<PAGE>
As filed with the Securities and Exchange Commission on January 17, 1997
Registration No. 33-43585
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MISONIX, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
New York 3841 11-2148932
(State or other jurisdiction of (Primary Standard Industrial I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification No.
</TABLE>
1938 New Highway
Farmingdale, New York 11735
(516) 694-9555
(Address of principal executive offices
and place of business and telephone number)
Joseph L. Librizzi
President
Misonix, Inc.
1938 New Highway
Farmingdale, New York 11735
(516) 694-9555
(Name, address and telephone number of agent for service)
------------------------------
Copies to:
Edward I. Tishelman, Esq.
Hartman & Craven LLP
460 Park Avenue, Suite 1100
New York, New York 10022
Tel: (212) 836-4940 Fax: (212) 688-2870
Approximate date of proposed sale to the public: As soon as practicable after
the Registration Statement becomes effective. If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following box:
/X/
The Registrant hereby amends this Post-Effective Amendment No. 1 on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Post-Effective
Amendment No. 1 shall thereafter become effective in accordance with Section
8(a) of the Securities Act of 1933 or until the Post-Effective Amendment No. 1
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of each class of Amount to be maximum maximum Amount of
securities registered (1) offering price aggregate registration
to be registered per unit offering price fee
<S> <C> <C> <C> <C>
Common Stock, $.01 1,940,000 $ 6.50 $12,610,000.00 $3,940.63
par value shares(2)
Redeemable Warrants 1,940,000 $ .10 $ 194,000.00 $ 60.63
warrants(3)
Common Stock, $.01 1,940,000 $ 7.80 $15,132,000.00 $4,728.75
par value shares (4)
Underwriter's Warrants 160,000 $ .001 $ 160.00 (5)
warrants
Common Stock, $.01 160,000 shares $10.725 $ 1,716,000.00 $ 536.25
par value(6)
Redeemable Warrants 160,000 $ .165 $ 26,400.00 $ 8.25
warrants
Common Stock, $.01 16,000 shares $12.87 $ 2,059,200.00 $ 643.50
par value(7)
Total $31,737,760.00 $9,918.01(8)
</TABLE>
- -----------------------------------
(1) Pursuant to Rule 416, there are also being registered an undeterminable
number of shares of the Registrant's Common Stock which may become issuable
pursuant to the antidilution provisions of the warrants being registered.
(2) Includes 240,000 shares subject to an over-allotment option granted to the
Underwriter by the Registrant and 100,000 shares issued to non-affiliated
investors as partial consideration for the Registrant's September and
October 1991 private placement. See "Underwriting" and "Selling
Securityholders."
(3) Includes 240,000 Redeemable Warrants subject to an over-allotment option
granted to the Underwriter by the Registrant and 100,000 Redeemable
Warrants issued to non-affiliated investors as partial consideration for
the Registrant's September and October 19991 private placement. See
"Underwriting" and "Selling Securityholders."
(4) Issuable upon exercise of the Redeemable Warrants.
(5) No fee pursuant to Rule 457(g).
(6) Issuable upon exercise of the Underwriter's Warrants.
(7) Issuable upon exercise of the Redeemable Warrants underlying the
Underwriter's Warrants.
(8) Of which the entire $9,918.01 has previously been paid.
<PAGE>
On July 23, 1992, Registrant's Registration Statement on Form S-1 was declared
effective by the Securities and Exchange Commission. Pursuant to such
Registration Statement, an aggregate of 1,600,000 shares of common stock
("Shares") and 1,840,000 redeemable warrants ("Warrants") were publicly offered
and sold by Registrant. In addition, 100,000 Shares and 100,000 Warrants were
publicly offered and sold for the account of certain selling securityholders.
This post-effective amendment to the Registration Statement covers the 1,940,000
Shares reserved for issuance by Registrant upon exercise of the Warrants; these
Shares were included for registration in the original Registration Statement.
<PAGE>
MISONIX, INC.
Cross-Reference Sheet Showing Location in Prospectus
of Information Required by Items in Part I of Form S-1
<TABLE>
<CAPTION>
Form S-1 Item Number and Heading Location in Prospectus
-------------------------------- ----------------------
<S> <C> <C>
Item 1. Forepart of the Registration Statement and Outside Cover
Front Cover of Prospectus...........................
Item 2. Inside Front and Outside Back Cover Pages of Inside Front Cover; Outside Back Cover
Prospectus .........................................
Item 3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors
Earnings to Fixed Charges ........................
Item 4. Use of Proceeds..................................... Use of Proceeds
Item 5. Determination of Offering Price..................... Not Applicable
Item 6. Dilution............................................ Dilution
Item 7. Selling Security Holders............................ Selling Stockholders and Plan of Distribution
Item 8. Plan of Distribution................................ Cover; Selling Stockholders and Plan of
Distribution
Item 9. Description of Securities to be Registered.......... Description of Securities
Item 10. Interests of Named Experts and Counsel.............. Legal Matters; Experts
Item 11. Information with respect to the Registrant..........
Item 12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Part II
Item 13. Other Expenses of Issuance and Distribution......... Part II
Item 14. Indemnification of Directors and Officers........... Part II
Item 15. Recent sales of Unregistered Securities............. Part II
Item 16. Exhibits and Financial Statement Schedule........... Part II
Item 17. Undertakings........................................ Part II
</TABLE>
<PAGE>
PROSPECTUS
MISONIX, INC.
1,940,000 common shares, $.01 par value ("Shares")
------------------------
This Prospectus relates to the offer, sale, and issuance by MISONIX, INC., a New
York corporation (the "Company"), of up to 1,940,000 Shares, for issuance to the
holders of 1,940,000 redeemable warrants (the "Warrants"). The Warrants are
exercisable, through the close of business on February 3, 1997, at a price of
$7.80 per Warrant, which entitles the holder to receive one Share. The Company
will use the net proceeds received by it from the exercise of Warrants for
working capital. See "Use of Proceeds."
The Shares and Warrants are quoted on the NASDAQ Small-Cap Market system
("NASDAQ") and on the Boston Stock Exchange ("BSE") under the symbols, "MSON"
and "MSONW" for NASDAQ and "MSO" and "MSOW" on the BSE. On January 10, 1997 the
reported closing sale price of the Shares on NASDAQ was $8.18.
-----------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND PROSPECTIVE PURCHASERS SHOULD
CAREFULLY CONSIDER THE FACTORS SPECIFIED UNDER THE CAPTIONS "RISK FACTORS."
-----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January 17, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 ("Registration
Statement") under the Securities Act of 1933, as amended ("1933 Act") with the
Securities and Exchange Commission ("SEC"), with respect to the securities being
offered by this Prospectus. This Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits thereto. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement and the exhibits thereto. All of
these documents may be inspected without charge at the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies may be
obtained therefrom at prescribed rates. Statements contained in this Prospectus
concerning the provisions of documents filed with the Registration Statement as
exhibits are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the SEC.
The Company furnishes its shareholders and holders of its Warrants with annual
reports containing financial statements audited by its independent auditors, and
with quarterly reports containing unaudited summary financial information for
the first three quarters of each fiscal year. Additional copies of such reports
are available upon request by such holders to the Company.
No person is authorized in connection with any offering made hereby to give any
information or to make any representation other than as contained in this
Prospectus, and if given or made, such information or representation must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, by any person
in any jurisdiction in which it is unlawful for such person to make such an
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information herein is correct as of any date subsequent to the date hereof.
- 2 -
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the other information
and financial statements appearing elsewhere in the Prospectus.
The Company
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. The
Company previously designed and developed medical devices using ultrasonic
technology but had to suspend further development work on these devices in
December 1994, when the Company's Board of Directors formally approved a plan to
suspend such research and development since outside funding, necessary to
complete the project, was not available. A restructuring charge was recorded at
that time to reflect the estimated cost of suspending this portion of the
Company's operations. Although the Company suspended its research and
development activities related to its medical devices, it retained ownership
rights in its various patents and related technologies. It continued its efforts
to sell or license the rights to the technology or attract a joint venture
partner to fund the future development of one or more of these devices. The
Company was successful in December 1995 and 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 (see "Medical Products"). On October 18, 1996, the Company
entered into an exclusive license agreement with United States Surgical
Corporation ("USS") for the Company's ultrasonic cutting technology. See
"Business--Recent Developments."
- 3 -
<PAGE>
The Offering
This offering is comprised of 1,940,000 Shares for issuance to the holders of
the Company's Warrants. The Warrants are exercisable at a price of $7.80 per
Warrant in exchange for which the holder of a Warrant will receive one Share.
Holders of Warrants may exercise the same on or before the close of business on
January 23, 1997 (the "Warrant Expiration Date") by sending notice of exercise,
together with payment in the amount of $7.80 per Share multiplied by the number
of Warrants being exercised, to Continental Stock Transfer & Trust Company
("Continental"), 2 Broadway, New York, New York 10004; Attention: William
Seegraber-Vice President; Continental is acting as the warrant agent ("Warrant
Agent").
Use of Proceeds: The net proceeds received by the Company from the exercise
of the Warrants will be used for general and working capital
purposes.
Risk Factors: Prospective investors should carefully consider the factors
described under the caption "Risk Factors." Among the Risk
Factors to be considered are: the Company's Possible Need
for Additional Working Capital and Liquidity Constraints,
Competition, Dependence on Proprietary and Confidential
Information and Potential Technological Changes.
Expenses: The Company estimates that its legal, accounting, printing,
Warrant Agent fees and related expenses from this Offering
will be approximately $18,500. In addition, for each Warrant
exercised (except in an unsolicited transaction) and payment
of $7.80 for a share by the warrantholder, the Company will
pay a fee of $.39 to Josephthal, Lyon & Ross, Inc. ("JLR"),
which was the underwriter of the Company's securities in its
public offering pursuant to which the Warrants were
originally offered and sold.
- 4 -
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
should be considered carefully in evaluating the Company and its business before
purchasing the Shares offered by this Prospectus.
RISKS RELATED TO THE COMPANY
1. Possible Need for Additional Working Capital and Liquidity Constraints.
The Company anticipates that its existing capital resources, including
the net proceeds of this offering, will be adequate to satisfy its capital
requirements and foreseeable operating needs for at least eighteen months after
the date hereof. The Company's future capital requirements will depend on many
factors, including cash flow from operations, implementation of its capital and
facilities expansion program, ability to anticipate and react with flexibility
to future technological and market developments, and ultimately on the Company's
future ability to generate revenues and profits from operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Financial Statements." To the extent that the funds presently
available are insufficient to fund the Company's future activities (such as
acquisitions which are not presently identified or expansion of facilities), it
may be necessary to raise additional funds, through equity or debt financings.
There can be no assurance that liquidity problems will not occur in the future
or that the Company will be able to renew or refinance its borrowings or to
raise equity capital if this becomes necessary. See "Business."
2. Competition.
The market for the Company's services and products is highly
competitive, and the Company expects such competition to continue and possibly
to increase. A number of the Company's current and prospective competitors have
significantly greater financial, technical and marketing resources than the
Company. Competitive pressures could cause the Company to lose market acceptance
or result in significant price erosion with a material adverse effect upon the
Company's results of operations. Although the Company believes its services and
products are competitive with those of its competitors in functionality,
creativity, cost, market acceptance, performance and reliability, the Company
has not effected any market studies to substantiate such belief. See
"Business-Competition."
3. Patents; Dependence on Proprietary and Confidential Information.
The Company has received a patent on its liposuction apparatus and
associated method and has obtained patents on items relating to the Alliger
System, among other things. The Company has also received a 510(k) medical
device clearance from the US Food and Drug Administration to market and sell a
device in connection with ultrasonic tissue aspiration. However, patient
protection has its limitation and, accordingly, the Company has developed a
- 5 -
<PAGE>
body of proprietary knowledge and "know-how", including its confidential methods
of operation and knowledge of customer and market needs and expectations,
derived from its experience. The Company takes diligent steps to protect the
confidentiality and nondisclosure of its proprietary information. See
"Business--Patents, Trademarks, Trade Secrets and Licenses."
