuant to this Article 12, it shall not, directly or indirectly, transfer, by
sale, license or otherwise, to any third person or entity, a) any interest in
any of the Patents and Trademarks, a Product or the Know-How. No such sale,
license or other transfer shall be made without the prior written consent of
USSC, which may be withheld in its sole and absolute discretion. Prior to
offering or responding to an offer for such sale, license or other transfer,
Misonix hall have complied with all of their respective obligations under this
Agreement to be complied with prior to such offer or response. Prior to any
sale, license or other transfer, Misonix shall obtain a bona ,fide written offer
(the "Outside Offer") from such third party describing the subject of such sale,
licensee or other transfer, the interest to be sold, licensed or otherwise
transferred, and a stated cash consideration at which the third party offers to
acquire, and Misonix desires to sell, license or otherwise transfer, said
interest. After obtaining the Outside Offer, Misonix shall promptly, and before
accepting the Outside Offer, deliver to USSC an offer, irrevocable for forty
five (45) days from its receipt, to sell, license or otherwise transfer to USSC
the interest which is the subject of the Outside Offer for the cash
consideration and upon all other terms and conditions stated in the Outside
Offer. A copy of the Outside Offer shall accompany the offe# to USSC. If USSC
accepts such offer within said forty five (45) days, Misonix shall transfer the
relevant interest to USSC pursuant to the terms and conditions of such offer.
Otherwise, subject to the confidentiality and non-compete provisions of Articles
6 and 10, Misonix may transfer such interest to the third party who made the
Outside Offer in accordance with its terms and conditions during the sixty (60)
days immediately following expiration of the aforesaid forty-five (45) day
period. Notwithstanding the foregoing, nothing herein contained shall be
construed to limit the right of Misonix (or to give USSC any rights with respect
to any sale of shares of capital stock of Misonix or the merger or combination
of Misonix with or into any other firm, corporation or entity, but the rights of
USSC set forth in this Agreement shall survive any such sale, merger or
combination. Notwithstanding, Misonix shall not have the right, and nothing in
this Section 12.1 or anything else in this Agreement shall be construed to
authorize Misonix
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to sell license or otherwise transfer any of the license or other rights
granted to USSC under this Agreement.
12.2 The parties acknowledge and agree that any breach of this Article 12
by Misonix would likely cause irreparable injury to USSC and that USSC's remedy
at law for any such breach would be inadequate. Accordingly, the parties agree
that in addition to any other remedies provided for herein or otherwise
available at law, temporary and permanent injunctive relief and other equitable
relief may be granted in any action, suit or proceeding which may be brought by
USSC to enforce any provision of this Article 12 without the necessity of proof
of actual damages.
ARTICLE 12A - DEVELOPMENT FUNDING
12A.1 Subject to the terms of this Section 12A.1, development funding for
Products which USSC may in its sole discretion desire to have developed by
Misonix hereunder ("Development Funding") shall be at the cost of USSC. Prior to
Misonix incurring any Development Funding costs or expenses, Misonix shall
notify USSC in writing of the proposed project and proposed expenditures in
reasonable detail and USSC shall have a period of ten business days within which
to approve or reject the same, in writing, in USSC's sole discretion. If such
proposed expenditures are approved by USSC, the acceptance by USSC shall be
accompanied by a check to Misonix in the approved amount of the agreed upon
Development Funding. If such proposed expenditures are rejected, such rejection
shall be reasonably detailed. Misonix shall maintain books and records
concerning Development Funding during the term of this Agreement and for five
(5) years thereafter. USSC and its representatives shall have the right to
review such books and records during normal business hours upon prior notice.
Nothing hereinabove in this Section 12A.1 commits USSC to any Development
Funding or prohibit or limit USSC from engaging in development of Products by
itself or with any third party at the cost of USSC.
12A.2 The provisions of this Article 12A shall survive termination of this
Agreement.
ARTICLE 13 - REPRESENTATIONS AND WARRANTIES
13.1 Each of the parties hereby represents and warrants that (a) it has
full right, power and authority to enter mto and by bound by the terms and
conditions of this Agreement, to transfer the rights and to carry out their
respective obligations under this Agreement, without the approval or consent of
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any other person or entity; (b) the entering into of this Agreement, the
transfer of rights and the carrying out of their respective obligations under
this Agreement is not prohibited, restricted or otherwise limited by any
contract, agreement or understanding entered into by any of them or Misonix's
directors, officers, employees or consultants, or by which any of such persons
or entities is bound, with any other person or entity, including, without
limitation, any federal, state or local governmental body, agency or authority;
(c) there is no contract, agreement or understanding entered into by them or
Misonix's directors, officers, employees or consultants, or by which any of such
persons or entities is bound, which if enforced, terminated or modified, would
be in derogation of, contrary to, or adversely affect the rights acquired or to
be acquired hereunder by USSC; and (d) there is no action, suit, proceeding or
investigation pending or currently threatened against any of them which, if
adversely determined, would restrict or limit the right of any of them to enter
into this Agreement, transfer the rights or carry out their respective
obligations under this Agreement.
13.2 Misonix hereby further represents, warrants and covenants that (a) it
has not granted, assigned, sold or otherwise transferred, and it is not
obligated to grant, assign, sell or otherwise transfer, and they shall not,
except to the extent and in the manner expressly permitted by this Agreement,
grant, assign, sell or otherwise transfer during the term of this Agreement any
right, title, interest, license, or option, in, to, and under any Patents and
Trademarks, Products, Know-How to any other person or entity including, without
limitation, any federal, state or local governmental body, agency or authority;
(b) no other person or entity has, or during the term of this Agreement shall
have, the right to acquire, except to the extent and in the manner expressly
permitted by this Agreement, any right, title, interest, llcense or option in,
to or under any Patents and Trademarks, Products, Know-How; (c) it has not filed
any patent application or trademark application or been issued or assigned any
patent or registered trademark on or prior to the date of this Agreement for any
instrument, device or system similar to a Product, other than the Patents and
Trademarks; and (d) to the best of their knowledge, without special review for
this purpose, USSC's manufacture, use or sale of a Product substantially as
described in the Patents and Trademarks which exist as of the date of the
Development and Option Agreement dated as of August __, 1996 by and between
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Misonix and USSC, would not infringe the patent rights or trademark rights of
any third person or entity.
13.3 All representations, warranties and covenants made by the parties
shall be considered to have been relied upon by the other parties hereto
regardless of any discussion, review or investigation made by, or on behalf of,
the other parties, and shall survive termination of this Agreement.
13.4 The provisions of this Article 12 shall survive termination of this
Agreement.
ARTICLE 14 - TERM AND TERMINATION
14.1 The term of this Agreement shall commence upon the date hereof and
shall terminate upon last of the following:
(a) With respect to all of the provisions of this Agreement (i) insofar as
the same relate to Products which embody at least one valid claim included in a
patent within the Patents and Trademarks, the last day upon which all such valld
claims covering an invention embodied in such Product expire1 or (ii) twenty
(20) years, whichever is later;
(b) Upon the written agreement of USSC and Misonix; and
(c) Notwithstanding any other provision of this Agreement, USSC at all
times shall have the right for any or no reason to terminate this Agreement upon
ten (10) days prior written notice to Misonix. In the event USSC effects
termination in accordance with this Section 14.1(c), there shall not be due to
the Principals any termination penalty or similar payment but, in such event,
the parties shall have the rights and obligations set forth in Section 4.4(b)
above.
ARTICLE 15 - RIGHTS AFTER TERMINATION
15.1 All rights and obligations of the parties which accrue on or before
the effective termination date shall be fully enforceable by either party after
termination.
15.2 If this Agreement terminates and, as a result thereof, USSC is
required to cease making Products at the end of the term of this Agreement or
after the Unilateral Termination Period, as the case may be, USSC may,
nonetheless, for a period not to exceed six (6) months after such termination,
and subject to the periodic royalty provisions set forth herein, dispose of
inventory of Products, complete and dispose of any Products in the process of
manufacture, and utilize materials then on order.
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15.3 All Know-How, inventions, developments and improvements, whether
patentable or not, are and, after termination of this Agreement, shall (i)
remain the property of Misonix insofar as the same were conceived, made and
developed solely by Misonix prior to, or in performance of, this Agreement; and
(ii) the property of USSC insofar as the same were conceived, made and developed
solely by USSC prior to, or in performance of, this Agreement or jointly by
Misonix and USSC ("Joint Results") in the performance of this Agreement. USSC
shall retain exclusive ownership of all Know-How, inventions, developments and
improvements which were its property as of or prior to the date of this
Agreement or which were conceived, made and developed during the term of the
Agreement solely by USSC, whether or not the same is necessary to reduce to
practice any Joint Results.
15.4 Following termination of this Agreement, USSC shall assign to Misonix,
to the extent permissible by law, all filings with the FDA concerning Products
on which a royalty would be payable hereunder.
15.5 The provisions of this Article 15 shall survive termination of this
Agreement.
ARTICLE 16 - WAIVER
16.1 No waiver by any party, express or implled, or any breach of any term,
condition, or obligation of this Agreement by any party shall be construed as a
waiver of any subsequent breach of any term, condition, or obligation of this
Agreement, whether of the same or different nature.
ARTICLE 17 - NOTICES
17.1 Any notice required or permitted to be given hereunder shall be in
writing and shall be mailed by certified mail, return receipt requested, or
delivered by messenger or air courier, and all payments shall be delivered, to
the party to whom such notice or payment is required or permitted to be given at
its address set forth as follows: if given to Misonix, to: Misonix Incorporated,
1838 New Highway, Farmingdale, New York 11735; or, if given to USSC, to: Attn.:
Thomas R. Bremer, Vice President and General Counsel, United States Surgical
Corporation, 150 Glover Avenue, Norwalk, CT 06856. Any such notice shall be
considered given when delivered, as indicated by signed receipt or other written
delivery record. A party may change that address to which notice to it is to be
given by notice as provided herein.
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ARTICLE 18 - ASSIGNMENT
18.1 Neither this Agreement nor the performance of any part hereof may be
assigned or transferred by any one or more of Misonix and any one or more of the
Principals, on the one hand, and USSC, on the other hand, without the prior
written consent of the other party in its sole and absolute discretion, except
that (a) USSC may assign this Agreement and the performance of any part hereof
without such consent to an Affiliate of USSC, and (b) USSC may enter into one or
more sublicenses with any third persons or entities on terms and conditions as
USSC shall determine in its sole and absolute discretion provided, however, that
any such sublicense is not inconsistent with the terms of this Agreement.
ARTICLE 19 - CONSTRUCTION
19.1 This Agreement shall be construed and enforced in accordance with the
Laws of the State of New York and any action, suit or proceeding brought under
this Agreement shall be brought only in, and the parties hereby consent to the
jurisdiction of, the federal and state courts located in the State of New York.
19.2 The provisions of this Article 19 shall survive termination of this
Agreement.
ARTICLE 20 - ENTIRE UNDERSTANDING/AMENDMENT
20.1 This Agreement and the attached schedules constitute the entire
understanding and agreement between the parties, and supersedes all previous
agreements (whether written or oral) concerning the subject matter hereof. This
Agreement shall not be modified, amended, or supplemented except by a written
document executed by both parties.
ARTICLE 21 - HEADINGS
21.1 The headings in this document are for information purposes only and
are not meant to have any legal effect in interpreting this document.
ARTICLE 22 - SEVERABILITY; FURTHER ASSURANCES
22.1 The invalidity or unenforceability of any Articles, Section or
provision of this document shall not affect the validity or enforceability of
any one or more of the other Articles, Sections or provisions.
22.2 The parties hereto will execute any further instruments or perform any
acts which are or may be necessary to effectuate each of the terms and
provisions of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
MISONIX INCORPORATED
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
UNITED STATES SURGICAL CORPORATION
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
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SCHEDULE 1
----------
Patent/Trademark
Title Country No. Status Date
- ----- ------- ---------------- ------ ----
23
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EXHIBIT 10(Z)
October 16, 1996
VIA FEDERAL EXPRESS
Misonix, Incorporated
1938 New Highway
Farmingdale, NY 11735
Gentlemen:
This letter will serve as notice under Section 5.2 of the Development and
Option Agreement dated as of August 27, 1996 by and between Misonix,
Incorporated ("Misonix") and United States Surgical Corporation ("USSC") that
USSC hereby exercises its option to acquire the license and other rights from
Misonix set forth in the Exhibit A License attached thereto.
Enclosed are duplicate originals of the License Agreement which have been
signed by USSC. Please execute both and keep one original for your files.
We will call you shortly to introduce you to our team leader, Kurt
Azarbarzin, and look forward to a mutually rewarding relationship concerning the
technology.