4. Potential Technological Changes
The Company must focus primarily on providing services using advanced
available technology, which the Company intends to expand and update as its
business needs and technological advances warrant. This may involve significant
expenditures and there can be no assurance that the Company's future capital
resources will be sufficient to enable it to acquire new technologies.
5. Dependence on Key Personnel
The Company's success depends to a significant extent upon the efforts
of a small number of key executives. The loss of the services of one or more of
such persons could have a material adverse effect on the Company. Although the
Company has had no difficulty in attracting qualified personnel to date,
competition for such personnel is intense and there is no assurance as to its
future ability to retain its present personnel or acquire additional skilled
personnel as and when needed. See "Business--Employees" and
"Management--Directors and Executive Officers."
6. Ability of Present Management and Its Board of Directors To Control
Company.
The Company's management and its Board of Directors, together with the
holders of the non-publicly traded shares, will be able to elect all of the
Company's directors and will be in a position to control the Company's business
and affairs. See "Security Ownership of Certain Beneficial Owners and
Management." In addition, the Company's by-laws, among other things, protect
officers and directors by indemnifying them against losses they may incur in
legal proceedings resulting from their service to the Company. See
"Management--Directors, Executive Officers and Other Significant Personnel."
7. Risks Associated with International Sales.
The Company, through its Labcaire Inc. subsidiary, sells numerous of
its industrial products in the UK, Western Europe and elsewhere. This makes it
subject to risks inherent in international business activities, including
unexpected changes in regulatory requirements and the burdens of complying with
a wide variety of foreign laws and regulations. As with any company generally
involved in international markets, risks of political and social uncertainty are
always present; however, to the extent that the Company's recent markets have
been based in the United Kingdom and Western Europe, with business sources
derived from the United States as well, these risks have been somewhat mitigated
because of historically better records of stability in these regions. In
addition, exchange rate fluctuation between English Pounds Sterling
- 6 -
<PAGE>
and the US dollar pose an additional business risk. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Currency Risk."
DIVIDENDS
No cash or other dividends have been paid upon the Company's Shares to
date and none are expected in the foreseeable future since it is management
policy to conserve cash for working capital purposes.
PRICE RANGE OF SHARES
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.
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........... 4-1/4 2-7/8
Second Quarter.......... 8-3/8 3-3/8
Fiscal 1996
First Quarter........... $ 1-1/2 $ 21/32
Second Quarter.......... 1-5/16 3/4
Third Quarter........... 1-3/16 3/4
Fourth Quarter.......... 4-5/8 1-1/64
Fiscal 1995
Third Quarter........... 13/16 9/16
Fourth Quarter.......... 21/32 1/2
As of September 30, 1996, the Company had 2,800,000 shares of Common Stock
outstanding and 145 shareholders of record. This does not take into account
stockholders whose shares are held in "street name" by brokerage houses.
- 7 -
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted, to give effect to the exercise of the
1,940,000 Warrants into a like number of Shares. This table should be read in
conjunction with the Financial Statements and related notes thereto included
elsewhere in this Prospectus.
September 30, 1996
Consolidated As Adjusted
------------ -----------
Long Term Debt including current portion $173,117 $173,117
Common Shares, par value .01 per share;
10,000,000 shares authorized:
2,800,000 Shares of Common issued
and outstanding(1); 4,740,000 shares
as adjusted 28,000 47,400
Additional paid in capital 11,100,793 26,194,893
Accumulated earnings (7,271,128) (7,271,128)
Total Stockholders' Equity $3,857,665 $18,971,165
---------- -----------
Total Capitalization $4,030,782 $19,144,282
========== ===========
- ----------------------------------
(1) Does not include: Options to acquire 175,500 Shares outstanding under
the Company's stock option plans and options to acquire 1,050,000
Shares under stock option plans and transactions which are to be
presented for shareholder approval at the Company's next Annual Meeting
of Shareholders.
- 8 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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,
and environmental control equipment for the abatement of air pollution.
The Company's research and development programs have, from 1987 to December
1994, emphasized development of medical devices utilizing ultrasonic technology
for the removal of arterial obstructions, soft tissue aspiration, and
laparoscopic surgical procedures. The medical products portion of total research
and development expenses increased during the period 1990 through December 1994.
To date, no revenues have been generated from the sale of medical devices and,
in December 1994, the Company suspended further research and development work on
these devices since outside funding, necessary to complete the project, was not
available. In December 1995, the Company entered into a license agreement with
Medical Device Alliance, Inc. ("MDA"), covering the further development and
commercial exploitation of the Company's medical technology relating to soft
tissue aspiration (see "Description of Business"). Pursuant to the agreement
with MDA, the Company will receive aggregate licensing fees, over time, of
approximately $500,000, plus royalties based upon net sales of such products.
The Company has received $300,000 in licensing fees as of June 30, 1996. Also as
part of the MDA agreement, the Company was reimbursed a maximum of $30,000 per
month (commencing September 1995) for product development expenditures (as
defined in such agreement). The amount of reimbursement for the year ended June
30, 1996 was $320,363. The Company continues to devote a small amount of
research and development resources toward improvement of its industrial
ultrasonic product line, ductless fume enclosures, and air pollution abatement
and other equipment.
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:
- 9 -
<PAGE>
Fiscal years ended June 30,
---------------------------
1996 1995
---- ----
(in thousands)
Net sales.............................................. 100.0% 100.0%
Cost of goods sold..................................... 52.3 54.2
----- -----
Gross Profit........................................... 47.7 45.8
----- -----
Selling & administrative expenses...................... 41.8 42.5
Research & development expenses-medical products....... .4 7.4
Research & development expenses-industrial products.... 1.6 2.1
Restructuring costs.................................... .0 4.9
----- -----
Total operating expenses............................... 43.8 56.9
----- -----
Income (loss) from operations.......................... 3.9 (11.1)
Other income........................................... .7 .3
----- -----
Net income (loss) before minority interest............. 4.6 (10.8)
Minority interest...................................... (.7) .1
----- -----
Net income (loss)...................................... 3.9 (10.9)
===== =====
The following table provides a breakdown of net sales by major category for the
periods indicated:
Fiscal years ended June 30,
---------------------------
1996 1995
---- ----
(in thousands)
Ultrasonic products.................................... $2,632 $2,575
Scrubbers.............................................. 1,156 1,081
Ductless fume enclosures............................... 6,125 4,896
------ ------
Net sales.......................................... $9,913 $8,552
====== ======
The following table provides a breakdown of foreign sales by geographic area
during the periods indicated:
Fiscal years ended June 30,
---------------------------
1996 1995
---- ----
(in thousands)
Canada & Mexico........................................ $ 95 $ 71
Europe................................................. 4,533 3,860
Asia................................................... 703 424
Middle East............................................ 146 67
Other.................................................. 166 62
------ ------
$5,643 $4,484
====== ======
- 10 -
<PAGE>
Fiscal years ended June 30, 1995 and 1996
Net Sales. Net sales increased by $1,361,452 (15.9%) between the fiscal year
ended June 30, 1995 and the fiscal year ended June 30, 1996 from $8,551,684 to
$9,913,136.
The Company's largest product category, fume enclosures, increased by
$1,229,000 or 25.1% in the fiscal year ended 1996 due to increased marketing
efforts for its domestic products and the continued success of Labcaire's
Autoscope which was added to the fume enclosure product line in fiscal 1995.
Ultrasonic products include the Sonicator liquid processor and cell
disrupter systems, ultrasonic cleaners, related accessories, and repair and
service. The small increase of $57,000 or 2.2% in sales of ultrasonic products
in fiscal 1996 reflects the fact that the Sonicator is a mature product.
The increase of $75,000 or 6.9% in scrubber sales between fiscal 1995
and fiscal 1996 was due to increased marketing efforts for the microelectronics
industry.
During fiscal 1995 and fiscal 1996 the Company had foreign net sales of
$4,483,764 and $5,643,101, respectively, representing 52% and 57% of net sales
for such years, respectively. This increase is principally due to Labcaire's
increased sales volume in fiscal 1996 over fiscal 1995, increasing to $4,711,667
from $3,920,400.
Gross profit. There was an increase in overall gross profit margin to 47.7% in
fiscal 1996 from 45.8% in fiscal 1995 because of economies of scale resulting
from increased sales volume, sales of higher gross profit products, and various
product price increases.
Selling and general and administrative expenses. There was a 14% increase, from
$3,632,151 to $4,139,183, in SG&A expenses from fiscal 1995 to fiscal 1996 owing
in part to higher commissions on increased sales volume and the hiring of
additional executive and other employees. This resulted in a decrease of these
expenses to 41.8% of net sales in fiscal 1996 compared to 42.5% in fiscal 1995.
Research and development expenses. Medical product research and development
expenses were $629,837 in fiscal 1995 and $42,933 in fiscal 1996. The decrease
in medical product R&D expenses was principally due to the fact that in December
1994, the Company suspended further research and development work in connection
with its medical devices because outside funding, necessary to complete the
project, was not available. Industrial product R&D expenses were $182,452 in
fiscal 1995 and $161,253 in fiscal 1996.
Interest expense. Interest expense was $32,780 in fiscal 1995 and $41,529 in
fiscal 1996. This increase was due to an increased level of borrowing by
Labcaire during the fiscal year.
- 11 -
<PAGE>
Option/license Fees. The Company initially received $50,000 upon entering into
an option agreement with Medical Device Alliance, Inc.("MDA"), leading to a ten
year licensing agreement. As part of this agreement, the Company received
$300,000 in licensing fees, of which $19,167 has been recorded as income during
fiscal 1996.
Net operating losses. The Company has accumulated approximately $6,956,000 of
net operating losses as of December 31, 1996, 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 carryfor-
wards. The carryforwards begin to expire in fiscal year 2002 and will continue
to expire through fiscal year 2011. Additionally, based on ownership changes
resulting from the Company's 1992 public offering, as well as historical
issuances of common stock and warrants, it is expected that the annual
utilization of the otherwise available pre fiscal 1992 net operating loss
carryforwards will be restricted.
Results of Operations
Three months ended September 30, 1996 and 1995
Net Sales: Net sales, which relate to the Company's medical, scientific and
industrial products, increased $686,608 (32.6%) from $2,103,226 in the three
months ended September 30, 1995 to $2,789,834 in the three months ended
September 30, 1996 reflecting continued demand for the Company's industrial and
scientific products and the first sales of the Company's ultrasonic soft tissue
aspirator to MDA. Parent company sales for the three months ended September 30,
1996 increased 48% while sales at the Company's foreign subsidiary increased
14%. The Company's backlog of unfilled orders increased from $631,157 at
September 30, 1995 to $1,966,372 at September 30, 1996.
Gross Profit: Gross profit increased from 44.9% of sales in the three months
ended September 30, 1995 to 51.3% of sales in the three months ended September
30, 1996 primarily due to the onset of medical device sales, significant growth
in the domestic sales of the Company and economies of scale relative to this
growth.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased from $980,172 (46.6 % of sales) in the three
months ended September 30, 1995 to $1,083,813 (38.8% of sales) in the three
months ended September 30, 1996. This dollar increase relates to sales costs
associated with higher sales volume and hiring of additional personnel.
Research and Development Expenses: Medical product research and development
expenses were $6,456 in the three months ended September 30, 1996 as compared to
$0 in the three months ended September 30, 1995. The slight increase is due to
non-funded development costs associated with the Company's medical devices.
Industrial product research and development
- 12 -
<PAGE>
expenses were $55,089 in the three months ended September 30, 1995 and $28,750
in the three months ended September 30, 1996.
Other Income (Expense): Other income during the three months ended September 30,
1995 was $20,727. During the three months ended September 30, 1996, other income
was $113,892. This increase was principally due to the $100,000 option fees
received from United States Surgical Corporation upon the latter's signing the
option agreement for the Company's ultrasonic medical technology.
Net Operating Losses: The Company has accumulated approximately $6,956,000 of
net operating losses as of September 30, 1996, 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 expire through
fiscal year 2011. Additionally, based on ownership changes resulting from the
offering completed in January 1992, as well as historical issuances of common
stock and warrants, it is expected that the annual utilization of the otherwise
available pre-offering net operating loss carryforwards will be limited by the
provisions of Section 382 of the Internal Revenue Code as amended.
Liquidity and Capital Resources: At September 30, 1996, the Company had a cash
balance of $1,048,278 and investments held to maturity of $469,324. One hundred
thousand dollars of this amount was derived from the signing of the option
agreement discussed in Note 4 of the Financial Statements included herewith.
This compares with the cash balance of $1,153,999 and investments held to
maturity of $353,053 at June 30, 1996. Inventories have increased during this
period from $1,202,314 to $1,503,124 reflecting, in part, the establishment of
an inventory for the ultrasonic soft tissue aspirator.
In addition, the Company has a revolving credit facility, which expires
on June 30, 1997, in the amount of $500,000 available to the Company for
short-term borrowings and letters of credit. Borrowings under the facility bear
interest at prime plus 2% and are collateralized by a security interest in all
assets of the Company. While there are no outstanding borrowings under this
facility, the Company has utilized a portion of it to generate a standby letter
of credit in the amount of approximately $300,000, which guarantees a portion of
the credit facility of its subsidiary Labcaire Systems Ltd. In October 1996, the
Company was released from this standby letter of credit since Labcaire was able
to secure its credit facility based upon their own creditworthiness.
A revolving credit facility from a U.K. bank in the amount of
approximately $560,000 is available to Labcaire for short term borrowings. This
facility expires in August 1997 when all unpaid principal and interest is due.
This facility bears interest at U.K. prime plus 2% and is collateralized by a
security interest in all the assets of Labcaire, a guarantee by Misonix, and a
guarantee by Labcaire's directors. As of September 30, 1996, $540,919 was
outstanding under this facility.
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<PAGE>
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 48% of the Company's revenues in fiscal 1996 were
received in English Pounds. To the extent that the Company's revenues will be
generated in English Pounds, for purposes of its reporting its financial
position, its operating results will be converted into US Dollars. 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.
Forward Looking Statements:
This Prospectus contains certain forward looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which are intended to be covered by the safe harbors created thereby.
Although the Company believes that the assumptions underlying the forward
looking statements contained herein are reasonable, any of the assumptions could
be inaccurate, and therefore, there can be no assurance that the forward looking
statements included in this Prospectus will prove to be accurate. Factors that
could cause actual results to differ from the results specifically discussed in
the forward looking statements include, but are not limited to, those discussed
in "Risk Factors." In light of the significant uncertainties inherent in the
forward looking statements included herein, the inclusion of information should
not be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
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<PAGE>
BUSINESS
General
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. The Company previously designed
and developed medical devices using ultrasonic technology but had to suspend
further development work on these devices in December 1994, when the Company's
Board of Directors formally approved a plan to suspend such research and
development since outside funding, necessary to complete the project, was not
available. A restructuring charge was recorded at that time to reflect the
estimated cost of suspending this portion of the Company's operations. Although
the Company suspended its research and development activities related to its
medical devices, it retained ownership rights in its various patents and related
technologies. It continued its efforts to sell or license the rights to the
technology or attract a joint venture partner to fund the future development of
one or more of these devices. The Company was successful in December 1995 and
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 (see "Medical Products").
Scientific and Industrial Products
The Company's current revenue-producing activities consist of the
manufacture and sale of the Sonicator(Registered) ultrasonic liquid processor
and cell disruptor, the distribution of other ultrasonic equipment for
scientific and industrial purposes, the manufacture and sale of
Mystaire(Registered) 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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<PAGE>
In addition to the Sonicator, the Company also manufactures and sells
an ultrasonic spray nozzle, marketed under the name Sonimist(Registered), and
distributes ultrasonic cleaners, marketed under the names Astrason(Registered)
bench-top cleaner and Astramax(Registered) 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, 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 a 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 81.4% 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 directors who had the right, under a 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 proceeding 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
Agreement. Pursuant to the Agreement, 9,284 shares (2.65%) of Labcaire common
stock will be purchased by the Company for (pounds)62,388 (approximately
$93,582). The effective date of this transaction was October 1996. 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
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<PAGE>
four executives 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.
Medical Products
Although the Company suspended its research and development
activities related to its medical devices, in December 1994, it retained
ownership rights in its various patents and related technologies. It has
continued its efforts to sell or license the rights to the technology or attract
a joint venture partner to fund the future development of one or more of these
devices. The Company was successful in December 1995 and 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 will
receive aggregate licensing fees, over time, of approximately $500,000, plus
royalties based upon net sales of such products. The Company has received
$300,000 in licensing fees, as of June 30, 1996. Also as part of the MDA
agreement, the Company was reimbursed a maximum of $30,000 per month (commencing
September 1995) for product development expenditures (as defined in the MDA
agreement). The amount of reimbursement for the year ended June 30, 1996 was
$320,363. 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. 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. In
addition to the Company's medical technology related to soft tissue aspiration,
the Company has previously designed other medical devices which were at various
stages of development when the Company's restructuring plan was implemented in
December 1994. The Company is seeking to commercially exploit and further
develop certain of these devices.
Recent Developments
On October 18, 1996, the Company announced that it has entered into an
exclusive license agreement with United States Surgical Corporation ("USS") for
Misonix's ultrasonic cutting technology, which uses high frequency sound waves
to coagulate and divide tissue for both open and laparoscopic surgery. The
license agreement provides USS with the exclusive worldwide marketing and sales
rights for this technology. The license agreement provides for a payment of
$300,000 to the Company on signing and an additional $200,000 based upon certain
milestones over the next year, plus royalties based upon net sales of such
products.
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<PAGE>
Market and Customers
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.
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 10
manufacturing representatives and distributors in the United States. The Company
currently employs 3 direct sales persons who operate outside the Company's
offices and conduct direct marketing on a regional basis and 2 product managers,
1 sales specialist, and a vice-president of sales and marketing who work in the
Company's offices. Approximately nine percent of its sales are through catalogue
distributors. The Company's sales efforts include advertising and participating
in trade shows. The Company relies on 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.
In fiscal 1996, approximately 57% 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 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
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<PAGE>
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
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 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.
Competition in the medical and medical device industry is rigorous with
many companies having huge capital resources, research laboratories and
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.
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
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<PAGE>
"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 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.
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<PAGE>
Backlog
As of June 30, 1996, the Company's backlog, including Labcaire,
relating to industrial products was approximately $1,800,000 as compared with
approximately $634,000 as at June 30, 1995. Historically, backlog has not been a
meaningful indication of future sales.
Employees
As of September 30, 1996 the Company, including Labcaire, employed a
total of 83 full-time people, including 16 in management and supervisory
positions. The Company considers its relationship with its employees to be
satisfactory.
Properties
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. 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.
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<PAGE>
MANAGEMENT
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 49 Chairman of the Board 1995
of Directors
Joseph Librizzi 58 Director, President, 1975
Chief Executive Officer,
Treasurer and Secretary
Peter Gerstheimer 47 Vice President and
Chief Financial Officer --
Ronald Manna 42 Vice President - Operations --
Howard Alliger 69 Director 1971
Arthur Gerstenfeld 68 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 the Company.
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
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<PAGE>
1991. Dr. 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.
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.
Based upon an examination of public filings, the Company believes all reports
required under Section 16(a) of the Securities and Exchange Act of 1934 have
been filed on a timely basis.
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<PAGE>
Executive Compensation.
The following table sets forth for the fiscal years indicated the
compensation paid by the Company to its Chief Executive Officer and each of the
four other highest paid executive officers with annual compensation exceeding
$100,000:
Summary Compensation Table
Annual Compensation (1) Long Term Compensation
----------------------- ----------------------
Awards
Name and Underlying
Principal Position Fiscal Year Salary Options/SARS (#)
- ------------------ ----------- -------- ----------------
Joseph Librizzi, President 1996 $183,971 ---
Chief Executive Officer, 1995 135,000 ---
Treasurer and Secretary 1994 135,000 ---
- ------------------------
(1) No other annual compensation is shown because the amounts of
perquisites and other non-cash benefits provided by the Company do not
exceed the lesser of $50,000 or 10% of the total annual base salary and
bonus disclosed in this table for the respective officer.
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 provides for an annual salary of $160,000 plus a bonus measured by
pretax operating earnings. Dr. Librizzi receives additional benefits that are
generally provided to other employees of the Company. The agreement was renewed
in July 1996 and expires on August 31, 1997. It is automatically renewed for a
successive one year term unless the Company or the executive elects not to
renew.
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 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 including a change in control of the Company. 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.
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<PAGE>
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, 1996. The following
table contains information concerning the number and value, at June 30, 1996, 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 60,000/0 $172,500/0
- --------------------------------
(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 fiscal year end (June 30, 1996)
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, as amended, covers up to 250,000 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. The Plan,
which expires on December 31, 2003, is 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 will be determined by the Board of Directors, or a committee thereof, in
its sole discretion. Incentive stock options granted under the Plan 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 Plan 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. At
June 30, 1996, options to purchase 250,000 shares were outstanding under the
plan at $ .75 to $6.50 per share and no options had been exercised.
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.
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<PAGE>
(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 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of January 2, 1997 certain
information with regard to ownership of the Company's Common Shares by (i) each
beneficial owner of more than 5% 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.
Common Shares Percent
Name and Address(1) Beneficially Owned of Class
Howard Alliger 728,072(2) 25.0%
Joseph Librizzi 161,661(3) 5.5%
Gary Gelman 337,930(4) 11.6%
Arthur Gerstenfeld 26,300(5) *
All executive officer and Directors as
a group (seven persons) 1,331,266(6) 45.7%
- --------------------
*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 27,000 Common Shares held by Mr. Alliger's daughter, of which he
disclaims all beneficial interest, but does not include options for
50,000 Common Shares which are to be voted upon at the Annual Meeting.
(3) Includes 60,000 Common Shares which Dr. Librizzi has the right to acquire
upon exercise of stock options which are currently exercisable, but does
not include options for 40,000 Common Shares which are to be voted upon
at the Annual Meeting.
(4) Does not include options for 459,000 Common Shares which are to be voted
upon at the Annual Meeting.
(5) Includes 2,000 Common Shares which Mr. Gerstenfeld has the right to
acquire upon exercise of stock options which are currently exercisable,
but does not include options for 10,000 Common Shares which are to be
voted upon at the Annual Meeting.
(6) Includes the Common Shares indicated in notes (2), (3), and (5) but does
not include options for 569,000 Common Shares to be voted upon at the
Annual Meeting.
- 26 -
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 10,000,000 Shares, par value $0.01 per share.
As of September 30, 1996, there were 2,800,000 shares of common stock
outstanding.
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to a vote of the stockholders. Since the holders of Common
Stock do not have cumulative voting rights, holders of more than 50% of the
outstanding shares can elect all of the Directors of the Company and holders of
the remaining shares by themselves cannot elect any Directors. The holders of
Common Stock will not have preemptive rights or rights to convert their Common
Stock into other securities. Holders of Common Stock will be entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, holders of the Common Stock have the right to a
ratable portion of the assets remaining after payment of liabilities. All shares
of Common Stock outstanding and to be outstanding upon completion of this
offering are and will be fully paid and non-assessable.
Preferred Stock
The Company's authorized Preferred Stock consists of 2,000,000 shares, par value
$ 1.00 per share. The Company's Restated Certificate of Incorporation grants the
Board of Directors the authority to issue by resolution shares of Preferred
Stock in one or more series and to fix the number of shares constituting any
such series, the voting powers, if any, designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including the rate or rates at which, and the other
terms and conditions on which, dividends shall be payable; whether and on what
terms the shares constituting any series shall be redeemable, subject to sinking
fund provisions, or convertible or exchangeable into securities of the Company
and the liquidation preferences, if any, of such series, without any further
vote or action by the stockholders. For example, the Board of Directors is
authorized to issue a series of Preferred Stock that would have the right to
vote, separately or with any other series of Preferred Stock, on any other
proposed amendment to the Company's Restated Certificate of Incorporation or any
other proposed corporate action, including business combinations and other
transactions. The Board of Directors currently does not contemplate the issuance
of any Preferred Stock and is not aware of any pending or proposed transactions
that would be affected by such issuance.