Very truly yours,
/s/ Eitan Nahum
Eitan Nahum
Vice President, Strategic Planning
and Business Development
EN/SS/aas
Enclosures
<PAGE>
LICENSE AGREEMENT
This Agreement, dated as of October 16, 1996, is by and between Misonix
Incorporated, a New York corporation, with its principal place of business at
1838 New Highway, Farmingdale, New York 11735 ("Misonix"), and United States
Surgical Corporation, a Delaware corporation, with its principal place of
business at 150 Clover Avenue, Norwalk, Connecticut 06856 ("USSC").
WHEREAS, Misonix designs and develops ultrasonic medical devices and
desires to further develop its proprietary ultrasonic cutting, sealing and
dissection technology (the "Technology"); and
WHEREAS, USSC develops, manufactures, markets and sells medical products.
NOW THEREFORE, in consideration of the mutual promises, covenants,
undertakings and obligations set forth herein and for other good and valuable
consideration the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 For the purposes of this Agreement, the definitions set forth below
shall be applicable.
Affiliate - The term "Affiliate" means a corporation or other entity
controlled by, controlling or under common control with another person,
corporation or other entity. For the purpose of this Agreement, "control" means:
(i) the ownership, directly or indirectly, of 50% or more of the voting stock or
analogous interest in a corporation or other entity, by another person,
corporation or other entity; or (ii) the commonality of 50% or more of the
directors on the Board of a corporation or other entity with the directors on
the Board of another corporation or other entity; or (iii) the commonality of
50% or more of the directors on the Board of a corporation or other entity with
the executive officers, or holders of 5% or more of any class of the outstanding
capital stock, of another corporation on or other entity; or (iv) the
commonality of 50% or more of the partners (general or limited), principals, or
other controlling parties of any entity, with the partners (general or limited),
principals or other controlling parties of another entity; or (v) the existence
of any other relationship between a corporation or entity and another person,
corporation or other entity which results in effective managerial control by one
over the other, regardless of
<PAGE>
the level of commonality of the number of directors, partners, principals or
other controlling parties or whether such control is continuously exercised.
Field - The term "Field" means all human and veterinary medical
applications.
Know-How - The term "Know-How" means any and all secret or confidential
information, trade secrets, specifications, test results, analyses and data,
inventions, methods, processes, formulae, mixtures, compositions, designs,
techniques, applications, ideas or concepts, whether or not reduced to practice,
relating directly or indirectly to the Products, including, but not limited to,
technology that is or could be the subject matter of a foreign or domestic
patent or patent application, whether or not reduced to writing in a patent
application.
Net Sales - (i) The term "Net Sales" means gross sales of the Products
billed and shipped by USSC or its Subsidiaries, Affiliates, Sublicensees, or
permitted assignees, less allowances and discounts actually allowed (other than
advertising allowances, or fees or commissions to salesmen or sales
representatives), returns, billed taxes and customs duties paid by USSC, freight
and transit insurance, and shall not include samples or demonstration materials
or any sale to USSC employees for any reason other than resale. The term "Net
Sales" shall not include sales between the parties, sales by independent
distributors, or sales between USSC and its Affiliates, Subsidiaries,
Sublicensees or permitted assignees.
(ii) For the purposes of this Section 1.1(e), the term "Products" shall
also include Products sold in packages, trays, or other groups of items
consisting of one or more Products and one or more non-Products (the "Package"
or "Packages"). The Net Sales price of any Product sold in a Package shall bear
the same ratio to the Net Sales price of the Package, as the individual retail
list price of the Product bears to the sum of all individual retail list prices
of every item in the Package if all of such items were sold separately.
Patents and Trademarks - The term "Patents and Trademarks" means all
patents, patent applications, registered trademarks and trademark applications
identified on Schedule 1 hereto, all other foreign and domestic patents, patent
applications, registered trademarks and trademark applications filed by or
assigned in whole or in part to Misonix prior or subsequent to the date hereof
and covering or relating to any Invention (defined below) having application to
a Product, all foreign and domestic patents and registered trademarks issuing on
2
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any of the foregoing patent applications and trademark applications, and all
continuations, continuations-in-part, divisions, reissues, reexaminations,
additions, and renewals thereof.
Products - The term "Product" or "Products" means any instrument, device or
system usable in the Field (defined below) which involve or relate to the
Technology and embody or utilize any or all of the following in which Misonix
has or, during the term of this Agreement, acquires a proprietary interest: (i)
the inventions, methods, processes, formulae, mixtures, and compositions
disclosed and/or claimed in the Patents and Trademarks (defined below), and any
invention, method, process, formula, mixture, or composition similar or related
to, or designed for use with, any of the foregoing; (ii) every part,
subassembly, component or accessory of, and addition or improvement to, any of
the foregoing; (iii) Know-How (defined below); and (iv) all registered
trademarks and trademark applications within Patents and Trademarks and all good
will associated with such registered trademarks and trademark applications.
Sublicensee - The term "Sublicensee" means any third party to whom USSC
grants a sublicense to manufacture or sell the Products.
Subsidiary - The term "Subsidiary" means any corporation, partnership or
other entity, 50% or more of the outstanding shares of any class of stock,
general partnership interest, or other equity of which is owned by USSC; and any
operating division of USSC not separately incorporated or organized as an
independent business entity.
Trademarks - The term "Trademarks" means all registered trademarks and
trademark applications within Patents and Trademarks.
ARTICLE 2 - THE GRANT
2.1 Misonix hereby grants to USSC, and USSC hereby accepts from Misonix, an
exclusive worldwide right and license during the term of this Agreement (and for
five (5) years after the Unilateral Termination Date in the event of a
termination of this Agreement under Section 14.1(c) below), including the right
to grant sublicenses, to evaluate, develop, test, conduct clinical trials,
obtain governmental approvals, make, have made, use, practice, manufacture, have
manufactured, sell, transfer or commercialize Products and to practice and use
the Know-How and the Trademarks throughout the world (the "License").
ARTICLE 3 - IMPROVEMENTS IN THE FIELD; PRODUCT MANUFACTURE
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3.1 If, during the term of this Agreement, Misonix conceives, develops or
acquires any new invention, method, process, design, formula, mixture,
composition, modification or improvement relating to a Product, or the use or
manufacture thereof (collectively "Invention"), Misonix shall furnish full
details thereof to USSC, including all conceptual, technical and design
information, specifications, test results, analyses and data, prototypes,
drawings, formulae, mixtures, compositions and any other useful information.
Such inventions, methods, processes, formulae, mixtures, compositions,
modifications and improvements shall be deemed, without any compensation being
due thereby, included in the License except insofar as USSC, upon request by
Misonix, agrees in writing to exclude from the License all or any portion of
such inventions, methods, processes, formulae, mixtures, compositions,
modifications or improvements.
3.2 All Patents and Trademarks and all inventions, methods, processes,
formulae, mixtures, compositions, delivery systems, modifications or
improvements thereto referred to in Section 3.1 above, shall be the exclusive
property of Misonix, subject to the License hereby granted.
3.3 Misonix hereby covenants and agrees for as long as this Agreement shall
be and remain in effect, that it shall not grant to any other or different
person, or entity, any other right, option or license to evaluate, develop,
test, conduct clinical trials, obtain governmental approvals, make, have made,
use, practice, manufacture, have manufactured, sell, transfer or commercialize
any Product, or any new inventions, methods, processes, formulae, mixtures,
compositions, modifications or improvements thereon, or, to practice or use the
Know-How or to use the Trademarks, anywhere in the world.
3.4 The parties acknowledge that USSC has substantial expertise in the
manufacture of surgical products. USSC shall have the right, in its discretion,
to manufacture or have one or more third parties selected by it, in its
discretion, to manufacture the Product. However, if during the term of this
Agreement, USSC wishes to have a party other than USSC manufacture the Product,
it shall notify Misonix in writing thereof and shall for a period of thirty (30)
days thereafter negotiate with Misonix in good faith concerning a manufacturing
agreement on terms and conditions mutually acceptable to both parties in their
discretion.
ARTICLE 4 - CONSIDERATION
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4.1 The total consideration to be paid by USSC for the license and other
rights granted hereunder and the non-compete agreement pursuant to Article 8
shall be a license fee (the "License Fee"), milestone payments (the "Milestone
Payments") and a periodic royalty (the "Royalty"), all calculated and payable in
accordance with this Article 4.
4.2 The License Fee shall be in the amount of Two Hundred and Seventy Five
Thousand Dollars ($275,000) and shall be payable with execution and delivery of
this Agreement.
4.3 The Milestone Payments shall be as follows:
(a) One Hundred Thousand Dollars ($100,000) payable within three (3)
business days of USSC's completion of the first full production units of
both the hook probe and the damping/sealing probe (the "First Generation"),
but no less than fifty percent (50%) of such amount on the date which is
one year from the date hereof;
(b) One Hundred Thousand Dollars ($100,000) if USSC completes the
first full production units of the First Generation on or before March 1,
1997; and
(c) One Hundred Thousand Dollars ($100,000) payable within three (3)
business days of (i) receipt by USSC of FDA Approval to market the Product
or (ii) approval of USSC's application to market the Product in any country
in the world.
4.4 The Royalty shall be as follows:
(a) an amount equal to five percent (5%) of Net Sales of a Product
occurring during the term of this Agreement; and
(b)
(i) if USSC terminates this Agreement under Section 14.1(c) and
on such termination date (the "Unilateral Termination Date") neither
Misonix nor any Affiliate of Misonix owns or has exclusive license
rights to a issued patent covering the Product, which patent is
unexpired and has not been held invalid by a court of competent
jurisdiction from which no appeal can be taken, an amount equal to
five percent (5%) of Net Sales of a Product for a period of five (5)
years after the Unilateral Termination Date, provided, and for so long
as, in either case, USSC has the License; or
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(ii) If USSC terminates this Agreement under Section 14.1(c) and
on the Unilateral Termination Date either Misonix or any Affiliate of
Misonix owns or has exclusive license rights to a issued patent
covering the Product, which patent is unexpired and has not been held
invalid by a court of competent jurisdiction from which no appeal can
be taken, an amount equal to five percent (5%) of Net Sales of a
Product for the Unilateral Termination Patent Protected Period
(defined below), provided and for so long as, in either case, USSC has
the License. For purposes of the immediately preceding sentence the
"Unilateral Termination Patent Protected Period" shall mean the number
of years following the Unilateral Termination Date which shall be
equal to (x) five years, minus (y) the longest number of years, not to
exceed five years, which remain on the life of a patent which (aa) as
of the Unilateral Termination Date either Misonix or any Affiliate of
Misonix owns or under which either Misonix or any Affiliate of Misonix
has exclusive license rights, and (bb) which patent covers the
Product. The Unilateral Termination Patent Protected Period and USSC's
rights granted by Misonix under this Agreement to sell Products shall
in no event extend longer than five (5) years from the Unilateral
Termination Date.
4.5 The Royalty shall accrue as and when a sale subject to a royalty is
recorded by USSC in accordance with Section 1.1(e), and shall be paid to Misonix
quarterly on or before forty-five (45) days after each calendar quarter during
which a sale is recorded.
ARTICLE 5 - PAYMENT, REPORTING AND RECORDS
5.1 USSC agrees to deliver quarterly written reports to Misonix for each
three (3) month period ending on the last day of the months of March, June,
September, and December of each year, within forty-five (45) days after the end
of each such period. The report shall set forth the number of Products sold by
USSC, its Subsidiaries, Affiliates, Sublicensees and permitted assignees during
the immediately preceding calendar quarter, Net Sales applicable to all such
Products, and the amount of License Fees and Royalties (and including any
catchup adjustments) then payable to Misonix. All information contained in such
quarterly reports shall be treated as USSC's Confidential Information (defined
below) subject to Article 6.
5.2 Simultaneously with the submission of each report, USSC shall pay to
Misonix by check or bank transfer the full amount of License Fees and Royalties
due to Misonix for the report period under the terms of this
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Agreement. USSC shall maintain records in sufficient detail and, upon reasonable
notice, allow any independent certified public accounting firm of nationally
recognized standing, appointed by Misonix, and reasonably acceptable to USSC, to
examine its consolidated books and records, and the books and records of its
Sublicensee~" and permitted assignees pertaining to the Products. Such
examinations shall occur on or after February 15 of any calendar year (or, if
Misonix appoints for purposes of such examination the accounting firm employed
by USSC to conduct its regular annual audit, prior to February 15,) only during
business hours, and not more than once a year, and shall be solely for the
purpose of verifying the calculation of License Fees and Royalties due under
this Agreement. A final such examination may occur once during the year
immediately succeeding termination of this Agreement. In the event Misonix
appoints for the purpose of examining USSC's consolidated books and records the
accounting firm employed by USSC to conduct its regular annual audit, and if the
examination provided for herein is performed at substantially the same time as
such regular annual audit, the fees and expenses of the accounting firm
performing the examination shall be borne by USSC. In any other event, the fees
and expenses of the accounting firm performing the examination shall be borne by
Misonix. Unless written objection is made by Misonix and delivered to USSC
within thirty (30) days after completion of such examinations, the calculation
of License Fees and Royalties paid by USSC prior to the date of such examination
shall be final and binding on the parties, except insofar as adjusted or
corrected as a result of USSC's regular annual audit. It is understood that USSC
shall not be required to furnish or permit the examination of the identities, at
any time, of customers or prices or other information as to specific sales. Any
information provided to Misonix or its accountants pursuant hereto shall be
treated as USSC's Confidential Information subject to Article 6.