The authority possessed by the Board of Directors to issue Preferred Stock could
potentially be used to discourage attempts by others to obtain control of the
Company through merger, tender offer, proxy contest or otherwise by making such
attempts more difficult to achieve or more costly. The Board of Directors may
issue the Preferred Stock without stockholder approval and with voting and
conversion rights which could adversely affect the voting power of the holders
- 27 -
<PAGE>
of Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock and the Board of Directors has no present intention to issue any
Preferred Stock.
Warrants
The Warrants are issued in registered form pursuant to an agreement, dated
January 23, 1992 (the "Warrant Agreement"), between the Company and Continental
Stock Transfer & Trust Company (the "Warrant Agent"). The following discussion
of certain terms and provisions of the Warrants is qualified in its entirety by
reference to the detailed provisions of the Warrant Agreement, the form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
One Warrant represents the right of the registered holder to purchase one Share
at an exercise price of $7.80 per Share, subject to adjustment (the "Purchase
Price"). The Warrants will be entitled to the benefit of adjustments in the
Purchase Price and in the number of Shares and/or other securities deliverable
upon the exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization consolidation or merger. The Company has the
right to reduce the Purchase Price or increase the number of Shares issuable
upon the exercise of the Redeemable Warrants.
Unless previously redeemed, the Warrants may be exercised at any time prior to
the close of business on February 3, 1997 (the "Expiration Date"). On and after
the Expiration Date, the Warrants become wholly void and of no value. The
Company may at any time extend the Expiration Date of all outstanding Warrants
for such increased period of time as it may determine. The Warrants may be
exercised at the office of the Warrant Agent.
The Company has the right at any time after January 23, 1993 to redeem the
Redeemable Warrants in whole for cancellation at a price of $0.10 each, by
written notice mailed 30 days prior to the redemption date to each Warrantholder
at his address as it appears on the books of the Warrant Agent; provided,
however, that the Company does not have the right to call for redemption any of
the Redeemable Warrants underlying the Underwriter's Warrants. Such notice may
only be given within 1O days following any period of 20 consecutive trading days
during which the high closing bid price of the Shares (if then traded on the
NASDAQ National Market System or on a national securities exchange) exceeds
$9.75 per share, subject to adjustments for stock dividends, stock splits and
the like. If the Warrants are called for redemption, they must be exercised
prior to the close of business on the date of any such redemption or the right
to purchase the applicable Shares.
No holder, as such, of Warrants shall be entitled to vote or receive dividends
or be deemed the holder of Shares for any purpose whatsoever until such Warrants
have been duly exercised and the Purchase Price has been paid in full.
- 28 -
<PAGE>
Shares Eligible for Future Sale
The Company has outstanding 2,800,000 Shares, without taking into account Shares
issuable upon exercise of outstanding options, the Underwriter's Warrants or the
Warrants referred to in this Prospectus. Of such Shares, approximately 920,677
Shares (the "Restricted Shares") were issued and sold by the Company in private
transactions three or more years ago based upon one or more exemptions contained
in the Securities Act.
In general, under Rule 144 as currently in effect, any person (or persons whose
Shares are aggregated), including persons deemed to be affiliates of the
Company, whose restricted securities have been fully paid for and held for at
least two years from the later of the date of issuance by the Company or
acquisition from an affiliate, may sell such securities in brokers' transactions
or directly to market makers, provided that the number of shares sold in any
three month period may not exceed the greater of 1% of the then outstanding
Shares or the average weekly trading volume of the Sharesin the over-the-counter
market during the four calendar weeks preceding the sale. Sales under Rule 144
are also subject to certain notice requirements and the availability of current
public information about the Company. After three years have elapsed from the
later of the issuance of restricted securities by the Company and their
acquisition from an affiliate, such securities may be sold without limitation by
persons who are not affiliates under the rule, in accordance with Rule 144(k).
Transfer Agent
The Company's transfer and warrant agent is Continental Stock Transfer & Trust
Company, 2 Broadway, New York, New York 10004.
LITIGATION
The Company is not involved in any material litigation.
LEGAL MATTERS
The validity of the Shares being offered hereby, which is being issued
pursuant to the laws of New York, will be passed upon for the Company by Hartman
& Craven LLP, 460 Park Avenue, New York, New York 10022-1987.
EXPERTS
The consolidated financial statements of Misonix, Inc. and subsidiaries
at June 30, 1996 and for each of the two years in the period then ended,
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
- 29 -
<PAGE>
Index to Financial Statements
Audited Consolidated Financial Statements for Year Ended June 30, 1996
- ----------------------------------------------------------------------
Report of Independent Auditors..........................................F-2
Consolidated Balance Sheet-June 30, 1996................................F-3
Consolidated Statements of Operations-Years
Ended June 30, 1996 and 1995..........................................F-4
Consolidated Statements of Stockholders'
Equity-Years Ended June 30, 1996 and 1995.............................F-5
Consolidated Statements of Cash Flows-Years
Ended June 30, 1996 and 1995..........................................F-6
Notes to Consolidated Financial Statements..............................F-7
Unaudited Consolidated Financial Statements for Three Months ended September 30,
1996
Consolidated Balance Sheet September 30, 1996(Unaudited)...............F-20
Consolidated Statements of Operations
Three months ended September 30, 1996 and 1995 (Unaudited)...........F-21
Consolidated Statements of Cash Flows Three months
ended September 30, 1996 and 1995 (Unaudited) .......................F-22
Notes to Consolidated Financial Statements.............................F-23
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, 1996, and the related consolidated
statements of operations, 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, 1996, 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, NY
August 9, 1996
F-2
<PAGE>
Misonix, Inc. and Subsidiaries
Consolidated Balance Sheet
June 30, 1996
Assets
Current assets:
Cash and cash equivalents $ 1,153,999
Investments held to maturity 353,053
Accounts receivable, less allowance for
doubtful accounts of $58,468 1,981,205
Inventories (Note 3) 1,202,314
Prepaid expenses and other current assets 505,892
--------------
Total current assets 5,196,463
Property and equipment, at cost, less accumulated
depreciation and amortization (Note 4) 622,427
Goodwill, net of amortization of $37,795 (Note 12) 203,504
Other assets 52,563
--------------
Total assets $ 6,074,957
==============
Liabilities and stockholders' equity
Current liabilities:
Notes payable (Note 5) 518,259
Accounts payable 1,159,438
Accrued expenses and other current liabilities (Note 6) 408,853
Current maturities of capital lease obligations (Note 7) 52,884
--------------
Total current liabilities 2,139,434
Capital lease obligations (Note 7) 81,763
Deferred income (Note 13) 380,833
Minority interest 75,279
Commitments and contingencies (Notes 7, 9 and 12)
Stockholders' equity (Note 8):
Common stock, $.01 par value--shares authorized 10,000,000;
issued and outstanding 2,800,000 28,000
Additional paid-in capital 11,100,793
Deficit (7,696,590)
Foreign currency translation adjustment (34,555)
--------------
Total stockholders' equity 3,397,648
--------------
Total liabilities and stockholders' equity $ 6,074,957
==============
See accompanying notes.
F-3
<PAGE>
Misonix, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended June 30
1996 1995
-------------------------------
Net sales (Note 10) $ 9,913,136 $ 8,551,684
Cost of goods sold 5,181,222 4,638,983
-------------------------------
Gross profit 4,731,914 3,912,701
Operating expenses:
Selling, general and administrative expenses 4,139,183 3,632,151
Research and development expenses (Note 2) 204,186 812,289
Restructuring charge (Note 2) - 416,445
-------------------------------
Total operating expenses 4,343,369 4,860,885
-------------------------------
Income (loss) from operations 388,545 (948,184)
Other income (expense):
Interest income 54,209 55,319
Interest expense (41,529) (32,780)
Option/license fees (Note 13) 69,167 -
Foreign currency exchange (loss) gain (11,890) 2,834
-------------------------------
Income (loss) before minority interest 458,502 (922,811)
Minority interest in net income of
consolidated subsidiary (69,075) (6,204)
-------------------------------
Net income (loss) $ 389,427 $ (929,015)
===============================
Net income (loss) per common and common
equivalent share $ .14 $ (.34)
===============================
Net income (loss) per common and common
equivalent share assuming full dilution $ .13 $ (.34)
===============================
Weighted average common and common
equivalent shares outstanding 2,867,108 2,770,411
===============================
Weighted average common and common equivalent
shares outstanding assuming full dilution 2,926,317 2,770,411
===============================
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, 1994 2,770,000 $27,700 $11,086,093 $(7,157,002) $(27,517) $3,929,274
Stock issuance to
outside directors 30,000 300 14,700 - - 15,000
(Note 8)
Foreign currency
translation adjustment - - - - (6,709) (6,709)
Net loss - - - (929,015) - (929,015)
-------------- --------------- --------------- --------------- --------------- -----------------
Balance, June 30, 1995 2,800,000 28,000 11,100,793 (8,086,017) (34,226) 3,008,550
Foreign currency
translation adjustment - - - - (329) (329)
Net income - - - 389,427 - 389,427
-------------- --------------- --------------- --------------- --------------- -----------------
Balance June 30, 1996 2,800,000 $28,000 $11,100,793 $(7,696,590) $(34,555) $3,397,648
============== =============== =============== =============== =============== =================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Misonix, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30
1996 1995
--------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 389,427 $ (929,015)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for net losses on accounts receivable 1,892 18,741
Depreciation and amortization 193,417 213,166
Minority interest in net income of subsidiary 69,075 6,204
Foreign currency loss 904 3,032
Noncash restructuring charge - 245,438
Issuance of stock to outside directors - 15,000
Changes in operating assets and liabilities:
Accounts receivable (529,105) (82,717)
Inventories (125,690) 2,385
Prepaid expenses and other current assets (380,455) 45,240
Deposits and other assets 2,479 (199)
Accounts payable and accrued expenses 222,383 (103,134)
Deferred income 380,833 -
---------- ---------
Net cash provided by (used) in operating activities 225,160 (565,859)
---------- ---------
Investing activities
Acquisition of property and equipment and other (107,742) (120,483)
Proceeds from involuntary conversion of assets - 152,000
Sales of investments held to maturity 355,600 1,277,228
Purchases of investments held to maturity (353,053) (355,600)
---------- ---------
Net cash (used in) provided by investing activities (105,195) 953,145
---------- ---------
Financing activities
Increase (decrease) in short-term borrowings 187,338 (55,647)
Principal payments on capital lease obligations (39,221) (53,609)
---------- ---------
Net cash provided by (used in) financing activities 148,117 (109,256)
---------- ---------
Effect of exchange rates (27) 101
---------- ---------
Net increase in cash and cash equivalents 268,055 278,131
Cash and cash equivalents at beginning of period 885,944 607,813
---------- ---------
Cash and cash equivalents at end of year $1,153,999 $ 885,944
========== =========
Supplemental disclosure of cash flow information
Interest paid during the year $ 41,529 $ 32,780
========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1996
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 81.4% owned subsidiary, Labcaire Systems, Ltd.
("Labcaire"), and its 100% owned subsidiary, Misonix, Ltd. (collectively, the
"Company"). Misonix Ltd. was incorporated in the United Kingdom on July 19, 1993
and its operations since inception have been minimal. 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. During the period from 1987 through December 1994, Misonix was engaged in
the design and development of medical devices which would utilize proprietary
and patented ultrasound technology for the treatment of cardiovascular disease
and for soft tissue removal. Research and development work in connection with
these medical devices, however, was suspended in December 1994 and the Company
recorded a restructuring charge (see Note 2) as outside funding was not
available to further develop these technologies. During this period, there was
no revenue from the sale of medical devices. However, in December 1995, the
Company entered into a licensing agreement to further develop one of its medical
devices (see Note 13).
Misonix's 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. 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, 1996 were approximately $4,712,000, $369,000 and $2,263,000, respectively.
For the year ended June 30, 1995, these amounts were approximately $3,920,400,
$319,100 and $1,796,100, respectively.
F-7
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Basis of Presentation, Organization and Business,
and Summary of Significant Accounting Policies (continued)
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.
Investments Held to Maturity
Effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities," which was effective for fiscal years beginning after
December 15, 1993. Adoption of SFAS 115 had no effect on the Company's financial
position as of July 1, 1994 or results of operations for the year ended June 30,
1995. The Company's investments, maturing at various dates through June 1997,
consist primarily of U.S. Government Treasury Bills and are valued at amortized
cost which approximates market. The Company classifies its investments as
held-to-maturity as the Company has both the intent and ability to hold these
securities until maturity.
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, 1996,
the Company's accounts receivable with customers outside the United States was
approximately $1,322,000 of which approximately $1,233,000 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) method or
market.
F-8
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Basis of Presentation, Organization and Business,
and Summary of Significant Accounting Policies (continued)
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.
Revenue Recognition
Sales are recognized upon shipment of products.
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 81.4% 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 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. There has been no such
impairment to date.
Income Taxes
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards (SFAS) 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.
F-9
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Basis of Presentation, Organization and Business,
and Summary of Significant Accounting Policies (continued)
Net Income (Loss) 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 during the year ended June 30, 1996
plus dilutive common share equivalents. For the year ended June 30, 1995,
outstanding common stock warrants and options have not been included in such
computation as the effect of such would be antidilutive.
Foreign Currency Translation
The Company follows the policies prescribed by SFAS No. 52 for translation of
the financial results of its foreign subsidiary. 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.
Research and Development
All research and development expenses related to the Company's industrial and
medical 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.
F-10
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Basis of Presentation, Organization and Business,
and Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncement
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is required to be adopted by the Company in fiscal year
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 grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period. Pursuant to SFAS No. 123, companies are encouraged, but are 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," but would be required to disclose in a note to the 1997 financial
statements pro forma net income and per share amounts as if the Company had
applied the new method of accounting. SFAS No. 123 also requires increased
disclosures for stock-based compensation arrangements. The Company has not yet
determined if it will elect to change to the fair value method or provide the
necessary pro forma information, nor has it determined the effect the new
standard will have on its operating and per share results should it elect to
make such change.
2. Restructuring Charge
In December 1994, the Company's Board of Directors formally approved a plan to
suspend research and development in connection with the Company's medical
devices. This was necessary because outside funding for further development of
these technologies was not available (see Note 13). As a result, the Company
recorded a restructuring charge of approximately $416,000 to reflect the
discontinuance of this portion of the Company's operations. The restructuring
charge included approximately $197,000 of employee severance and related costs
(which included the resignation of the Company's CEO), approximately $138,000 of
property and equipment write-offs and approximately $81,000 of facility rental
expense related to the Company's research and development activities.
At June 30, 1996, accrued expenses includes $45,000 related to the balance of
the restructuring charge.
F-11
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Inventories
Inventories are summarized as follows:
June 30,
1996
----------------
Raw materials $ 653,884
Work-in-process 49,962
Finished goods 498,468
----------------
$ 1,202,314
================
4. Property and Equipment
Property and equipment consist of the following:
June 30,
1996
----------------
Machinery and equipment $ 896,292
Furniture and fixtures 556,113
Autos 287,111
Leasehold improvements 255,932
----------------
1,995,448
Less accumulated depreciation and amortization 1,373,021
----------------
$ 622,427
================
Included in machinery and equipment at June 30, 1996 is approximately $148,000
of data processing equipment and telephone equipment under capital leases with
related accumulated amortization of approximately $148,000. Also, included in
autos is approximately $197,298 under capital leases with accumulated
amortization of approximately $56,463. The Company purchased approximately
$94,000 of equipment under capital lease arrangements during the year ended June
30, 1996.
F-12
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. 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, 1996, the amount of this facility is (pound)350,000 and
bears interest at United Kingdom prime rate (5.75% at June 30, 1996) plus 2%.
This facility is secured by the assets of Labcaire and (pound)50,000 is
guaranteed by its directors. As of June 30, 1996, (pound)150,000 of this
facility was guaranteed by Misonix with an irrevocable standby letter of credit.
As of July 1996, Misonix no longer guaranteed this facility as it was not
required to by the Bank. The facility expires in August 1997. At June 30, 1996,
the balance outstanding under this overdraft facility was (pound)333,930
($518,259).
In October 1992, Misonix secured a $500,000 line of credit with a bank bearing
interest at the bank's prime (8.25% at June 30, 1996) plus 2%. The line of
credit, renewable on an annual basis, currently expires on June 30, 1997 and is
secured by all assets of Misonix. No amounts are outstanding under this line at
June 30, 1996.
6. Accrued Expenses and Other Current Liabilities
The following summarizes accrued expenses and other current liabilities:
June 30,
1996
----------------
Accrued payroll and vacation $ 74,682
Accrued payroll taxes 64,228
Accrued commissions 57,352
Accrued restructuring costs 44,862
Other 167,729
================
$ 408,853
================
F-13
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Leases
Misonix has entered into several noncancellable operating leases for the rental
of certain office space and automobiles expiring in various years through 1998.
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, 1996:
Capital Operating
Leases Leases
-----------------------------
1997 $ 66,809 $ 313,000
1998 60,354 275,000
1999 35,800 71,000
2000 6,652 4,000
-----------------------------
Total minimum lease payments 169,615 $ 663,000
Amounts representing interest 34,968 ===============
--------------
Present value of net minimum lease payments
(including current portion of $52,884) $ 134,647
===============
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 $282,000 and $286,000
for the years ended June 30, 1996 and 1995, respectively.
F-14
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Capital Transactions
In June 1995, the Company issued 30,000 shares of common stock to three outside
directors for serving on its Board of Directors for the year ended June 30,
1995.
In January 1992, the Company completed a public offering of 1,600,000 shares of
its common stock and 1,840,000 warrants to purchase 1,840,000 shares of its
common stock at $7.80 per share, for $8,686,024, net of expenses. These warrants
expire in January 1997. Also, in connection with this offering, the Company
granted the underwriters a right through January 1997 to acquire an additional
160,000 shares of common stock at a price of $10.725 per share and warrants to
acquire 160,000 shares of common stock in similar form to the public offering
warrants, but at an exercise price of $12.87 per share.
In connection with a private placement which occurred in October 1991,
redeemable warrants entitling the holders the right to purchase 100,000 shares
of common stock at $7.80 are outstanding. These warrants also expire in 1997.
Stock Option Plan
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, at the discretion of the Board of
Directors, of (i) 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
(ii) 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 250,000 shares.
The exercise price of all stock options granted under the Option Plan 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 for options
granted pursuant to the Option Plan. Options shall become exercisable at such
time and in such installments as the Board shall provide in the terms of each
individual option.
F-15
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Capital Transactions (continued)
In March 1996, the Board of Directors approved the 1996 Employee Incentive Stock
Option Plan covering an aggregate of 300,000 common shares of the Company, and a
1996 Outside Directors Stock Option plan covering an aggregate of 750,000 common
shares of the Company. The Board then granted options to acquire 519,000 shares
at a price of $1.10 under the Outside Directors Plan. The options are
exercisable for 10 years. Both of these Plans are subject to shareholder
approval.
Options and warrants outstanding are summarized as follows:
Options Warrants
---------------------------------------------------------
Exercise Price Exercise Price
Shares Per Share Shares Per Share
---------------------------------------------------------
June 30, 1994 149,000 $3.25-$6.50 2,100,000 $7.80-$12.87
Granted 40,000 .75 - -
Exercised - - - -
Sold - - - -
Terminated - - - -
---------------------------------------------------------
June 30, 1995 189,000 $.75-$6.50 2,100,000 $7.80-$12.87
Granted 61,000 $1.10-$1.44 - -
Exercised - - - -
Sold - - - -
Terminated - - - -
---------------------------------------------------------
June 30, 1996 250,000 $.75-$6.50 2,100,000 $7.80-$12.87
=========================================================
As of June 30, 1996, 250,000 shares of common stock are reserved for issuance
under outstanding options and no shares of common stock are reserved for the
granting of additional options. All outstanding options are exercisable and
expire between February 2002 and September 2007.
In June 1995, the Company's Board of Directors approved a change in the exercise
price of the 135,000 outstanding employee stock options to the current market
price of $.75 per share.
F-16
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Commitments
Employment Agreements
The Company has entered into an employment agreement with its chief executive
officer which expires August 31, 1997. Said agreement provides for an annual
base compensation of $160,000 plus incentives as defined in the agreement.
10. Geographic Information
The Company's revenues are generated from various geographical regions. The
following is an analysis of net sales by geographic region:
Year ended June 30
1996 1995
------------------------------
United States $ 4,270,035 $ 4,067,920
Canada & Mexico 94,993 70,583
Europe 4,532,986 3,859,774
Asia 703,371 423,884
Middle East 146,086 67,336
Other 165,665 62,187
------------------------------
$ 9,913,136 $ 8,551,684
==============================
11. Income Taxes
The Company has accumulated approximately $6,956,000 of net operating losses as
at December 31, 1995 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 expire through fiscal year 2011.
Additionally, based on ownership changes as a result of the public offering
consummated in January 1992 (Note 8), as well as historical issuances of common
stock, it is expected that the annual utilization of the otherwise available net
operating loss carryforwards will be limited by the provisions of Section 382 of
the Internal Revenue Code, as amended. As such, the Company will be restricted
as to the utilization of its pre-fiscal 1992 net operating loss carryforwards.
F-17
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
The Company has recorded a deferred tax asset of approximately $2,782,000 at
June 30, 1996 related to the aforementioned net operating loss carryforwards. A
valuation allowance of equal value has been recorded which has the effect of
reducing the carrying value of the deferred tax asset to zero. The valuation
allowance, which increased by approximately $22,000 during the year ended June
30, 1996, is of equal value since it is unknown as to whether the net operating
loss carryforwards will be utilized. Other temporary differences are not
material.
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 and is being amortized over 25
years. The balance of the capital stock of Labcaire is owned by four directors
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 will be purchased by the Company for
(pound)62,388 (approximately $93,582) representing the fiscal 1996 buy-back
portion. The effective date of this transaction is expected to be October 1996.
13. Licensing Agreement
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
<PAGE>
Misonix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Licensing Agreement (continued)
be performed by the Company. Pursuant to the license agreement, the Company
received $300,000 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. The Company expects to receive an additional $200,000 of licensing
fees from MDA ($100,000 of which is included in accounts receivable and deferred
income at June 30, 1996). Also as part of the agreement, the Company was
reimbursed for certain pre-marketing costs and a maximum of $30,000 per month
(commencing September 1995) for product development expenditures (as defined in
the agreement). The amount of all reimbursements for the year ended June 30,
1996 was $320,363.
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, they
have reconfirmed their assignment of the patent rights to the Company in
exchange for 5% of all royalties received by the Company from this technology,
including those received from the MDA license.