ARTICLE 6 - PROPRIETARY INFORMATION
6.1 USSC hereby represents and warrants that it will not, directly or
indirectly, disclose, either during or for three (3) years subsequent to the
term of this Agreement, any Confidential Information of Misonix to any other
person or entity, except to its attorneys and accountants as may be required in
connection with this Agreement who have been or will be instructed to maintain
its confidentiality and to third parties who shall execute binding written
agreements requiring such third parties not to disclose Confidential Information
disclosed to
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them by USSC. Notwithstanding the foregoing, USSC shall have the right to use
Confidential Information of Misonix without obtaining such written agreements in
connection with any regulatory and patent filings involving or relating to
matters covered by this Agreement.
6.2 Misonix hereby agrees that it will not, directly or indirectly,
disclose during or for three (3) years subsequent to the term of this Agreement,
any Confidential Information of USSC, to any other person or entity, except to
the Misonix's attorneys and accountants as may be required in connection with
this Agreement who have been and will be instructed to maintain its
confidentiality and, to the extent necessary in the reasonable opinion of
Misonix's counsel, to be publicly disclosed and/or included in any filings
required under applicable securities laws involving or relating to matters
covered by this Agreement, provided, that in any such event, Misonix shall
advise USSC thereof as far in advance as is reasonably possible under the
circumstances to permit USSC to comment thereon and to take any action which it
may deem appropriate to limit the scope and extent of such disclosure.
6.3 It is not intended by this Article 6 that USSC or Misonix shall be
required to obtain specific written commitments in relation to this Agreement
from materials and/or component suppliers where only specifications are
disclosed to said materials and/or component suppliers by USSC or Misonix.
6.4 For purposes of this Agreement, "Confidential Information" shall mean
verbal and written disclosures from Misonix, on the one hand, or USSC, on the
other hand, (the "Discloser") to the other party (the "Disclosee"), which
concern the Discloser including, without limitation, information which concerns
the Discloser's business, operations, products or research and development
efforts, or which concern the Products or Know-How, but shall not include
information which: (a) at the time of disclosure is published or otherwise
becomes a part of the public domain through no fault of Disclosee (but only
after, and only to the extent that, it is published or otherwise becomes a part
of the public domain); (b) Disclosee can show was known to it at the time of
disclosure, free of restriction; (c) has been or hereafter is disclosed to
Disclosee without any obligation of confidentiality by a third party who is in
lawful possession of such information and has the right to disclose it to
Disclosee; (d) has been or hereafter is disclosed by Discloser to a third party
free of any obligations of confidentiality; (e) is independently developed by
Disclosee; or (f) is
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disclosed by Disclosee pursuant to the order or requirement of a court
administrative agency or other governmental body provided that the Disclosee
promptly informs the Discloser of its intent to make such disclosure, takes all
reasonable steps to limit such disclosure and does not inhibit the Discloser in
taking whatever lawful steps the Discloser considers necessary to attempt to
preserve the confidentiality of such information. Disclosures made to Disclosee
by Discloser which are specific shall not be deemed to be within the foregoing
exceptions merely because they are embraced by general disclosures in the public
domain or in the possession of Disclosee. The existence, terms and conditions of
this Agreement shall be deemed Confidential Information of the parties to this
Agreement.
6.5 The parties hereby acknowledge and agree that any breach of this
Article 6 by Misonix, on the one hand, or USSC, on the other hand, would likely
cause irreparable injury to the other party and that such other party's remedy
at law for any such breach would be inadequate. Accordingly, the parties agree
that, in addition to any other remedies provided for herein or otherwise
available at law temporary and permanent injunctive relief and other equitable
relief may be granted in any action, suit or proceeding which may be brought by
either party to enforce the provisions of this Article 6 without the necessity
of proof of actual damage. Each party agrees promptly to seek temporary and
permanent injunctive relief against any of its directors, officers, employees or
consultants who breach the aforesaid obligations with respect to any matter
relating to this Agreement.
6.6 The provisions of this Article 6 shall survive termination of this
Agreement for three (3) years.
ARTICLE 7 - INVENTIONS
7.1 All patentable and unpatentable inventions, discoveries and ideas
("Inventions") relating to Products which are made or conceived solely by
employees of USSC or other persons or entities or retained by USSC during the
term of this Agreement shall be the property of USSC. All Inventions which are
made or conceived solely by Misonix or by other persons or entities retained by
Misonix shall be the property of Misonix, but subject to USSC's rights set forth
in this Agreement. All Inventions which are made or conceived by Misonix (and/or
other persons or entities retained by Misonix), on the one hand, and USSC
(and/or other persons or entities retained by USSC), on the other hand,
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shall be owned jointly by Misonix and USSC, but subject to USSC's rights set
forth in this Agreement.
ARTICLE 8 - NON-COMPETE
8.1 Misonix agrees that during the term of this Agreement, except as
expressly permitted by this Agreement, it shall not, directly or indirectly,
develop, manufacture, or sell any Product, or similar or related instrument,
device or system, or Know-How to any third person or entity, or to consult with
or provide technical assistance or advice to any third person or entity with
respect to the design, development, manufacture or sale of any Product or
similar instrument, device, or system without USSC's prior written consent in
USSC's sole and absolute discretion. The foregoing shall not be construed to
prohibit Misonix from engaging in its own development of Products and Know-How,
subject to the rights of USSC with respect thereto as set forth in this
Agreement. In addition, Misonix shall have the right to continue its undertaking
with Medical Device Alliance, Inc. ("MDA") in connection with the development of
devices used in ultrasonic soft tissue aspiration and related endeavors provided
it does not involve the Technology or violate Article 6 above.
8.2 The parties acknowledge and agree that any breach of this Article 8 by
Misonix would likely cause irreparable injury to USSC and that USSC's remedy at
law for any such breach would be inadequate. Accordingly, the parties agree
that, in addition to any other remedies provided for herein or otherwise
available at law, temporary and permanent injunctive relief and other equitable
relief may be granted in any action, suit or proceeding which may be brought by
USSC to enforce any provision of this Article 8 without the necessity of proof
of actual damage.
ARTICLE 9 - INDEMNIFICATION
9.1 Subject to the fulfillment by Misonix of its obligations pursuant to
Section 9.2 below, USSC agrees to defend, indemnify and hold harmless Misonix
and each of Misonix's directors, officers, employees, agents, and
representatives, from and against any claims, demands, judgments, executions,
awards, or damages, including reasonable attorney's fees and expenses incurred
by USSC in defending the same, constituting a product liability action or other
action, suit or proceeding arising as a result of the design, manufacture, use
or sale of a Product by USSC, its Subsidiaries, Affiliates, Sublicensees or
permitted assigns. In
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furtherance of the foregoing, USSC shall include Misonix as a covered person on
USSC's product liability insurance in an amount of at least $5,000,000, with
waiver of subrogation. In satisfaction of the foregoing indemnification and hold
harmless agreement, USSC may pay directly to the claimant or plaintiff in any
such claim, action, suit or proceeding, the amount of any award judgement
settlement or recovery, or execution rendered thereon, and may pay to Misonix
and Misonix's directors, officers, employees, agents, and representatives, any
other damages or reasonable expenses sustained by them in defending any such
claim, action, suit or proceeding. USSC shall have the right to conduct the
legal defense, or to enter into any settlement agreement, as it, in its sole
discretion, deems appropriate. Misonix may participate in such action, suit or
proceeding through its own attorneys at their sole cost and expense.
9.2 In the event that any claim is asserted against Misonix or Misonix's
directors, officers, employees, agents or representatives, or such person is
made a defendant in any action, suit or proceeding involving a matter which is
the subject of USSC's indemnification and hold harmless agreement as set forth
above, then within ten (10) days of such person's receipt of notice of such
event and within seven (7) days of receipt of a complaint or other formal
pleading regarding such event, such persons shall give written notice of such
claim, action, suit or proceeding to USSC, and USSC shall be given an
opportunity to assume the defense and control any settlement on behalf of such
persons. Misonix shall provide their full cooperation to USSC in connection with
the defense of such claim, action, suit or proceeding.
9.3 Misonix shall provide indemnifications to USSC with respect to product
liability (on any legal theory) actions, suits and proceedings to the same
extent as set forth above in this Article 9 for Products which Misonix may, in
Misonix's discretion, sell or transfer to USSC. For purposes of this Section
9.3, Misonix's collection of royalties hereunder shall not be deemed to
constitute the sale or transfer of Products.
9.4 The provisions of this Article 9 shall survive termination of this
Agreement.
ARTICLE 10 - FDA INTERACTION
10.1 Interaction with the regulatory agencies in any country including, but
not limited to, the U.S. Food and Drug Administration (collectively, "FDA")
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concerning the Products shall be conducted by USSC, and for purposes of any
filings with the FDA concerning the Products USSC shall be the official company
sponsor. In the event of a dispute between USSC and Misonix concerning any
matter relating to interaction with the FDA, USSC shall have final authority to
act as USSC, in its sole discretion, deems appropriate with respect to the
matter in dispute.
10.2 During the term of this Agreement, Misonix shall, at USSC's request,
assist USSC during FDA interaction concerning the Products; provided that USSC
shall reimburse Misonix for all out-of-pocket expenses, other than attorneys
fees, incurred by Misonix in providing such assistance.
10.3 Notwithstanding any provision of this Agreement to the contrary, USSC
shall not be obligated to, and shall have no liability to Misonix for failure to
evaluate, develop, test, conduct clinical trials, make, have made, use,
practice, manufacture or have manufactured any Product or practice or use the
Know-How or for failure to seek or pursue any FDA or other regulatory approvals.
USSC shall have the unqualified right, at any time to cease or suspend all
marketing efforts and all efforts to obtain FDA or other regulatory approvals.
Nothing herein shall prevent USSC from setting its own prices for Products or
determining USSC's marketing policies and practices in its sole discretion.
ARTICLE 11 - PATENT AND TRADEMARK PROSECUTION AND INFRINGEMENT
11.1 Upon or prior to the date of this Agreement, Misonix shall deliver to
USSC copies of all Patents and Trademarks in its possession or control and all
related documents and correspondence in its possession or control to the extent
not delivered by the date of this Agreement. During the term of this Agreement
and subject to Section 11.3, USSC shall, at its own expense, use reasonable
efforts to obtain and maintain patents and trademark registration based on the
Patents and Trademarks in the United States. USSC shall also assume prosecution
and all future costs incurred and due during the term of this Agreement in
connection with the Patents and Trademarks filed prior to the date hereof set
forth in Schedule 1. Misonix agrees to fully cooperate with USSC in the
preparation, filing and prosecution of all applications for letters patent and
trademark registrations which USSC may in its sole discretion file and prosecute
in the United States and foreign countries in accordance with this Section 11.1,
and in the prosecution of the Patents and Trademarks, and, in connection with
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such applications and the Patents and Trademarks, Misonix further agrees to
execute and deliver all documents which USSC may deem necessary or desirable.
11.2 Misonix, on the one hand, and USSC on the other hand, shall promptly
give written notice to the other of any apparent infringement discovered by it
with respect to any patent or trademark issuing from the Patents and Trademarks.
Such notice shall set forth the facts of the apparent infringement in reasonable
detail. USSC shall have the right to bring or settle, in USSC's sole discretion,
any action, suit or proceeding with respect to such apparent infringement at its
own expense and for its own benefit; provided, however, that after recovery by
USSC of its litigation costs, including reasonable outside attorneys fees, USSC
shall pay to Misonix at the Royalty rate set forth in Article 4 from the amount
actually received by USSC in connection with the settlement or a judgment in
such litigation. In such event, Misonix agrees to cooperate with USSC and to
join in such action, suit or proceeding as a party plaintiff if requested to do
so by USSC and to give USSC all needed information, assistance and authority to
file and prosecute such suit; provided that USSC shall reimburse Misonix for all
out-of-pocket expenses incurred by it in providing such assistance, other than
attorneys' fees and expenses, incurred by Misonix.