F-19
<PAGE>
MISONIX, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<S> <C>
September 30,
ASSETS 1996
------ --------------
CURRENT:
Cash and cash equivalents $ 1,048,278
Investments held to maturity 469,324
Accounts receivable, net of allowance
for doubtful accounts of $59,494 2,075,392
Inventories (Note 3) 1,503,124
Prepaid expenses and other current assets 330,657
----------
TOTAL CURRENT ASSETS 5,426,775
PROPERTY, PLANT AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $1,428,733 692,291
PATENTS, at cost, less accumulated
amortization of $1,099 28,623
GOODWILL, less accumulated amortization
of $40,208 201,091
OTHER 23,839
$ 6,372,619
----------
----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
CURRENT:
Note payable to bank $ 540,919
Accounts payable 1,158,693
Accrued expenses and other current liabilities 225,579
Current maturities of capital lease obligations 67,938
----------
TOTAL CURRENT LIABILITIES 1,993,129
CAPITAL LEASE OBLIGATIONS 105,179
DEFERRED INCOME 370,833
MINORITY INTEREST (Note 1) 77,216
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; shares authorized
10,000,000; issued and outstanding 2,800,000 28,000
Additional paid-in capital 11,100,793
Deficit (7,271,128)
Cumulative foreign currency translation adjustment (31,403)
----------
TOTAL STOCKHOLDERS' EQUITY 3,826,262
----------
$ 6,372,619
----------
----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
MISONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended
September 30,
----------------------------
1996 1995
---- ----
<S> <C> <C>
NET SALES $ 2,789,834 $ 2,103,226
COST OF GOODS SOLD 1,357,308 1,158,801
---------- ----------
Gross profit 1,432,526 944,425
---------- ----------
OPERATING EXPENSES:
Selling, general and
administrative expenses 1,083,813 980,172
Research and development 35,206 55,089
--------- ----------
Total operating expenses 1,119,019 1,035,261
---------- ----------
Income (Loss) from operations 313,507 (90,836)
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 16,087 13,449
Interest expense (10,451) (9,203)
Option/license fees 110,000 -
Foreign exchange gain (loss) (1,308) (8,523)
Miscellaneous (expense) income (436) 25,004
----------- ----------
Total other income 113,892 20,727
---------- ----------
Income (Loss) before minority interest 427,399 (70,109)
Minority interest in net income of
consolidated subsidiary (1,937) (5,354)
---------- ----------
NET INCOME (LOSS) $ 425,462 $ (75,463)
========== ==========
NET INCOME (LOSS) PER SHARE $ .14 $ (.03)
===== =====
WEIGHTED AVERAGE COMMON SHARES AND
SHARE EQUIVALENTS OUTSTANDING 2,944,716 2,800,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-21
<PAGE>
MISONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
September 30,
--------------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 425,462 $ (75,463)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 56,494 50,497
Minority interest in net income
of subsidiary 1,937 5,354
Foreign currency loss 4,072 7,414
Changes in operating assets and
liabilities:
Accounts receivable (103,359) 110,311
Inventory (295,641) (72,941)
Prepaid expenses and other
receivables 176,159 (76,899)
Deposits and other assets - 2,479
Accounts payable and accrued
expenses (179,029) 7,601
---------- ----------
Net cash provided by (used in)
operating activities 86,095 (41,647)
---------- ----------
INVESTING ACTIVITIES:
Sale of investments held to maturity - 195,017
Purchase of investments held to maturity (116,271) (197,300)
Acquisition of property and equipment (120,657) (34,782)
Patent costs (322) -
---------- ----------
Net cash used in investing activities (237,250) (37,065)
---------- ----------
FINANCING ACTIVITIES:
Increase (decrease) in capital
lease obligations 37,189 (9,076)
Deferred income (10,000) -
Note payable to bank 18,242 201,723
Principal payments on capital lease
obligation - -
---------- ----------
Net cash provided by financing activities 45,431 192,647
---------- ----------
Effect of exchange rates 3 (4)
---------- ----------
NET (DECREASE) INCREASE IN CASH (105,721) 113,931
CASH, beginning of period 1,153,999 885,944
---------- ----------
CASH, end of period $ 1,048,278 $ 999,875
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to interim periods is unaudited)
1. Basis of Presentation
The consolidated financial statements of Misonix, Inc. include the accounts of
Misonix, Inc., its 81.4% owned subsidiary, Labcaire Systems Ltd., and its 100%
owned subsidiary Misonix, Ltd. Subsequent to September 30, 1996, the Company
increased its ownership in Labcaire to 84.05% (see Note 5). All significant
intercompany balances and transactions have been eliminated.
2. Interim Periods
The financial statements for the three months ended September 30, 1996 and 1995
are unaudited but, in the opinion of management, include all adjustments,
consisting of normal recurring accruals, necessary for fair presentation of
financial position and results of operations. Results for the interim periods
are not necessarily indicative of the results for a full year. For further
information refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report for the year ended June 30, 1996.
3. Inventories
Inventories are summarized as follows:
September 30,
1996
Raw materials $ 816,325
Work-in-process 142,152
Finished goods 544,647
----------
$1,503,124
----------
----------
4. License Agreement For Medical Technology
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 is entitled, under the license agreement, to receive aggregate
licensing fees, over the term of the agreement, of approximately $500,000, plus
royalties based upon net sales of such products. The Company already received
$100,000 under the option agreement which preceded the license agreement and has
recorded this amount as option fee income for the quarter ended September 30,
1996.
5. Acquisition
In October 1996, under the terms of the revised purchase agreement with Labcaire
(as discussed in the Form 10-KSB at June 30, 1996), the Company paid
(pound)62,388 (approximately $102,099) for 9,284 shares (2.65%) of the 65,000
outstanding shares owned by the Labcaire directors. This represents the fiscal
1996 buy-back portion.
F-23
<PAGE>
MISONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Information with respect to interim periods is unaudited)
6. Capital Transactions
As previously reported, in March 1996, the Board of Directors approved a 1996
Employee Incentive Stock Option Plan covering an aggregate of 300,000 common
shares of the Company and a 1996 Outside Directors Stock Option Plan covering an
aggregate of 750,000 common shares of the Company. The Board then granted
options to acquire 519,000 shares at a price of $1.10 under the Outside
Directors Plan. The options are exercisable for 10 years. Both of these plans,
and the transactions under which options to acquire 519,000 shares were granted,
are subject to shareholder ratification and approval at the next annual meeting
of shareholders. Such approval may result in a noncash compensation charge in an
amount not presently determinable.
F-24
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, the Selling
Securityholders or by the Underwriter. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy, by any person in any
jurisdiction in which it is unlawful for such person to make such offer or
solicitation. Neither the delivery of this Prospectus nor any offer,
solicitation or sale made hereunder shall, under any circumstances create any
implication that the information herein is correct as of any time subsequent to
the date of the Prospectus.
-------------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................................... 3
The Company.............................................................. 3
The Offering............................................................. 4
Risk Factors............................................................. 5
Dividends................................................................ 7
Price Range.............................................................. 7
Capitalization........................................................... 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 9
Business ................................................................ 15
Management............................................................... 22
Certain Transaction...................................................... 26
Description of Securities................................................ 27
Litigation............................................................... 29
Legal Matters............................................................ 29
Experts.................................................................. 29
Index to Financial Statements............................................ F-1
-------------------------------
Until February 13, 1997 (25 days after the date of this Prospectus), all dealers
affecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with their unsold allotments or subscriptions.
================================================================================
MISONIX, INC.
1,940,000 Share of
Common Stock
==========
PROSPECTUS
==========
January 17, 1997
================================================================================
-36-
<PAGE>
Part II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
It is estimated that the following expenses will be incurred in connection with
the proposed offering hereunder. All of such expenses will be borne by the
Company.
Transfer Agent and Warrant Agent fees and expenses......................$ 500
Legal fees and expenses..................................................10,000
Accounting fees and expenses..............................................5,000
Printing expenses and electronic filing (EDGAR costs).................... 3,000
Total...........................................................18,500
Item 14. Indemnification of Directors and Officers
a. Section 722 of the New York Business Corporation Law ("NYBCL") permits,
in general, a New York corporation to indemnify any person made, or
threatened to be made, a party to an action or proceeding by reason of
the fact that he or she was a director or officer of the corporation,
or served another entity in any capacity at the request of the
corporation, against any judgment, fines, amounts paid in settlement
and reasonable expenses, including attorney's fees actually and
necessarily incurred as a result of such action or proceeding, or any
appeal therein, if such person acted in good faith, for a purpose he or
she reasonably believed to be in, or, in the case of service for
another entity, not opposed to, the best interests of the corporation
and, in criminal actions or proceedings, in addition had no reasonable
cause to believe that his or her conduct was unlawful. Section 723 of
the NYBCL permits the corporation to pay in advance of a final
disposition of such action or proceeding the expenses incurred in
defending such action or proceeding upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount as, and to
the extend, required by statute. Section 721 of the NYBCL provides that
indemnification and advancement of expense provisions contained in the
NYBCL shall not be deemed exclusive of any rights to which a director
or officer seeking indemnification or advancement of expenses may be
entitled, provided no indemnification may be made on behalf of any
director or officer if a judgment or other final adjudication adverse
to the director or officer establishes that his or her acts were
committed in bad faith or were the result of active or deliver
dishonesty and were material to the cause of action so adjudicated, or
that he or she personally gained in fact a financial profit or to the
advantage to which he or she was not legally entitled.
b. Article Seventh of the Company's Certificate of Incorporation provides,
in general, that the Company may indemnify, to the fullest extent
permitted by applicable law, every person threatened to be made a party
to any action, suit or proceeding by reason of the fact that such
person is or was an officer or director or was serving at the request
of the Company as a director, officer, employee, agent or trustee of
another corporation, business, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against expenses,
judgments, fines and amounts paid in settlement in connection with such
suit or proceeding. Article Seventh of the certificate of Incorporation
also provides that the Company may indemnify and advance expenses to
those persons as authorized by resolutions of a majority of the Board
of Directors or
-37-
<PAGE>
stockholders, agreement, directors' or officers' liability insurance
policies, or any other form of indemnification agreement.
c. In accordance with that provision of the Certificate of Incorporation,
the Company shall indemnify any officer or director (including officers
and directors serving another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity at the
Company's request) made, or threatened to be made, a party to an action
or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that he or she was serving in any
of those capacities against judgments, fines, amounts paid in
settlement and reasonable expenses (including attorney's fees) incurred
a sa result of such action or proceeding Indemnification would not be
available under Article Seventh of the Certificate of Incorporation if
a judgment or other final adjudication adverse to such director or
officer establishes that (i) his or her acts were committed in bad
faith or were the result of active and deliberate dishonesty and, in
either case, were material to the cause of action so adjudicated, or
(ii) he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled. Article Seventh
of the Certificate of Incorporation further stipulates that the rights
granted therein are contractual in nature.
Item 15. Recent Sales of Unregistered Securities
N/A
-38-
<PAGE>
Item 16. Exhibits and Financial Statement Schedule
(a) The following exhibits are filed as part of this Registration
Statement:
1.1 Form of Underwriting Agreement
1.2 Form of Underwriter's Warrant Agreement
2.1 Certificate of Merger, dated August 27, 1991, including Plan of Merger
3.1 Restated Certificate of Incorporation of the Company
3.2 By-laws of the Company
4.1 Form of Warrant Agreement
4.2 Form of Specimen of Redeemable Warrant Certificate
5.1 Opinion of Parker Chapin Flattau & Kimpl re: legality of securities
being registered
5.2* Opinion of Hartman & Craven LLP respecting legality of securities
being registered
10.1 Lease of the Company's executive offices
10.2 Stock Option Plan
10.3 Consulting Agreement dated as of October 16, 1990 between the Company
and Michael Juliano
10.4 Employment Agreement dated September 1, 1991 between the Company and
Michael Juliano
10.5 Employment Agreement dated September 1, 1991 between the Company and
Howard Alliger
10.6 Employment Agreement dated September 1, 1991 between the Company and
Joseph Librizzi
10.7 Form of Financial Advisory and Investment Banking Agreement between the
Company and Josephthal Lyon & Ross Incorporated
10.8 Revolving Credit Note dated June 25, 1991 from the Company to The North
East Bank & Trust Company (the "Bank")
10.9 Promissory Note in the principal amount of $100,000, dated May 13,
1991, from the Company to the Bank
10.10 Security Agreement dated May 13, 1991, between the Company and the Bank
10.11 Settlement and License Agreement dated March 12, 1984 between the
Company and Mettle Electronics Corp.
10.12 Know-How, Trademark and License Agreement dated July 25, 1983, between
the Company and Astec Environmental Systems, Ltd.
10.13 Form of Confidentiality Agreement between the Company and its employees
-39-
<PAGE>
10.14 Form of Second Promissory Note issued in connection with the Private
Placement
10.15 Security Agreement dated September 16, 1991, between the Company and
Josephthal Lyon & Ross incorporated, as agent
10.16 Form of Common Stock Purchase Warrants issued in connection with the
Private Placement
10.17* Agreement with Medical Device Alliance, Inc.
10.18* Agreement with United States Surgical Corporation
10.19* Amended Employment Agreement with Joseph Librizzi
16 Letter from Frederick S. Todman & Company Regarding Change in
Accountants
22 Subsidiaries of the Company
24.1 Consent of BDO Seidman (see page II-6)
24.2 Consent of Frederick S. Todman & Company (see page II-7)
24.3 Consent of Parker Chapin Flattau & Klimpl (included in their opinion
filed as Exhibit 5.1)
24.4 Consent of James H. Boyle
24.5 Consent of Arthur Gerstenfeld
24.6* Consent of Ernst & Young LLP
24.7* Consent of Hartman & Craven LLP (included in their opinion filed as
Exhibit 5.2)
25.1 Power of Attorney
- -------------------------
* Filed herewith
(b) Financial Statement Schedules
Schedules:
Schedule IV - Indebtedness of and to Related Parties
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-term Borrowings
Schedule X - Supplementary Income Statement Information
-40-
<PAGE>
Item 17. Undertakings
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any fats or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore,unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will,unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
Signatures
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirement of filing on Form S-1 and has authorized this Post-Effective
Amendment No. 1 to its registration statement to be signed on its behalf by the
undersigned in the city of Farmingdale, New York on January 15, 1997.