11.3 If USSC or Misonix receives notice of a claim, action, suit or
proceeding by a third party alleging infringement of such third party's rights
in connection with the manufacture, use or sale of a Product by USSC, its
Affiliates, Subsidiaries, Sublicensees or permitted assignees, USSC shall have
the right to conduct the legal defense, and to enter into any disposition with
respect thereto, as USSC in its sole discretion deems desirable. Misonix shall
fully cooperate with USSC in its defense of such infringement claim, provided
that USSC shall reimburse Misonix for all out-of-pocket expenses, other than
attorneys' fees and expenses, incurred by it in providing such cooperation.
11.4 Subject to the fulfillment by Misonix of its obligations pursuant to
Section 11.6 below, USSC shall defend Misonix against a third party infringement
claim which results from the manufacture, use or sale of a Product by USSC, its
Affiliates, Subsidiaries, Sublicensees or permitted assignees, and indemnify
Misonix against the cost of such defense undertaken by USSC, including
reasonable attorneys' fees and court costs, and damages awarded or amounts paid
in settlement in any such action. However, notwithstanding the foregoing, if
Misonix had actual knowledge on or prior to the date of the Development and
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Option Agreement of a claim by a third party for infringement, USSC shall have
no obligation to defend or indemnify Misonix. USSC shall at all times keep
Misonix apprised of the status of any such claim, action, suit or proceeding and
allow Misonix to participate in all major decisions regarding the conduct of
such litigation including without limitation any decision to settle or pursue
the case to trial, provided, however, that USSC shall retain exclusive authority
to make all decisions regarding the conduct of such litigation or the
negotiation and consummation of any settlement.
11.5 The cost of USSC's defense of any claim referred to in Section 11.4
above, and any damages awarded or any amount paid in settlement or other
disposition of such claim, shall be set off against and, thereby, reduce, as set
forth in this Section 11.5, fifty percent (50%) the outstanding and future
Royalties due from USSC to Misonix.
(a) Except with respect to circumstances set forth in Section 11.5(b)
during the pendency of any such claim, action, suit or proceeding, USSC shall
have the right to deposit with a bank escrow agent the payments then due and
thereafter becoming due under the terms of this Agreement. USSC shall instruct
such escrow agent to deposit such payments in an interest-bearing account and to
release the same to the third party(s), if any, awarded damages in such action,
suit or proceeding pursuant to such award of damages, or to the third party(s),
if any, with whom USSC settles pursuant to this Section 11.5(a), to the extent
required by the terms of such settlement, and pay USSC's legal costs and
expenses as and when billed to USSC in connection with any such claim, action,
suit or proceeding and the balance, if any, of the principal and interest to
Misonix after final determination of and any reduction for all of the foregoing.
Such future Royalties shall be subject to escrow in accordance with this Section
11.5(a).
(b) Notwithstanding Section 11.5(a) above, in the event that Misonix
commits or has committed any fraud upon USSC in connection with this Agreement
or misrepresentation or breach of warranty of any matter which is the subject of
any of Misonix 's representations and warranties contained herein, in addition
to all other remedies available to it at law or in equity, USSC shall have the
right upon the receipt of any claim or the commencement of any action, suit or
proceeding, by either party hereto or any third party, relating to or arising
gout of such fraud or misrepresentation or breach of warranty, deposit with a
bank escrow agent the payments then due and thereafter becoming due
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under the terms of this Agreement. USSC shall instruct such escrow agent to
deposit such payment in an interest-bearing account and to release the same to
the third party(s), if any, awarded damages in such action, suit or proceeding
pursuant to such award of damages or to the third party(s), if any, with whom
USSC settles pursuant to this Section 11.5(b), to the extent required by the
terms of such settlement, and to pay USSC's legal costs and expenses as and when
billed to USSC in connection with any such claim, action, suit or proceeding and
the balance, if any, of the principal and interest to Misonix after final
determination if and any reduction for all of the foregoing, the liability of
Misonix and the Principals for such award, amounts paid in settlement and USSC's
legal costs and expenses shall be up to the entire amount in escrow pursuant to
this Section 11.5(b), plus all future Royalties payable by USSC under this
Agreement. Such future Royalties shall be subject to escrow in accordance with
this Section 11.5(b). Notwithstanding the foregoing, the parties agree that any
such withholding of payments shall not limit the liability of Misonix for
damages in the event of any fraud, misrepresentation or breach of warranty
specified in this Section 11.5(b) or in the event of any other breach of this
Agreement by any of them, and shall not affect any right or license granted to
USSC hereunder or any other provisions of this Agreement or any party's
available remedies.
11.6 In the event that any claim is asserted against Misonix or USSC, or
any of their respective officers, directors, employees, agents or
representatives, or such person is made a party defendant in any action or
proceeding involving a matter which is the subject of USSC's indemnification and
hold harmless agreement as set forth above, or Misonix becomes the subject of a
claim of infringement against USSC, its Subsidiaries, Affiliates, Sublicensees
or permitted assignees as a result of their manufacture, use or sale of a
Product, then within 10 days of receipt by any Misonix or by USSC of notice of
any such event, and within 7 days of such party's receipt of a written complaint
or other formal pleading regarding any such event, such party shall give the
other party hereto written notice of such claim, action, suit, proceeding,
patent or patent application.
ARTICLE 12 - RIGHT OF FIRST REFUSAL
12.1 Misonix hereby grants to USSC, and USSC hereby accepts, the right of
first refusal set forth herein. In accordance with such right of first
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refusal, Misonix hereby agrees that during the term of this Agreement and except
pursuant to this Article 12, it shall not, directly or indirectly transfer, by
sale, license or otherwise, to any third person or entity, a) any interest in
any of the Patents and Trademarks, a Product or the Know-How. No such sale,
license or other transfer shall be made without the prior written consent of
USSC, which may be withheld in its sole and absolute discretion. Prior to
offering or responding to an offer for such sale, license or other transfer,
Misonix hall have complied with all of their respective obligations under this
Agreement to be complied with prior to such offer or response. Prior to any
sale, license or other transfer, Misonix shall obtain a bona fide written offer
(the "Outside Offer") from such third party describing the subject of such sale,
licensee or other transfer, the interest to be sold, licensed or otherwise
transferred, and a stated cash consideration at which the third party offers to
acquire, and Misonix desires to sell, license or otherwise transfer, said
interest. After obtaining the Outside Offer, Misonix shall promptly, and before
accepting the Outside Offer, deliver to USSC an offer, irrevocable' for forty
five (45) days from its receipt, to sell, license or otherwise transfer to USSC
the interest which is the subject of the Outside Offer for the cash
consideration and upon all other terms and conditions stated in the Outside
Offer. A copy of the Outside Offer shall accompany the offer to USSC. If USSC
accepts such offer within said forty five (45) days, Misonix shall transfer the
relevant interest to USSC pursuant to the terms and conditions of such offer.
Otherwise, subject to the confidentiality and non-compete provisions of Articles
6 and 10, Misonix may transfer such interest to the third party who made the
Outside Offer in accordance with its terms and conditions during the sixty (60)
days immediately following expiration of the aforesaid forty-five (45) day
period. Notwithstanding the foregoing, nothing herein contained shall be
construed to limit the right of Misonix (or to give USSC any rights with respect
to any sale of shares of capital stock of Misonix or the merger or combination
of Misonix with or into any~other firm, corporation or entity, but the rights of
USSC set forth in this Agreement shall survive any such sale, merger or
combination. Notwithstanding, Misonix shall not have the right, and nothing in
this Section 12.1 or anything else in this Agreement shall be construed to
authorize Misonix to sell, license or otherwise transfer any of the license or
other rights granted to USSC under this Agreement.
16
<PAGE>
12.2 The parties acknowledge and agree that any breach of this Article 12
by Misonix would likely cause irreparable injury to USSC and that USSC's remedy
at law for any such breach would be inadequate. Accordingly, the parties agree
that in addition to any other remedies provided for herein or otherwise
available at law, temporary and permanent injunctive relief and other equitable
relief may be granted in any action, suit or proceeding which may be brought by
USSC to enforce any provision of this Article 12 without the necessity of proof
of actual damages.
ARTICLE 12A - DEVELOPMENT FUNDING
12A.1 Subject to the terms of this Section 12A.1, development funding for
Products which USSC may in its sole discretion desire to have developed by
Misonix hereunder ("Development Funding") shall be at the cost of USSC. Prior to
Misonix incurring any Development Funding costs or expenses, Misonix shall
notify USSC in writing of the proposed project and proposed expenditures in
reasonable detail and USSC shall have a period of ten business days within which
to approve or reject the same, in writing, in USSC's sole discretion. If such
proposed expenditures are approved by USSC, the acceptance by USSC shall be
accompanied by a check to Misonix in the approved amount of the agreed upon
Development Funding. If such proposed expenditures are rejected, such rejection
shall be reasonably detailed. Misonix shall maintain books and records
concerning Development Funding during the term of this Agreement and for five
(5) years thereafter. USSC and its representatives shall have the right to
review such books and records during normal business hours upon prior notice.
Nothing hereinabove in this Section 12A.1 commits USSC to any Development
Funding or prohibit or limit USSC from engaging in development of Products by
itself or with any third party at the cost of USSC.
12A.2 The provisions of this Article 12A shall survive termination of this
Agreement.
ARTICLE 13 - REPRESENTATIONS AND WARRANTIES
13.1 Each of the parties hereby represents and warrants that (a) it has
full right, power and authority to enter into and by bound by the terms and
conditions of this Agreement, to transfer the rights and to carry out their
respective obligations under this Agreement, without the approval or consent of
any other person or entity; (b) the entering into of this Agreement, the
transfer of rights and the carrying out of their respective obligations under
this Agreement
17
<PAGE>
is not prohibited, restricted or otherwise limited by any contract, agreement or
understanding entered into by any of them or Misonix's directors, officers,
employees or consultants, or by which any of such persons or entities is bound,
with any other person or entity, including, without limitation, any federal,
state or local governmental body, agency or authority; (c) there is no contract,
agreement or understanding entered into by them or Misonix's directors,
officers, employees or consultants, or by which any of such persons or entities
is bound, which if enforced,, terminated or modified, would be in derogation of,
contrary to, or adversely affect the rights acquired or to be acquired hereunder
by USSC; and (d) there is no action, suit, proceeding or investigation pending
or currently threatened against any of them which, if adversely determined,
would restrict or limit the right of any of them to enter into this Agreement,
transfer the rights or carry out their respective obligations under this
Agreement.
13.2 Misonix hereby further represents, warrants and covenants that (a) it
has not granted, assigned, sold or otherwise transferred, and it is not
obligated to grant, assign, sell or otherwise transfer, and they shall not,
except to the extent and in the manner expressly permitted by this Agreement,
grant, assign, sell or otherwise transfer during the term of this Agreement any
right, title, interest, license, or option, in, to, and under any Patents and
Trademarks, Products, Know-How to any other person or entity including, without
limitation, any federal, state or local governmental body, agency or authority;
(b) no other person or entity has, or during the term of this Agreement shall
have, the right to acquire, except to the extent and in the manner expressly
permitted by this Agreement, any right, title, interest, license or option in,
to or under any Patents and Trademarks, Products, Know-How; (c) it has not filed
any patent application or trademark application or been issued or assigned any
patent or registered trademark on or prior to the date of this Agreement for any
instrument, device or system similar to a Product, other than the Patents and
Trademarks; and (d) to the best of their knowledge, without special review for
this purpose, USSC's manufacture, use or sale of a Product substantially as
described in the Patents and Trademarks which exist as of the date of the
Development and Option, Agreement dated as of August 27, 1996 by and between
Misonix and USSC, would not infringe the patent rights or trademark rights of
any third person or entity.
18
<PAGE>
13.3 All representations, warranties and covenants made by the parties
shall be considered to have been relied upon by the other parties hereto
regardless of any discussion, review or investigation made by, or on behalf of1
the other parties, and shall survive termination of this Agreement.
13.4 The provisions of this Article 12 shall survive termination of this
Agreement.
ARTICLE 14 - TERM AND TERMINATION
14.1 The term of this Agreement shall commence upon the date hereof and
shall terminate upon last of the following:
(a) With respect to all of the provisions of this Agreement (i) insofar as
the same relate to Products which embody at least one valid claim included in a
patent within the Patents and Trademarks, the last day upon which all such valid
claims covering an invention embodied in such Product expire, or (ii) twenty
(20) years, whichever is later;
(b) Upon the written agreement of USSC and Misonix; and
(c) Notwithstanding any other provision of this Agreement, USSC at all
times shall have the right for any or no reason to terminate this Agreement upon
ten (10) days prior written notice to Misonix. In the event USSC effects
termination in accordance with this Section 14.1(c), there shall not be due to
the Principals any termination penalty or similar payment but, in such event,
the parties shall have the rights and obligations set forth in Section 4.4(b)
above.
ARTICLE 15 - RIGHTS AFTER TERMINATION
15.1 All rights and obligations of the parties which accrue on or before
the effective termination date shall be fully enforceable by either party after
termination.
15.2 If this Agreement terminates and, as a result thereof, USSC is
required to cease making Products at the end of the term of this Agreement or
after the Unilateral Termination Period, as the case may be, USSC may,
nonetheless, for a period not to exceed six (6) months after such termination,
and subject to the periodic royalty provisions set forth herein, dispose of
inventory of Products, complete and dispose of any Products in the process of
manufacture, and utilize materials then on order.
15.3 All Know-How, inventions, developments and improvements, whether
patentable or not, are and, after termination of this Agreement, shall (i)
remain the property of Misonix insofar as the same were conceived, made and
19
<PAGE>
developed solely by Misonix prior to, or in performance of, this Agreement; and
(ii) the property of USSC insofar as the same were conceived, made and developed
solely by USSC prior to, or in performance of, this Agreement or jointly by
Misonix and USSC ("Joint Results") in the performance of this Agreement. USSC
shall retain exclusive ownership of all Know-How, inventions, developments and
improvements which were its property as of or prior to the date of this
Agreement or which were conceived, made and developed during the term of the
Agreement solely by USSC, whether or not the same is necessary to reduce to
practice any Joint Results.
15.4 Following termination of this Agreement, USSC shall assign to Misonix,
to the extent permissible by law, all filings with the FDA concerning Products
on which a royalty would be payable hereunder.
15.5 The provisions of this Article 15 shall survive termination of this
Agreement.
ARTICLE 16 - WAIVER
16.1 No waiver by any party, express or implied, or any breach of any term,
condition, or obligation of this Agreement by any party shall be construed as a
waiver of any subsequent breach of any term, condition, or obligation of this
Agreement, whether of the same or different nature.
ARTICLE 17 - NOTICES
17.1 Any notice required or permitted to be given hereunder shall be in
writing and shall be mailed by certified mail, return receipt requested, or
delivered by messenger or air courier, and all payments shall be delivered, to
the party to whom such notice or payment is required or permitted to be given at
its address set forth as follows: if given to Misonix, to: Misonix Incorporated,
1838 New Highway, Farmingdale, New York 11735; or, if given to USSC, to: Attn.:
Thomas R. Bremer, Vice President and General Counsel, United States Surgical
Corporation, 150 Glover Avenue, Norwalk, CT 06856. Any such notice shall be
considered given when delivered, as indicated by signed receipt or other written
delivery record. A party may change that address to which notice to it is to be
given by notice as provided herein.
ARTICLE 18- ASSIGNMENT
18.1 Neither this Agreement nor the performance of any part hereof may be
assigned or transferred by any one or
20
<PAGE>
more of Misonix and any one or more of the Principals, on the one hand, and
USSC, on the other hand, without the prior written consent of the other party in
its sole and absolute discretion, except that (a) USSC may assign this Agreement
and the performance of any part hereof without such consent to an Affiliate of
USSC, and (b) USSC may enter into one or more sublicenses with any third persons
or entities on terms and conditions as USSC shall determine in its sole and
absolute discretion provided, however, that any such sublicense is not
inconsistent with the terms of this Agreement.
ARTICLE 19 - CONSTRUCTION
19.1 This Agreement shall be construed and enforced in accordance with the
Laws of the State of New York and any action, suit or proceeding brought under
this Agreement shall be brought only in, and the parties hereby consent to the
jurisdiction of, the federal and state courts located in the State of New York.
19.2 The provisions of this Article 19 shall survive termination of this
Agreement.
ARTICLE 20 - ENTIRE UNDERSTANDING/AMENDMENT
20.1 This Agreement and the attached schedules constitute the entire
understanding and agreement between the parties, and supersedes all previous
agreements (whether written or oral) concerning the subject matter hereof. This
Agreement shall not be modified, amended, or supplemented except by a written
document executed by both parties.
ARTICLE 21 - HEADINGS
21.1 The headings in this document are for information purposes only and
are not meant to have any legal effect in interpreting this document.
ARTICLE 22 - SEVERABILITY; FURTHER ASSURANCES
22.1 The invalidity or unenforceability of any Articles, Section or
provision of this document shall not affect the validity or enforceability of
any one or more of the other Articles, Sections or provisions.
22.2 The parties hereto will execute any further instruments or perform any
acts which are or may be necessary to effectuate each of the terms and
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
21
<PAGE>
MISONIX INCORPORATED
By: /s/ Joseph Librizzi
Name: JOSEPH LIBRIZZI
Title: PRES & CEO
UNITED STATES SURGICAL CORPORATION
By: /s/ Eitan Nahum
Name: EITAN NAHUM
Title: V.P., Strategic Planning &
Business Development
22
<PAGE>
SCHEDULE I
Patent/Trademark
Title Country No. Status Date
- ----- ------- ---------------- ------ ----
23
<PAGE>
EXHIBIT 10(aa)
AMENDMENT NO. 1 TO UNDERWRITER'S WARRANT AGREEMENT
Amendment dated as of January 23, 1992 ("Amendment") to a certain
Underwriter's Warrant Agreement dated as of January 23, 1992 (the "Original
Warrant Agreement") among Misonix, Inc. (originally called "Medsonic, Inc."), a
New York corporation (the "Company"), and Josephthal Lyon & Ross Incorporated, a
New York corporation (referred to as the "Underwriter").
WITNESSETH
WHEREAS, pursuant to the Original Warrant Agreement, the Underwriter was
issued warrants (the "Underwriter's Warrants") entitling it to purchase from the
Company (A) at $10.725 per share, up to an aggregate of 160,000 shares of Common
Stock, $.01 par value of the Company (the "Underwriting Shares"), and (B)
160,000 redeemable warrants at a price of $.165 per redeemable warrant (the
"Warrants"), each Warrant entitling the Holder to purchase one share of the
Company's Common Stock (the "Shares") at an exercise price of $12.87 per Share
until 5:30 pm, New York Time on January 23, 1997 (the "Warrant Expiration
Date"); and
WHEREAS, the Underwriter has not exercised the Underwriter's Warrants but
has transferred the same to the persons whose names are hereinafter set forth on
the signature page (the "Holder(s)"),
WHEREAS, the Underwriter, the Holders and the Company have certain
differences of opinion as to the rights of the Underwriter and the Holder(s)
under the Original Warrant Agreement and, in full settlement and compromise of
such differences, the parties hereto have agreed to modify the Original Warrant
Agreement, the Underwriter's Warrants and the Warrants, as hereinafter provided
in this Amendment and, as so modified, to provide for the modification of
certain of the terms and conditions in exercise of the Underwriter's Warrants
and issuance of the underlying securities to the Holder(s);
NOW, THEREFORE, in consideration of the following and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. Section 1 of the Original Warrant Agreement is hereby deleted in its
entirety and replaced as follows:
"1. Grant. (a) The Holder is hereby granted the right to purchase,
at any time until 5:30 P.M., New York time, on February 3, 1997,
up
<PAGE>
to an aggregate of 160,000 Shares at an exercise price of $1.00
per Share subject to the terms and conditions of this Agreement.
(b) The Holder is hereby granted the right to purchase, at any
time until 5:30 P.M., New York time, on May 31, 1998 (the
"Expiration Date"), up to an aggregate of 160,000 Shares
issuable upon the exercise of 160,000 Redeemable Warrants. No
Redeemable Warrant may be exercised after 5:30 p.m. on the
Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void. Each
Redeemable Warrant is exercisable to purchase one Share at an
initial exercise price of $6.00. Except as set forth herein and
except that the Redeemable Warrants are not subject to call or
redemption by the Company, the Shares and Redeemable Warrants
are in all respects identical to the shares of Common Stock and
Redeemable Warrants purchased by the Underwriter for resale to
the public pursuant to the terms and provisions of the
Underwriting Agreement."
2. Section 5 of the Original Warrant Agreement is hereby deleted in its
entirety and replaced as follows:
"5. Restriction on Transfer of Warrants. The Holder of the Shares
and a Redeemable Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Warrant Securities are being
acquired as an investment and not with a view to the
distribution thereof."
3. Section 6 of the Original Warrant Agreement is hereby deleted in its
entirety and replaced as follows:
"6. Exercise Price.
ss.6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial Exercise Price of each
Redeemable Warrant shall be $6.00 per Share. The adjusted
Exercise Price shall be the price which shall result from time
to time from any and all adjustments of the initial Exercise
Price in accordance with the provisions of Section 8 hereof.
ss.6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial Exercise Price or the adjusted Exercise Price, depending
upon the context."
4. Sections 8.1, 8.2, and 8.8 of the Original Warrant Agreement are hereby
deleted in their entirety.
<PAGE>
5. Section 8.9 of the Original Warrant Agreement is hereby deleted in its
entirety and replaced as follows:
"8.9 Redemption of Redeemable Warrants. Notwithstanding anything to
the contrary contained in the Redeemable Warrant Agreement or
elsewhere, the Redeemable Warrants cannot, under any
circumstances, be redeemed by the Company, and shall remain in
full force and effect, notwithstanding the exercise or
expiration of the 1,600,000 Redeemable Warrants originally
distributed to the public on January 23, 1992."
6. Section 13 of the Original Warrant Agreement is hereby deleted in its
entirety and replaced as follows:
"13. Redeemable Warrants. The form of the certificate representing
the Redeemable Warrants (and the form of election to purchase
shares of Common Stock upon the exercise of the Redeemable
Warrants and the form of the assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit A
annexed hereto."
7. Section 17 of the Original Warrant Agreement is hereby amended by
deleting the dates "January 23, 1999" and "January 23, 2005" on the second and
third lines thereof, and replacing them with the dates "May 31, 2000" and "May
31, 2006" respectively.
8. The individuals set forth on the signature page hereof hereby represent
and warrant to the Company as follows:
(a) they have not attempted to transfer any Warrant Securities and,
to the best of their knowledge, there are no prior claims on any
of their Warrant Securities; and
(b) they currently intend to exercise their Warrants pursuant to the
"cashless exercise" provision of Section 3.2 of the Original
Warrant Agreement.
9. Governing Law and Jurisdiction.
(a) This Amendment and each Redeemable Warrant issued hereunder
shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to
the rules of said State governing the conflicts of laws.
(b) The Company, the Underwriter and the Holders hereby agree that
any action, proceeding or claim against it arising out of, or
relating
<PAGE>
in any way to, this Amendment shall be brought and enforced in
the courts of the State of New York or of the United States of
America for the Southern District of New York, and irrevocably
submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction
or inconvenient forum. Any such process or summons to be served
upon any of the Company, the Underwriter and the Holders (at the
option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof; by registered or
certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 14 hereof.
Such mailing shall be deemed personal service and shall be legal
and binding upon the party so served in any action, proceeding
or claim.
10. Entire Agreement: Modification. This Amendment (including Exhibit A
hereof) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
11. Severability. If any provision of this amendment shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision thereof.
12. Captions. The caption headings of the paragraphs of this Amendment are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this instrument and shall be given no substantive
effect.
13. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed but one and the same original
instrument.
14. Effectiveness of Original Warrant Agreement. Except as expressly
amended by this Amendment, the Original Warrant Agreement shall remain
unmodified and in full force and effect.
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30P.M. NEW YORK TIME, MAY 31, 1998
NO. W-
___________Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _________, or registered assigns,
is the registered holder of __________ Warrants to purchase initially, at any
time until 5:30 p m. New York time on May 31, 1998 ("Expiration Date"), up to
160,000 fully-paid and non-assessable shares of common stock, $.01 par value
("Common Stock") of Misonix, Inc., a New York corporation (the "Company"), at
the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $6.00 per share of Common Stock upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of January 23, 1992 between the Company and Josephthal Lyon &
Ross Incorporated ("Josephthal"), as amended by that certain Amendment No. 1 to
Underwriter's Warrant Agreement dated as of January 23, 1997 by and among the
Company, Josephthal, and the holders of the Underwriter's Warrants (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company.
<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference herein and made a part of
this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the ocurrence of certain events,
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof; and of any distribution to the holder(s) hereof; and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, as of the day and year first above written.
Attest: MISONIX, INC.
/s/ [illegible] By:/s/ Joseph Librizzi
- ----------------------- ------------------------
Secretary Joseph Librizzi
President
JOSEPHTHAL LYON & ROSS
INCORPORATED
By:
---------------------
Dan Purjes
Chairman
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, as of the day and year first above written.
Attest: MISONIX, INC.