MISONIX, INC.
BY: s/Joseph Librizzi
---------------------------
Joseph Librizzi, President
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, the
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signatures Title Date
s/Joseph Librizzi President and January 15, 1997
- --------------------- Chief Executive Officer
Joseph Librrizi
s/Gary Gelman Chairman of the Board of January 15, 1997
- --------------------- Directors
Gary Gelman
s/Peter Gerstheimer Chief Financial Officer, January 15, 1997
- --------------------- Treasurer, and Secretary
Peter Gerstheimer
s/Howard Alliger Director January 15, 1997
- ---------------------
Howard Alliger
s/Arthur Gerstenfeld Director January 15, 1997
- ---------------------
Arthur Gerstenfeld
<PAGE>
Exhibit No. DESCRIPTION
- ----------- -----------
1.1 Form of Underwriting Agreement
1.2 Form of Underwriter's Warrant Agreement
2.1 Certificate of Merger, dated August 27, 1991, including Plan of Merger
3.1 Restated Certificate of Incorporation of the Company
3.2 By-laws of the Company
4.1 Form of Warrant Agreement
4.2 Form of Specimen of Redeemable Warrant Certificate
5.1 Opinion of Parker Chapin Flattau & Kimpl re: legality of securities
being registered
5.2* Opinion of Hartman & Craven LLP respecting legality of securities
being registered
10.1 Lease of the Company's executive offices
10.2 Stock Option Plan
10.3 Consulting Agreement dated as of October 16, 1990 between the Company
and Michael Juliano
10.4 Employment Agreement dated September 1, 1991 between the Company and
Michael Juliano
10.5 Employment Agreement dated September 1, 1991 between the Company and
Howard Alliger
10.6 Employment Agreement dated September 1, 1991 between the Company and
Joseph Librizzi
10.7 Form of Financial Advisory and Investment Banking Agreement between the
Company and Josephthal Lyon & Ross Incorporated
10.8 Revolving Credit Note dated June 25, 1991 from the Company to The North
East Bank & Trust Company (the "Bank")
10.9 Promissory Note in the principal amount of $100,000, dated May 13,
1991, from the Company to the Bank
10.10 Security Agreement dated May 13, 1991, between the Company and the Bank
10.11 Settlement and License Agreement dated March 12, 1984 between the
Company and Mettle Electronics Corp.
<PAGE>
10.12 Know-How, Trademark and License Agreement dated July 25, 1983, between
the Company and Astec Environmental Systems, Ltd.
10.13 Form of Confidentiality Agreement between the Company and its employees
10.14 Form of Second Promissory Note issued in connection with the Private
Placement
10.15 Security Agreement dated September 16, 1991, between the Company and
Josephthal Lyon & Ross incorporated, as agent
10.16 Form of Common Stock Purchase Warrants issued in connection with the
Private Placement
10.17* Agreement with Medical Device Alliance, Inc.
10.18* Agreement with United States Surigical Corporation
10.19* Amended Employment Agreement with Joseph Librizzi
16 Letter from Frederick S. Todman & Company Regarding Change in
Accountants
22 Subsidiaries of the Company
24.1 Consent of BDO Seidman (see page II-6)
24.2 Consent of Fredercik S. Todman & Company (see page II-7)
24.3 Consent of Parker Chapin Flattau & Klimpl (included in their opinion
filed as Exhibit 5.1)
24.4 Consent of James H. Boyle
24.5 Consent of Arthur Gerstenfeld
24.6* Consent of Ernst & Young LLP
24.7* Consent of Hartman & Craven LLP (included in their opinion filed as
Exhibit 5.2)
25.1 Power of Attorney
- -------------------------
* Filed herewith
[LETTERHEAD OF HARTMAN & CRAVEN LLP]
212-836-4940
January 15, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Misonix, Inc.
Post Effective Amendment No. 1 to
Registration Statement, File No. 33-43585
Dear Sir or Madam:
We are corporate and securities counsel to Misonix, Inc., a New York
corporation (the "Company") in connection with the registration on Form S-1 of
1,940,000 of the Company's common shares, $.01 par value ("Shares"), reserved
for issuance upon exercise of its Redeemable Warrants.
We hereby advise that, in our opinion, the Shares have been duly
authorized by all necessary corporate acts of the Company and, when issued,
delivered and paid for by the holders of Redeemable Warrants in connection with
their exercise of the Redeemable Warrants, will be legally and validly issued,
fully paid and non-assessable.
We consent to the use of our firm's name under the heading "Legal
Matters" in the Registration Statement, and any amendments thereto, filed with
the Securities and Exchange Commission in connection with the above-referenced
offering.
Very truly yours,
HARTMAN & CRAVEN LLP
BY: /S/ Edward I. Tishelman
-----------------------
Edward I. Tishelman, a
duly authorized partner
<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 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.
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 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 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
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
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. AR 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
6
<PAGE>
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 requiring such third parties not to disclose Confidential Information
disclosed to
7
<PAGE>
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
8
<PAGE>
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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<PAGE>
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
10
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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, judgment,
settlement or recover, 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 this 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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<PAGE>
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
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under the terms of this Agreement. USSC shall instruct such escrow agent to
deposit such payments in an interest-bearing account and t release the same to
the third party(s), if any, awarded damages in such action, sui 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, ff any, of the principal and interest to Misonix after final
determination of and any reduction for all of the foregoing. Such future
Royalties share 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
out of such fraud or misrepresentation or breach of warranty, deposit 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
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.
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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.
<PAGE>
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 limitt 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
tills Agreement
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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.
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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
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
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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 more of Misonix and any one or
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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 Article 5, 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.
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MISONIX INCORPORATED
By: s/Joseph Librizzi
-----------------
Name: Joseph Librizzi
Title: President & CEO
UNITED STATES SURGICAL CORPORATION
By: s/Eitan Nahum
-------------
Name: Eitan Nahum
Title: V.P Strategic Planning &
Business Development
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SCHEDULE 1
Patent/Trademark
Title Country No. Status Date
- ----- ------- --- ------ ----
23
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LETTER OF AGREEMENT
THIS LETTER AGREEMENT is made and entered into as of the 11th day of
September, 1995 by and between MISONIX, INC., a New York Corporation with its
principal offices at 1938 New Highway, Farmingdale, New York 11735 (hereinafter
referred to as "MISONIX") and MEDICAL DEVICE ALLIANCE, INC., ("MDA") a Nevada
Corporation having its principal offices at 3315 East Russell Road, Suite H-193,
Las Vegas, Nevada 89120 (hereinafter referred to as "MDA").
W I T N E S S E T H:
WHEREAS, MISONIX has a business which is, in part, based on the
research, development, and manufacturing of ultrasonic equipment for scientific
and industrial purposes; and
WHEREAS, MDA has a business that has been organized to market and sell,
on a worldwide basis, medical devices specifically designed to improve the
treatment of patients desiring a surgical procedure commonly referred to as
"Liposuction" or "Liposculpturing" (hereinafter referred to as the "Procedure");
and
WHEREAS, MISONIX has already utilized its engineering experience,
ultrasonic technology, and prototype manufacturing capabilities to design and
assemble one or more ultrasonic systems (hereinafter referred to as the
"System") specifically for use in performing the Procedure; and
WHEREAS, MDA has experience in identifying various needs in marketing
and selling to the medical fields on a worldwide basis, especially the
specialties of Plastic and Reconstructive Surgery, Cosmetic Surgery and Surgical
Dermatology; and
WHEREAS, MISONIX desires to continue further technical and application
engineering directed to advanced designs of the System utilizing its patented
technology and, in addition, manufacture the finished product; and
WHEREAS, MDA desires to use its market and selling skills to market the
System on an exclusive worldwide basis.
NOW THEREFORE, in consideration of the premises and promises,
warranties and representations herein contained, the parties hereto agree as
follows:
I. Exclusive Option Period: MISONIX will provide MDA an
exclusive option period to evaluate the System under the
following conditions:
A. Length of exclusive option period to be ninety
(90) calendar days, commencing on September 11,
1995.
<PAGE>
B. MISONIX shall deliver to MDA a functional
prototype System, of the latest design, as soon
as possible, but in no case, later than September
24, 1995.
C. MDA will pay MISONIX twenty-five thousand dollars
($25,000.00) upon executing this Letter Agreement
for the Exclusive Option Period.
D. Development funding for the autoclavability (i.e.
sterilization) of the converter and umbilical cable
and the manufacturability of the System will be
provided by MDA. It is estimated at a maximum of
thirty thousand ($30,000.00) per month until the
start of production. A fifteen thousand dollar
($15,000) advance will be made by MDA to MISONIX
against future billings (the "Advance") for the
purpose of assuring that MISONIX will implement the
start of the subject development work as soon as
possible: MISONIX will invoice MDA following the end
of each month for the actual amount expended, which
is to be paid by MDA within ten (10) working days of
invoicing by MISONIX. In this manner, the Advance
will continue to remain with MISONIX, on a
month-to-month basis, as a credit balance in favor of
MDA, until the start of production, when the credit
provisions of the License Agreement (II.D) come into
effect. Estimated time frame will be six months,
subject to suggestions of, and modifications by,
technicians for both parties.
E. MDA will pay MISONIX an additional twenty-five
thousand dollars ($25,000.00) on November 11,
1995, for the last thirty (30) days of the
Exclusive Option Period unless:
1. MDA notifies MISONIX that it is terminating
this Letter of Agreement and thus forgoing
any further rights to market and sell the
System; or
2. MISONIX and MDA have mutually agreed to the
final terms and conditions of the License
Agreement that forgoes the remainder of the
Option Agreement, and is effective when an
executed original of the License Agreement,
is delivered to both parties.
II. License Agreement: The License Agreement between
MISONIX and MDA shall be executed prior to the conclusion of the
ninety (90) day option period and no later than December 11,
1995, and will be good for a period of ten (10) years ending on
December 31, 2005. The basic terms and conditions of the
License Agreement shall be:
A. MDA To Receive:
1. Exclusive worldwide marketing and sales
rights to the System utilizing MISONIX
Ultrasonic Liposuction technology (including
Patent No. 5,419,761; and all improvement
patents and foreign patents now or hereafter
held by MISONIX). MISONIX retains the
rights to ultrasonic technologies for
non-medical applications.
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2. Exclusive rights to utilize MISONIX letter,
dated October 15, 1993, from the U.S. Food
and Drug Administration, which provides for
marketing the System under Section 510(K),
based on substantial equivalence to devices
marketed prior to enactment of the Medical
Device Act of 1976.
3. Access to MISONIX technical support and the
design history of the System.
4. Right to modify specifications to meet
clinical/market needs at MDA's cost.
5. Right of name and logo selection by MDA.
6. Commitment by MISONIX to designate and
supply a dedicated product development team
to work with MDA market development team and
support staffs for successful project
development.
7. First right of license for existing
technology improvements or future medical
technology developed by MISONIX (except for
angioplasty) while the License Agreement is
in force.
B. MISONIX to Receive:
1. A License Fee payment of three hundred
thousand dollars ($300,000.00) upon
execution of the License Agreement.
2. MDA will provide market and application
development, and a clinical and marketing
plan (milestones) to MISONIX. MDA to be
responsible for planning and funding
clinical tests of the System.
3. Upon delivery of five (5) prototype units,
MDA will pay the cost of the Systems which
is four thousand dollars ($4,000.00) per
unit, plus an additional License Fee of one
hundred thousand dollars ($100,000.00).
4. At the start of regular production, or one
year from the date of the License Agreement,
the additional License Fee of one hundred
thousand dollars ($100,000.00) will be paid
by MDA for a total license fee payment of
five hundred thousand dollars ($500,000.00).