/s/ By:
- ----------------------- ------------------------
Secretary Joseph Librizzi
President
JOSEPHTHAL LYON & ROSS
INCORPORATED
By: /s/ Dan Purjes
---------------------
Dan Purjes
Chairman
<PAGE>
No. of Underwriter's
Holder(s) Warrants
- --------- ---------------------
/s/ Lawrence Rice 9,414
- --------------------------
Name: Lawrence Rice
Address:
/s/ Dan Purjes 88,031
- --------------------------
Name: Dan Purjes
Address:
/s/ Paul Fitzgerald 444
- --------------------------
Name: Paul Fitzgerald
Address:
/s/ Michael Loew 3,701
- --------------------------
Name: Michael Loew
Address:
/s/ Charles Roden 6,355
- --------------------------
Name: Charles Roden
Address:
12,635
- --------------------------
Name: Estate of Peter Sheib
Address:
2,675
- --------------------------
Name: Averell Satloff
Address:
<PAGE>
No. of Underwriter's
Holder(s) Warrants
- --------- ---------------------
/s/ Lawrence Rice
- --------------------------
Name: Lawrence Rice
Address:
/s/ Dan Purjes
- --------------------------
Name: Dan Purjes
Address:
- --------------------------
Name: Paul Fitzgerald
Address:
/s/ Michael Loew
- --------------------------
Name: Michael Loew
Address:
/s/ Charles Roden
- --------------------------
Name: Charles Roden
Address:
- --------------------------
Name: Estate of Peter Sheib
Address:
/s/ Averell Satloff
- --------------------------
Name: Averell Satloff
Address:
<PAGE>
No. of Underwriter's
Holder(s) Warrants
- --------- ---------------------
- --------------------------
Name: Lawrence Rice
Address:
- --------------------------
Name: Dan Purjes
Address:
- --------------------------
Name: Paul Fitzgerald
Address:
- --------------------------
Name: Michael Loew
Address:
- --------------------------
Name: Charles Roden
Address:
/s/ Stuart Ross executor 12,635
- --------------------------
Name: Estate of Peter Sheib
Address:
- --------------------------
Name: Averell Satloff
Address:
<PAGE>
No. of Underwriter's
Holder(s) Warrants
- --------- ---------------------
/s/ Matthew Balk 7,845
- ----------------------------
Name: Matthew Balk
Address:
16,000
- ----------------------------
Name: Mel Forman
Address:
/s/ Roger Baumberger 10,000
- ----------------------------
Name: Roger Baumberger
Address:
/s/ Martin Magida 1,000
- ----------------------------
Name: Martin Magida
Address:
/s/ Frank Garriton 700
- ---------------------------
Name: Frank Garriton
Address:
600
- ---------------------------
Name: Jean Orr
Address:
600
- ---------------------------
Name: Peter Labe
Address:
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
________ shares of Common Stock
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Misonix, Inc. in
the amount of $__________ all in accordance with the terms hereof. The
undersigned requests that a certificate for such securities be registered in the
name of ___________________ whose address is ___________________ and that such
Certificate be delivered to _______________ whose address is _________________.
Dated:
Signature ________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
__________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase;
____________ shares of Common Stock
all in accordance with the terms of Section 3.2 of the Underwriter's Warrant
Agreement dated as of January 23, 1992, as amended as of January 23, 1997
between Misonix, Inc. and Josephthal Lyon & Ross Incorporated. The undersigned
requests that a certificate for such Securities be registered in the name______
whose address is ______________ and that such Certificate be delivered to
____________________ whose address is ___________.
Dated:
Signature ________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
__________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder
if such holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________________ hereby
sells, assigns and transfers unto
____________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _____________ Signature ________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
__________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
_________________________________________________
Signature Guaranteed
<PAGE>
EXHIBIT 10bb
MISONIX, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. GENERAL
1.1 Purpose Of The Plan
The purpose of the MISONIX, INC. 1996 Non-Employee Director Stock
Option Plan (the "Plan") is to enable MISONIX, INC. (the "Company") to
attract and retain persons of exceptional ability to serve as directors
of the Company and to align the interests of directors and shareholders
in enhancing the value of the Company's common stock, par value $.01
per share (the "Common Stock").
1.2 Administration Of The Plan
The Plan shall be administered by the Board of Directors (the "Board")
which shall have full and final authority in its discretion to
interpret, administer and amend the provisions of the Plan; to adopt
rules and regulations for carrying out the Plan; to decide all
questions of fact arising in the application of the Plan; and to make
all other determinations necessary or advisable for the administration
of the Plan.
1.3 Eligible Participants
Commencing March 27, 1996 each member of the Board who is not an
employee of the Company or any of its subsidiaries shall be a
participant (a "Participant") in the Plan.
1.4 Grants Under The Plan
Grants under the Plan shall be in the form of stock options as
described in Section II (an "Option" or "Options").
1.5 Shares
The aggregate number of shares of Common Stock, including shares
reserved for issuance pursuant to the exercise of Options, which may be
issued under the terms of the Plan may not exceed 750,000 shares and
hereby are reserved for such purpose. Whenever any outstanding grant or
portion thereof expires, is canceled or forfeited or is otherwise
terminated for any reason without having been exercised, the Common
Stock allocable to the expired, canceled, forfeited or otherwise
terminated portion of the grant may again be the subject of further
grants hereunder.
Notwithstanding the foregoing, the number of shares of Common Stock
available for grants at any time under the Plan shall be reduced to
such lesser amount as may be required pursuant to the methods of
calculation necessary so that the exemptions provided pursuant to Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the
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"Exchange Act") will continue to be available for transactions
involving all current and future grants. In addition, during the period
that any grants remain outstanding under the Plan, the Committee may
make good faith adjustments with respect to the number of shares of
Common Stock attributable to such grants for purposes of calculating
the maximum number of shares of Common Stock available for the granting
of future grants under the Plan, provided that following such
adjustments the exemptions provided pursuant to Rule 16b-3 under the
Exchange Act will continue to be available for transactions involving
all current and future grants.
1.6 Definitions
The following definitions shall apply to the Plan:
(a) "Disability" shall have the meaning Provided in the Company's
applicable disability plan or, in the absence of such a
definition, when a Participant becomes totally disabled (as
determined by a physician mutually acceptable to the
Participant and the Company) before termination of his or her
service on the Board if such total disability continues for
more than three (3) months.
(b) "Fair Market Value" of the Common Stock on any day shall be
(a) if the principal market for the Common Stock is a
national securities exchange, the average between the high
and low sales prices of the Common Stock on such day as
reported by such exchange or on a consolidated tape
reflecting transactions on such exchange, (b) if the
principal market for the Common Stock is not a national
securities exchange and the Common Stock is quoted on the
National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), and (i) if actual sales price
information is available with respect to the Common Stock,
the average between the high and low sales prices of the
Common Stock on such day on NASDAQ, or (ii) if such
information is not available, the average between the
highest bid and the lowest asked prices for the Common Stock
on such day on NASDAQ, or (c) if the principal market for
the Common Stock is not a national securities exchange and
the Common Stock is not quoted on NASDAQ, the average
between the highest bid and lowest asked prices for the
Common Stock on such day as reported on the NASDAQ OTC
Bulletin Board Service or by National Quotation Bureau,
Incorporated or a comparable service; provided that if
clauses (a), (b) and (c) of this Paragraph are all
inapplicable, or if no trades have been made or no quotes
are available for such day, the fair market value of the
Common Stock shall be determined by the Board by any method
consistent with applicable regulations adopted by the
Treasury Department relating to stock options. The
determination of the Board shall be conclusive in
determining the fair market value of the Common Stock.
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2. OPTIONS
2.1 Terms And Conditions Of Options
Each Participant shall be granted such number of Options as determined
from time to time during the term of the Plan by the Board.
2.2 Nonqualified Stock Options
The terms of the Options shall, at the time of grant, provide that the
Options will not be treated as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
2 3 Option Price
The Option price per Share shall be determined by the Board of
Directors but shall not be less than the Fair Market Value of the
Common Stock on the date the Option is granted.
2.4 Term And Exercise Of Options
(a) The term of an Option shall not exceed ten (10) years from the date
of grant. Except as provided in this Section 2.4, after a Participant
ceases to serve as a director of the Company for any reason, including,
without limitation, retirement, or any other voluntary or involuntary
termination of a Participant's service as a director (a "Termination"),
the unexercisable portion of an Option shall immediately terminate and
be null and void, and the unexercised portion of any outstanding
Options held by such Participant shall terminate and be null and void
for all purposes after three (3) months have elapsed from the date of
the Termination unless extended by the Board, in its sole discretion,
within thirty (30) days from the date of the Termination. Upon a
Termination as a result of death or Disability, any outstanding Options
may be exercised by the Participant or the Participant's legal
representative within twelve (12) months after such death or
Disability; provided, however, that in no event shall the period extend
beyond the expiration of the Option term.
(b) Options shall become exercisable in whole or in part immediately
from the date of grant. In no event, however, shall an Option be
exercised after the expiration of ten (10) years from the date of
grant.
(c) A Participant, by written notice to the Company, may designate one
or more persons (and from time to time change such designation)
including his legal representative, who, by reason of his or her death,
shall acquire the right to exercise all or a portion of the Option. If
no designation is made before the death of the Participant, the
Participant's Option may be exercised by the personal representative of
the Participant's estate or by a person who acquired the right to
exercise such option by will or the laws of descent and distribution.
If the person with exercise rights desires to
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exercise any portion of the Option, such person must do so in
accordance with the terms and conditions of this Plan.
2.5 Notice Of Exercise
When exercisable pursuant to the terms of the Plan and the governing
stock option agreement, an Option shall be exercised by the
Participant as to all or part of the shares subject to the Option by
delivering written notice of exercise to the Company at its principal
business office or such other office as the Company may from time to
time direct, (a) specifying the number of shares to be purchased, (b)
accompanied by cash or a certified check payable to the Company in an
amount equal to the full exercise price of the number of shares being
exercised or with previously acquired shares of Common Stock having an
aggregate Fair Market Value, on the date of exercise, equal to the
aggregate exercise price of all Options being exercised (provided that
such shares were not acquired less than six (6) months prior to such
exercise date) or with any combination of cash, certified check or
shares of Common Stock, and (c) containing such further provisions
consistent with the provisions of the Plan as the Company may from
time to time prescribe. No Option may be exercised after the
expiration of the term specified in Section 2.4 hereof.
2.6 Limitation Of Exercise Periods
The Board may limit the time periods within which an Option may be
exercised if a limitation on exercise is deemed necessary in order to
effect compliance with applicable law.
3. GENERAL PROVISIONS
3.1 General Restrictions
Each grant under the Plan shall be subject to the requirement that if
the Board shall determine, at any time, that (a) the listing,
registration or qualification of the shares of Common Stock subject or
related thereto upon any securities exchange or under any state or
federal law, or (b) the consent or approval of any government
regulatory body, or (c) an agreement by the Participant with respect
to the disposition of shares of Common Stock, is necessary or
desirable as a condition of, or in connection with, the granting or
the issuance or purchase of shares of Common Stock thereunder, such
grant may not be consummated in whole or in part unless such listing,
registration, qualification, consent, approval or agreement shall have
been effected or obtained free of any conditions not acceptable to the
Board.
3.2 Adjustments For Changes In Capitalization
Notwithstanding any other provisions of the Plan, in the event of any
change in the outstanding Common Stock by reason of a stock dividend,
recapitalization, merger or consolidation in which the Company is the
surviving corporation, split-up, combination or exchange of shares or
the like, the aggregate number and kind of shares subject to the
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Plan, the aggregate number and kind of shares subject to each
outstanding option and the exercise price thereof shall be
appropriately adjusted by the Board, whose determination shall be
conclusive.
In the event of (a) the liquidation or dissolution of the Company, (b)
a merger or consolidation in which the Company is not the surviving
corporation, or (c) any other capital reorganization in which more
than 50% of the shares of Common Stock of the Company entitled to vote
are exchanged, any outstanding options shall then remain exercisable
within the period of thirty (30) days commencing upon the date of the
action of the shareholders (or the Board of Directors if shareholders'
action is not required) is taken to approve the transaction and upon
the expiration of that period all options and all rights thereto shall
automatically terminate, unless other provision is made therefor in
the transaction.
3.3 Amendments
Without further approval of the shareholders, the Board may
discontinue the Plan at any time and may amend it from time to time in
such respect as the Board may deem advisable, unless shareholder or
regulatory approval is required by law or regulation, and subject to
any conditions established by the terms of such amendment; provided,
however, that the Plan may not be amended more than once every six (6)
months other than to comport with changes in the Code, the Employee
Retirement Income Security Act or the rules thereunder.
3.4 Modification, Substitution Or Cancellation Of Grants
No rights or obligations under any outstanding Option may be altered
or impaired without the Participant's consent. Any grant under the
Plan may be canceled at any time with the consent of the Participant,
and a new grant may be provided to such Participant in lieu thereof.
3.5 Shares Subject To The Plan
Shares distributed pursuant to the Plan shall be made available from
authorized but unissued shares or from shares purchased or otherwise
acquired by the Company for use in the Plan, as shall be determined
from time to time by the Board.
3.6 Rights Of A Shareholder
Participants under the Plan, unless otherwise provided by the Plan,
shall have no rights as shareholders by reason thereof unless and
until certificates for shares of Common Stock are issued to them;
provided, however, that until such stock certificate is issued, any
Option holder using previously acquired shares of Common Stock in
payment of an Option exercise price shall continue to have the rights
of a shareholder with respect to such previously acquired shares.
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3.7 Withholding
If a Participant is to experience a taxable event in connection with
the receipt of shares of Common Stock pursuant to an Option exercise,
the Participant shall pay the amount equal to the federal, state and
local income taxes and other amounts as may be required by law to be
withheld to the Company prior to the issuance of such shares of Common
Stock.
3.8 Non-assignability
Except as expressly provided in the Plan, no grant shall be
transferable except by will, the laws of descent and distribution or a
qualified domestic relations order ("QDRO") as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder. During the lifetime of the
Participant, except as expressly provided in the Plan, grants under
the Plan shall be exercisable only by such Participant or by the
guardian or legal representative of such Participant or pursuant to a
QDRO.
3.9 Nonuniform Determinations
Determinations by the Board under the Plan (including, without
limitation, determinations of the persons to receive grants, the form,
amount and timing of such grants, and the terms and provisions of such
grants and the agreements evidencing the same) need not be uniform and
may be made by it selectively among persons who receive, or are
eligible to receive, awards under the Plan, whether or not such
persons are similarly situated.
3.10 Effective Date; Duration
The Plan shall be subject to approval by the holders of a majority of
the Company's stock outstanding and entitled to vote thereon at the
next meeting of its shareholders. No Options granted hereunder may be
exercised prior to such approval, provided that the date of grant of
any Options granted hereunder shall be determined as if the Plan had
not been subject to such approval. Notwithstanding the foregoing, if
the Plan is not approved by a vote of the shareholders of the Company
on or before March 26, 1997, the Plan and any Options granted
hereunder shall terminate.
3.11 Governing Law
The Plan and all actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of New York.
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EXHIBIT 10(cc)
1996 EMPLOYEE INCENTIVE STOCK OPTION PLAN
of
MISONIX, INC.
I. PURPOSES OF THE PLAN.
This stock option plan (the "Plan") is designed to provide an incentive to
key employees (including directors and officers who are key employees) of
MISONIX, INC., a New York corporation (the "Company"), and its present and
future subsidiary corporations, as defined in Paragraph 19
("Subsidiaries"), and to offer an additional inducement in obtaining the
services of such individuals. The Plan provides for the grant of "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), but the Company makes no
warranty as to the qualification of any option as an "incentive stock
option" under the Code.
II. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Paragraph 12, the aggregate number of shares
of Common Stock, $.01 par value per share, of the Company ("Common Stock")
for which options may be granted under the Plan shall not exceed 300,000.
Such shares of Common Stock may, in the discretion of the Board of
Directors of the Company (the "Board of Directors"), consist either in
whole or in part of authorized but unissued shares of Common Stock or
shares of Common Stock held in the treasury of the Company. The Company
shall at all times during the term of the Plan reserve and keep available
such number of shares of Common Stock as will be sufficient to satisfy the
requirements of the Plan. Subject to the provisions of Paragraph 13, any
shares of Common Stock subject to an option which for any reason expires,
is canceled or is terminated unexercised or which ceases for any reason to
be exercisable shall again become available for the granting of options
under the Plan.
III. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee of the Board of Directors
(the "Committee") consisting of not less than three Directors, each of whom
shall be a "Non-Employee Director" within the meaning of Rule 16b-3 (or any
successor rule or regulation) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). A majority of the members of the
Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of
the Committee.
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Subject to the express provisions of the Plan, the Committee shall have the
authority, in its sole discretion, to determine the key employees who shall
receive options; the times when they shall receive options; the number of
shares of Common Stock to be subject to each option; the term of each
option; the date each option shall become exercisable; whether an option
shall be exercisable in whole, in part or in installments, and, if in
installments, the number of shares of Common Stock to be subject to each
installment; whether the installments shall be cumulative; the date each
installment shall become exercisable and the term of each installment;
whether to accelerate the date of exercise of any installment; whether
shares of Common Stock may be issued on exercise of an option as partly
paid, and, if so, the dates when future installments of the exercise price
shall become due and the amounts of such installments; the exercise price
of each option; the form of payment of the exercise price; the amount, if
any, necessary to satisfy the Company's obligation to withhold taxes;
whether to restrict the sale or other disposition of the shares of Common
Stock acquired upon the exercise of an option and to waive any such
restriction; whether to subject the exercise of all or any portion of an
option to the fulfillment of contingencies as specified in the contract
referred to in Paragraph 11 (the "Contract"), including, without
limitation, contingencies relating to entering into a covenant not to
compete with the Company and its Parent and Subsidiaries, to financial
objectives for the Company, a Subsidiary, a division, a product line or
other category, and/or the period of continued employment of the optionee
with the Company, its Parent or its Subsidiaries, and to determine whether
such contingencies have been met; to construe the respective Contracts and
the Plan; with the consent of the optionee, to cancel or modify an option,
provided such option as modified would be permitted to be granted on such
date under the terms of the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan; and to make all other determinations
necessary or advisable for administering the Plan. The determinations of
the Committee on the matters referred to in this Paragraph 3 shall be
conclusive.
IV. ELIGIBILITY.
The Committee may, consistent with the purposes of the Plan, grant options
from time to time, to key employees (including directors and officers who
are key employees) of the Company or any of its Subsidiaries. Options
granted shall cover such number of shares of Common Stock as the Committee
may determine; provided, however, that the aggregate market value
(determined at the time the option is granted) of the shares of Common
Stock for which any eligible person may be granted ISOs under the Plan or
any other plan of the Company, or of a Parent or a Subsidiary of the
Company, which are exercisable for the first time by such optionee during
any calendar year shall not exceed $100,000. The $100,000 ISO limitation
shall be applied by taking ISOs into account in the order in which they
were granted. Any option (or the portion thereof) granted in excess of such
amount shall be treated as a nonqualified stock option.
V. EXERCISE PRICE.
The exercise price of the shares of Common Stock under each option shall be
determined by the Committee; provided, however, that the exercise price
shall not be less than 100% of the fair market value of the Common Stock
subject to such option on the date of
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grant; and further provided, that if, at the time an ISO is granted, the
optionee owns (or is deemed to own under Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Company, of any of its Subsidiaries or of a Parent, the
exercise price of such ISO shall not be less than 110% of the fair market
value of the Common Stock subject to such ISO on the date of grant.
The fair market value of the Common Stock on any day shall be (a) if the
principal market for the Common Stock is a national securities exchange,
the average between the high and low sales prices of the Common Stock on
such day as reported by such exchange or on a consolidated tape reflecting
transactions on such exchange, (b) if the principal market for the Common
Stock is not a national securities exchange and the Common Stock is quoted
on the National Association of Securities Dealers Automated Quotations
System ("NASDAQ"), and (i) if actual sales price information is available
with respect to the Common Stock, the average between the high and low
sales prices of the Common Stock on such day on NASDAQ, or (ii) if such
information is not available, the average between the highest bid and the
lowest asked prices for the Common Stock on such day on NASDAQ, or (c) if
the principal market for the Common Stock is not a national securities
exchange and the Common Stock is not quoted on NASDAQ, the average between
the highest bid and lowest asked prices for the Common Stock on such day as
reported on the NASDAQ OTC Bulletin Board Service or by National Quotation
Bureau, Incorporated or a comparable service; provided that if clauses (a),
(b) and (c) of this Paragraph are all inapplicable, or if no trades have
been made or no quotes are available for such day, the fair market value of
the Common Stock shall be determined by the Committee by any method
consistent with applicable regulations adopted by the Treasury Department
relating to stock options. The determination of the Committee shall be
conclusive in determining the fair market value of the Common Stock.
VI. TERM.
The term of each option granted pursuant to the Plan shall be such term as
is established by the Committee, in its sole discretion, at or before the
time such option is granted; provided, however, that the term of each
option granted pursuant to the Plan shall be for a period not exceeding 10
years from the date of grant thereof, and further, provided, that if, at
the time an option is granted, the optionee owns (or is deemed to own under
Section 424(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, of any of its
Subsidiaries or of a Parent, the term of the option shall be for a period
not exceeding five years from the date of grant. Options shall be subject
to earlier termination as hereinafter provided.
VII. EXERCISE.
An option (or any part or installment thereof), to the extent then
exercisable, shall be exercised by giving written notice to the Company at
its principal office (at present 1938 New Highway, Farmingdale, New York
11735, Attn: Employee Stock Option Committee), stating which option is
being exercised, specifying the number of shares of Common Stock as to
which such option is being exercised and accompanied by payment
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in full of the aggregate exercise price therefor (or the amount due on
exercise if the Contract permits installment payments) (a) in cash or by
certified check or (b) if the Contract (at the time of grant) so permits,
with previously acquired shares of Common Stock having an aggregate fair
market value, on the date of exercise, equal to the aggregate exercise
price of all options being exercised, or with any combination of cash,
certified check or shares of Common Stock.
A person entitled to receive Common Stock upon the exercise of an option
shall not have the rights of a shareholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate to him for
such shares; provided, however, that until such stock certificate is
issued, any option holder using previously acquired shares of Common Stock
in payment of an option exercise price shall continue to have the rights of
a shareholder with respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or issued
under the Plan.
VIII. TERMINATION OF EMPLOYMENT.
Any holder of an option whose employment with the Company (and its Parent
and Subsidiaries) has terminated for any reason other than his death or
Disability (as defined in Paragraph 19) may exercise such option, to the
extent exercisable on the date of such termination, at any time within 90
days after the date of termination, but not thereafter and in no event
after the date the option would otherwise have expired; provided, however,
that if his employment shall be terminated either (a) for cause, or (b)
without the consent of the Company, said option shall terminate
immediately. Options granted under the Plan shall not be affected by any
change in the status of the holder so long as he continues to be a
full-time employee of the Company, its Parent or any of its Subsidiaries
(regardless of having been transferred from one corporation to another).
For the purposes of the Plan, an employment relationship shall be deemed to
exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for
purposes of Section 422(a) of the Code. As a result, an individual on
military, sick leave or other bona fide leave of absence shall continue to
be considered an employee for purposes of the Plan during such leave if the
period of the leave does not exceed 90 days, or, if longer, so long as the
individual's right to reemployment with the Company (or a related
corporation) is guaranteed either by statute or by contract. If the period
of leave exceeds 90 days and the individual's right to reemployment is not
guaranteed by statute or by contract, the employment relationship shall be
deemed to have terminated on the 91st day of such leave.
Nothing in the Plan or in any option granted under the Plan shall confer on
any individual any right to continue in the employ of the Company, its
Parent or any of its Subsidiaries, or interfere in any way with the right
of the Company, its Parent or any of its Subsidiaries to terminate the
employee's employment at any time for any reason whatsoever without
liability to the Company, its Parent or any of its Subsidiaries.
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IX. DEATH OR DISABILITY OF AN OPTIONEE.
If an optionee dies (a) while he is employed by the Company, its Parent or
any of its Subsidiaries, (b) within 90 days after the termination of his
employment (unless such termination was for cause or without the consent of
the Company) or (c) within one year following the termination of his
employment by reason of Disability, the option may be exercised, to the
extent exercisable on the date of his death, by his executor, administrator
or other person at the time entitled by law to his rights under such
option, at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Any optionee whose employment has terminated by reason of Disability may
exercise his option, to the extent exercisable upon the effective date of
such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
X. COMPLIANCE WITH SECURITIES LAWS.
The Committee may require, in its discretion, as a condition to the
exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of Common Stock to be issued upon such exercise shall be
effective and current at the time of exercise, or (b) there is an exemption
from registration under the Securities Act for the issuance of shares of
Common Stock upon such exercise. Nothing herein shall be construed as
requiring the Company to register shares subject to any option under the
Securities Act.
The Committee may require the optionee to execute and deliver to the
Company his representation and warranty, in form and substance satisfactory
to the Committee, that the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the optionee for his own
account, for investment only and not with a view to the resale or
distribution thereof. In addition, the Committee may require the optionee
to represent and warrant in writing that any subsequent resale or
distribution of shares of Common Stock by such optionee will be made only
pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being
sold, or (ii) a specific exemption from the registration requirements of
the Securities Act, but in claiming such exemption, the optionee shall
prior to any offer of sale or sale of such shares of Common Stock provide
the Company with a favorable written opinion of counsel, in form and
substance satisfactory to the Company, as to the applicability of such
exemption to the proposed sale or distribution.
In addition, if at any time the Committee shall determine in its discretion
that the listing or qualification of the shares of Common Stock subject to
such option on any securities exchange or under any applicable law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition to, or in connection with, the granting of an
option or the issue of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, qualification,
consent or
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approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
XI. STOCK OPTION CONTRACTS.
Each option shall be evidenced by an appropriate Contract which shall be
duly executed by the Company and the optionee, and shall contain such terms
and conditions not inconsistent herewith as may be determined by the
Committee.
XII. ADJUSTMENTS UPON CHANGES IN COMMON STOCK.
Notwithstanding any other provisions of the Plan, in the event of any
change in the outstanding Common Stock by reason of a stock dividend,
recapitalization, merger or consolidation in which the Company is the
surviving corporation, split-up, combination or exchange of shares or the
like, the aggregate number and kind of shares subject to the Plan, the
aggregate number and kind of shares subject to each outstanding option and
the exercise price thereof shall be appropriately adjusted by the Board of
Directors, whose determination shall be conclusive.
In the event of (a) the liquidation or dissolution of the Company, (b) a
merger or consolidation in which the Company is not the surviving
corporation, or (c) any other capital reorganization in which more than 50%
of the shares of Common Stock of the Company entitled to vote are
exchanged, any outstanding options shall vest in their entirety and become
exercisable within the period of thirty (30) days commencing upon the date
of the action of the shareholders (or the Board of Directors if
shareholders' action is not required) is taken to approve the transaction
and upon the expiration of that period all options and all rights thereto
shall automatically terminate, unless other provision is made therefor in
the transaction.
XIII. AMENDMENTS AND TERMINATION OF THE PLAN.
The Plan was adopted by the Board of Directors on March 27, 1996. No option
may be granted under the Plan after March 26, 2006. The Board of Directors,
without further approval of the Company's shareholders, may at any time
suspend or terminate the Plan, in whole or in part, or amend it from time
to time in such respects as it may deem advisable, including, without
limitation, in order that options granted hereunder meet the requirements
for "incentive stock options" under the Code, to comply with applicable
requirements of the Securities Act and the Exchange Act, and to conform to
any change in applicable law or to regulations or rulings of administrative
agencies; provided, however, that no amendment shall be effective without
the requisite prior or subsequent shareholder approval which would (a)
except as contemplated in Paragraph 12, increase the maximum number of
shares of Common Stock for which options may be granted under the Plan, (b)
materially increase the benefits to participants under the Plan or (c)
change the eligibility requirements for individuals entitled to receive
options hereunder. No termination, suspension or amendment of the Plan
shall, without the consent of the holder of an existing option affected
thereby, adversely affect his rights under such option. The power of the
Committee to construe and administer any options granted
A-6
<PAGE>
under the Plan prior to the termination or suspension of the Plan
nevertheless shall continue after such termination or during such
suspension.
XIV. NON-TRANSFERABILITY OF OPTIONS.
No option granted under the Plan shall be transferable otherwise than by
will or the laws of descent and distribution or a qualified domestic
relations order ("QDRO") as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and options may be exercised, during the lifetime of the holder
thereof, only by him or his legal representatives or pursuant to a QDRO.
Except to the extent provided above, options may not be assigned,
transferred, pledged, hypothecated or disposed of in any way (whether by
operation of law or otherwise) and shall not be subject to execution,
attachment or similar process.
XV. WITHHOLDING TAXES.
The Company may withhold cash and/or shares of Common Stock to be issued
with respect thereto having an aggregate fair market value equal to the
amount which it determines is necessary to satisfy its obligation to
withhold Federal, state and local income taxes or other taxes incurred by
reason of the grant or exercise of an option, its disposition, or the
disposition of the underlying shares of Common Stock. Alternatively, the
Company may require the holder to pay to the Company such amount, in cash,
promptly upon demand. The Company shall not be required to issue any shares
of Common Stock pursuant to any such option until all required payments
have been made. Fair market value of the shares of Common Stock shall be
determined in accordance with Paragraph 5.
XVI. LEGENDS; PAYMENT OF EXPENSES.
The Company may endorse such legend or legends upon the certificates for
shares of Common Stock issued upon exercise of an option under the Plan and
may issue such "stop transfer" instructions to its transfer agent in
respect of such shares as it determines, in its discretion, to be necessary
or appropriate to (a) prevent a violation of, or to perfect an exemption
from, the registration requirements of the Securities Act, (b) implement
the provisions of the Plan or any agreement between the Company and the
optionee with respect to such shares of Common Stock, or (c) permit the
Company to determine the occurrence of a "disqualifying disposition," as
described in Section 421(b) of the Code, of the shares of Common Stock
transferred upon the exercise of an option granted under the Plan.
The Company shall pay all issuance taxes with respect to the issuance of
shares of Common Stock upon the exercise of an option granted under the
Plan, as well as all fees and expenses incurred by the Company in
connection with such issuance.
A-7
<PAGE>
XVII. USE OF PROCEEDS.
The cash proceeds from the sale of shares of Common Stock pursuant to the
exercise of options under the Plan shall be added to the general funds of
the Company and used for such corporate purposes as the Board of Directors
may determine.
XVIII. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS.
Anything in this Plan to the contrary notwithstanding, the Board of
Directors may, without further approval by the shareholders, substitute new
options for prior options of a Constituent Corporation (as defined in
Paragraph 19) or assume the prior options of such Constituent Corporation.
XIX. DEFINITIONS.
a. Subsidiary. The term "Subsidiary" shall have the same definition as
"subsidiary corporation" in Section 424(f) of the Code.
b. Parent. The term "Parent" shall have the same definition as "parent
corporation" in Section 424(e) of the Code.
c. Constituent Corporation. The term "Constituent Corporation" shall mean
any corporation which engages with the Company, its Parent or any
Subsidiary in a transaction to which Section 424(a) of the Code
applies (or would apply if the option assumed or substituted were an
ISO), or any Parent or any Subsidiary of such corporation.
d. Disability. The term "Disability" shall mean a permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
XX. GOVERNING LAW.
The Plan, such options as may be granted hereunder and all related matters
shall be governed by, and construed in accordance with, the laws of the
State of New York.
XXI. PARTIAL INVALIDITY.
The invalidity or illegality of any provision herein shall not affect the
validity of any other provision.
XXII. SHAREHOLDER APPROVAL.
The Plan shall be subject to approval by the holders of a majority of the
Company's stock outstanding and entitled to vote thereon at the next
meeting of its shareholders. No options granted hereunder may be exercised
prior to such approval, provided that the
A-8
<PAGE>
date of grant of any options granted hereunder shall be determined as if
the Plan had not been subject to such approval. Notwithstanding the
foregoing, if the Plan is not approved by a vote of the shareholders of the
Company on or before March 26, 1997, the Plan and any options granted
hereunder shall terminate.
A-9
<PAGE>
EXHIBIT 10(dd)
Second Amendment to Employment Agreement
Second Amendment ("Second Amendment") entered into on the 5 day of August,
1997 to a certain Employment Agreement dated as of September 1, 1995, as
modified by an Amendment dated July, 1996 (which agreements are collectively
called the "Existing Employment Agreement") between MISONIX, INC., a New York
corporation (hereinafter called the "Company") with offices at 1938 New Highway,
Farmingdale, New York 11735 and JOSEPH LIBRIZZI, residing at 10 Indian Trace,
Kings Park, New York 11754 (hereinafter called the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee desire to continue the services of
Employee upon the terms and conditions contained in the Existing Employment
Agreement, as hereby amended.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
promises contained herein, the parties hereby agree as follows:
1. Terms and References
Unless otherwise expressly provided in this Amendment, all terms,
definitions and references in the Existing Employment Agreement shall have the
same meanings when used herein.
2. Term of Employment
The term of employment provided in this Second Amendment shall be for the
13 months commencing September 1, 1997 and ending September 30, 1998.
Accordingly, the reference in paragraph 1 of the Existing Employment Agreement
in the third line thereof shall be to the 13 month period ending September 30,
1998; the balance of paragraph 1 of the Existing Employment Agreement shall
remain in effect and any future renewal periods shall be for the twelve month
period commencing October 1st.
3. Paragraph 4 of the Existing Employment Agreement, dealing with
Compensation, is hereby amended as follows:
<PAGE>
a) The base salary provided in paragraph 4(a) shall be $200,000 per annum
(with an additional monthly payment of $16,666.67 to be made for the
thirteenth month of the initial term hereof, i.e., September, 1998);
b) The incentive compensation provided in paragraph 4(b) of the Employment
Agreement shall be modified to read as follows for all years after Fiscal
1997:
"(b) Not later than one hundred twenty (120) days after the end of the
fiscal year of the Company ending on the 30th day of June immediately prior
to the expiration date of that year for employment (so that, for example,
the results of the Company's fiscal year ending June 30, 1998 shall be
applicable to the initial 13 months of employment under this Second
Amendment), the Company shall pay to Employee, as incentive compensation:
If Pretax Operating Earnings for fiscal year are:
Incentive Compensation Payment
less than $4,000,000 - None
$4,000,000 to $5,500,000 - 5% of pretax operating earnings in this range
$5,500,001 to $7,000,000 - 7.5% of pretax operating earnings in this
range
$7,000,001 to $9,625,000 - 10% of pretax operating earnings in this range
In no event shall the Employee be entitled to more than $450,000 in
incentive compensation either for the initial 13 month term of this Second
Amendment or for any renewal term thereafter.
For purposes hereof, "pretax operating earnings" of the Company shall mean,
with respect to any fiscal year, the operating income (including royalties and
license fees) if any, but excluding, without limitation, interest income, for
such fiscal year as set forth in the audited, financial statements of the
Company included in its Annual Report to Stockholders for such fiscal year,
before deduction of (i) taxes based on income, or (ii) of the incentive
compensation to be paid to Employee for such fiscal year.
For each Renewal Period hereunder, the calculation of incentive
compensation shall be made upon the results of the Company's fiscal year
expiring on the 30th day of June during such Renewal Period. In the event of a
change of the Company's fiscal year, the calculation period for the incentive
compensation shall be equitably adjusted."
Subparagraphs (c) and (d) of paragraph 4 shall remain as presently stated
in the Existing Employment Agreement.
4. In the event of the death or disability of Employee or other severance of
employment of Employee during the pendancy of the initial term or a renewal
term for any reason (except (a) by virtue of non-renewal, or (b)
termination by the Company for cause pursuant to
<PAGE>
paragraph 10 of the existing Employment Agreement), Employee shall be
entitled to the incentive compensation calculated up to the date of death,
disability or other date of such severance, as the case may be; Employee's
entitlement shall be calculated by multiplying the dollar amount of
incentive compensation he would be entitled to for the entire initial term
or renewal term in which such death, disability or other such severance
occurs, by a fraction whose numerator is the number of months in such term
prior to death, disability or such other severance (not to exceed 12) and
whose denominator is the number "12".
5. Employee shall be furnished with an executive style automobile for use in
the Company's business at the Company's expense, with all reasonable
expenses, directly relating thereto, to be paid or reimbursed by the
Company.
6. All notices to be given hereunder may also be transmitted by hand or by
receipted overnight courier (such as UPS or Federal Express).
7. Except as expressly modified by this Second Amendment, the terms and
conditions of the Existing Employment Agreement shall remain in full force
and effect. In the event of any conflict or inconsistency between the
Existing Employment Agreement and this Second Amendment, the terms of this
Second Amendment shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Second Amendment on the day and year first above written.
MISONIX, INC.
BY:/s/GARY GELMAN
---------------------------
GARY GELMAN, CHAIRMAN
/s/JOSEPH LIBRIZZI
-----------------------
JOSEPH LIBRIZZI
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) of Misonix, Inc. pertaining to the Misonix, Inc. 1996 Employee Incentive
Stock Option Plan and the 1996 Non-Employee Director Stock Option Plan of our
report dated August 1, 1997, except for the first paragraph of Note 7, as to
which the date is September 9, 1997, with respect to the consolidated financial
statements of Misonix, Inc. included in the Annual Report (Form 10-KSB) for the
year ended June 30, 1997.
/s/ Ernst & Young LLP
Melville, New York
September 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 5,409,830
<SECURITIES> 6,367,595
<RECEIVABLES> 2,814,442
<ALLOWANCES> 65,876
<INVENTORY> 2,304,732
<CURRENT-ASSETS> 17,395,669
<PP&E> 2,481,542
<DEPRECIATION> 1,525,161
<TOTAL-ASSETS> 18,737,057
<CURRENT-LIABILITIES> 3,840,776
<BONDS> 0
0
0
<COMMON> 56,722
<OTHER-SE> 13,850,350
<TOTAL-LIABILITY-AND-EQUITY> 18,737,057
<SALES> 17,560,041
<TOTAL-REVENUES> 17,560,041
<CGS> 7,591,510
<TOTAL-COSTS> 17,978,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,953
<INCOME-PRETAX> 228,959
<INCOME-TAX> 51,834
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 177,125
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