5. Furthermore a Royalty Fee of five percent
(5%) will be paid on net sales of the System
and accessories sold.
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<PAGE>
6. MDA to grant MISONIX a security interest in
this License Agreement to secure performance
by MDA of its obligations thereunder.
C. Both to Agree:
1. Mutual non-competition clause in Ultrasonic
Assisted Liposuction for the life of this Agreement.
D. Quantity and Price. MISONIX agrees to sell to MDA and
MDA agrees to buy from MISONIX one hundred percent
(100%) of MDA's requirement of the aforesaid
Ultrasonic Assemblies in accordance with the
specifications set forth in Schedule A. Technological
changes and variations from the prototype
specifications shall increase the cost appropriately.
The prices can be increased by MISONIX only under one
of the following circumstances: MISONIX may, with
written notification to MDA, increase the price in
accordance with the rise in the Official Consumer
Price Index (CPI). Such increase in the price in
accordance with the CPI, can be made once each year
during the term of the Agreement, except during the
first year, and whenever the cost of labor and/or raw
material to MISONIX changes substantially, MISONIX may
change the price of the Ultrasonic Units, with a
ninety (90) day advance written notice to MDA, to
reflect such substantially changing and/or raw
material costs. All Ultrasonic Units for MDA will be
manufactured in accordance with the specifications set
forth in Schedule B.
All shipments will be F.O.B. point of origin. MDA will remit
payment within thirty (30) days from the date each invoice is
received by MDA with respect to shipments of Ultrasonic Units.
Credit terms: (a) open account for up to 20 Units at any time
(b) balance by Letter of Credit or fifty percent (50%) cash
payment at time of order. MDA has no obligation to pay for any
shipment of Ultrasonic Units that does not meet the
specifications as set forth in Schedule B and have been
returned to, and accepted by, MISONIX for credit.
E. Delivery. MDA shall submit purchase orders setting
forth the quantities, delivery date and shipping
instructions with respect to each shipment such
purchase order to be received by MISONIX at least
ninety (90) days prior to the stipulated delivery
date. MISONIX shall ship each order to MDA or MDA's
designee to the location specified, as instructed by
MDA.
F. Quality. It is understood and agreed that all
Ultrasonic Units sold to MDA hereunder will meet the
established specifications, as described in the
attached Schedule B, which Schedule may be revised
from time to time by agreement of the parties
hereunder. Furthermore, MISONIX shall be responsible
to adhere to current good manufacturing practice (GMP)
and to all applicable U.S. governmental laws and
regulations, as may be amended from time to time
relating to the manufacture, sale and shipment of
Ultrasonic Units sold hereunder. Cost of future
filings and modifications of units necessitated
thereby to be borne by MDA, which shall receive prior
notice of proposed actions and expenditures and shall
participate in the decision making process.
-4-
<PAGE>
G. Quality Assurance. MISONIX will provide MDA with the
test results of all Ultrasonic Units to be shipped to
MDA. Furthermore, MISONIX shall advise MDA of any
changes in the manufacturing process or in materials
which have an impact on the quality or performance of,
or regulatory issues relating to, the Ultrasonic Units
purchase hereunder.
All Ultrasonic Units delivered to MDA shall be subject to
acceptance by MDA's quality assurance staff acting reasonable.
Unless MDA gives MISONIX notice to the contrary within ten
(10) working days after receipt of a shipment of a Product,
such shipment shall be deemed to be accepted by MDA. MDA or
MDA's designee shall have the right to reject any shipment
made to it hereunder which does not meet such quality
assurance specifications when such products are received. In
the event that any such shipment is not approved by MDA
because it does not meet said specification, MDA shall advise
MISONIX in writing and MISONIX agrees to replace such shipment
at its expense including charges incurred by MDA for freight
and customs clearance if application, and resubmit to MDA
within forty-five (45) days. At MISONIX'S option, MDA shall
return any such rejected shipment to MISONIX at MISONIX'S
expense.
H. Taxes. Any and all taxes imposed upon or with respect
to or measured by the sale or delivery by MISONIX to
MDA of Ultrasonic Units in accordance with MDA's
instructions shall be for MDA's account.
I. Force Majeure. MISONIX'S obligations and any delays
in deliveries hereunder or portion thereof, and MDA's
obligations to take delivery hereunder when due, shall
be excused by strikes, riots, war, invasion, acts of
God, fire, explosion, floods, delay of carrier,
shortages or failures in the supply of materials, acts
of government agencies or instrumentality's, judicial
action, delay in constructing manufacturing
facilities, and other contingencies beyond the
reasonable control of the party to be excused. In
such event(s), MISONIX will make reasonable efforts to
fulfill MDA's requirements for and MDA will make
reasonable efforts to take delivery of Ultrasonic
Units as defined herein, If for any of the reasons
set forth above, MISONIX shall be unable to delivery
any of the agreed upon quantities of MISONIX
Ultrasonic Units when due, MISONIX shall immediately
notify MDA of such inability and of the period for
which such inability is expected to continue. In the
event MDA elects to manufacture or have Ultrasonic
Units manufactured by a third party, MDA may use or
release to said third party MISONIX'S confidential
technical information and know-how relating to
Ultrasonic Units under a confidentiality agreement
acceptable to MISONIX, which shall not be unreasonably
withheld, to enable MDA or said third party to
manufacture Ultrasonic Unit for MDA's account.
J. Term. This Agreement shall be effective when signed
by both parties, and shall continue in effect for a
period of ten (10) years. MDA shall have the option
to renew this Agreement for five (5) successive one (1)
year periods on the same terms and conditions, and the
price of Ultrasonic Units to be purchased during each
one (1) year period shall also be determined pursuant
to the terms and conditions of this Agreement. MDA
must notify MISONIX that it intends to
-5-
exercise the option at least sixty (60) days prior to the
expiration of the ten (10) year term of the present
Agreement, and thereafter in each successive year at
least sixty (60) days prior to the expiration of the year
in which the option is being exercised.
K. Termination for Cause. If either party shall at any
time fail to abide by any of the provisions of the
Agreement, the other party shall have the right to
terminate this Agreement on sixty (60) days prior
written notice to the defaulting party specifying the
default complained of, provided, however, if said
defaulting party cures the default complained of
within the said sixty (60) day period, or if a non-
monetary default which reasonably would take more than
60 days to cure and the defaulting party is actively
taking steps to cure the same, the Agreement shall
continue in full force and effect as if no default has
occurred. The right of either party to terminate this
Agreement, as hereinabove provided, shall not be
affected in any way by its waiver of, or its failure
to take action with respect to, any previous default.
This Agreement may also be terminated by the other
party in the event that a petition of bankruptcy is
filed by or against a party and not dismissed within
30 days, or a receiver or trustee is appointed for all
or a part of the property of a party or a party makes
an assignment for the benefit of creditors.
L. Rights of Termination. Any termination of this
Agreement as provided herein shall not relieve either
party of any obligation arising hereunder prior to such
termination.
M. Inability To Supply Full Requirements. In the event
that MISONIX cannot supply one hundred percent (100%)
of MDA's requirement of Ultrasonic Units, after
reasonable prior notice and time to gear up for this,
MDA may either itself manufacture or have a third
party manufacture the amount not supplied by MISONIX
during the period that MISONIX cannot supply the
same. MDA may release to said third party MISONIX'S
confidential information and know-how relating to
Ultrasonic Units under a confidentiality agreement
acceptable to MISONIX which shall not be unreasonably
withheld, to enable the third party to manufacture the
amount of Ultrasonic Units not supplied by MISONIX for
MDA.
N. Purchase Orders. The provisions of this Agreement
shall prevail over any inconsistent statements of
provisions contained in any document related to this
Agreement previously passing between companies. This
Agreement shall supersede and prevail over any other
agreement applicable to the subject matter of this
Agreement between the parties which may be in effect
at the time this Agreement is executed.
O. Limited Warranty and Liability
1. MISONIX warrants that the materials described herein
shall meet the specifications as set forth in
Schedule B, but DOES NOT WARRANT THE SUITABILITY OR
USES WHICH MAY BE MADE OF THE SAME OR THE UNITS TO BE
PRODUCED HEREUNDER.
-6-
<PAGE>
2. Except as provided in Paragraph (3) hereafter,
MISONIX shall not be liable for , and MDA assumes
responsibility for, and hereby agrees to
indemnify and hold harmless MISONIX for and
against all costs, expenses and damages
(including reasonable attorney's fees arising
from any claim for personal injury and property
damage resulting from the handling of the
Ultrasonic Units, following MDA's acceptance of
the Ultrasonic Units after it has completed its
testing as provided in Quality Assurance.
3. Except as provided in paragraph (5) hereof, MDA
shall not be liable for, and MISONIX assumes
responsibility for and agrees to indemnify and
save harmless, MDA, for all personal injury and
property damages which occur during MISONIX'S
manufacturing process of Ultrasonic Units or
which Ultrasonic Units are being delivered to MDA
or its designees or for claims based on
violations of Federal, State or local laws or
regulations applicable to employee or
environmental protection in such manufacture or
delivery by MISONIX; e.g., a claim based on
MISONIX'S violations of environmental standards,
standards dealing with providing a safe place to
work, or the transportation of hazardous
materials.
4. Either party, upon learning of the claim or
lawsuit, under Paragraphs (2) or (3) of this
Article, shall notify the other, but MDA's
attorneys shall handle and control such claims or
suits which fall under Paragraph on Limited
Warranty and Liability (2) and MISONIX'S
attorneys shall handle and control such claims or
suits which fall under Paragraph on Limited
Warranty and Liability (3).
5. Notwithstanding the foregoing provisions hereof,
MDA shall secure product liability insurance
coverage covering personal injury and property
damage for the products produced hereunder, at
the full cost and expense of MDA, in an amount of
not less than five million dollars ($5,000,000)
with a deductible of approximately two hundred
thousand dollars ($200,000), covering both
MISONIX and MDA for any and all liability.
P. Arbitration. All disputes between the parties arising
hereunder shall be finally settled by arbitration in
the City of New York, by the American Arbitration
Association, by a board of three arbitrators one of
whom is selected by each party and the third selected
by the two arbitrators, or if they cannot agree, from
the lists of the American Arbitration Association.
Q. Notices. Any notice or request required or permitted
to be given under or in connection with this Agreement
shall be deemed to have been sufficiently given if in
writing and delivered to an officer of such party or
sent by registered airmail, telex or telegram,
prepaid, to the party for which such notice is
intended, at the address set forth for such party
below:
-7-
<PAGE>
In the case of MDA: President
Medical Device Alliance, Inc.
3515 East Russell Road
Suite H-393
Las Vegas, Nevada 89120
In the case of MISONIX: President
Misonix, Incorporated
1938 New Highway
Farmingdale, NY 11735
or to such other address for such party as it shall have
therefore furnished in writing to the other party. If sent by
mail, telex or telegram, the date of mailing or transmission
shall be deemed to be the date on which such notice or request
has been given.
R. Assignment. MDA or MISONIX may assign rights under
this Agreement in whole or in part to any of their
respective affiliates or subsidiaries. Upon the other
party's request, the assigning party shall enter into
a separate counterpart agreement with any such
affiliate or subsidiary, it being expressly agreed
that assignor shall remain bound by the obligations
hereof. Such counterpart agreement shall be in the
same form as this Agreement, except for necessary
changes to reflect the extent of the assignment, the
substitution of the affiliate's or subsidiary's name,
the effective date of the assignment and the inclusion
of a new provision enabling the non-assigning party to
terminate such separate counterpart agreement in the
event that the assignee ceases to be an affiliate or
subsidiary of the assigning party. This Agreement
shall not otherwise be assignable by either party
without the prior written consent of the other party.
S. Entire Agreement. This Agreement sets forth the
entire Agreement and understanding between the parties
as to the subject matter hereof and merges all prior
discussions and negotiations between them, and neither
of the parties shall be bound by any conditions,
definitions, warranties, understandings or
representations with respect to such subject matter
other than as expressly provided herein or as duly set
for the on or subsequent to the date hereof in writing
and signed by a proper and duly authorized officer or
representative of the party to be bound thereby.
T. Governing Law. This Agreement shall be construed in
accordance with the laws of the Sate of New York.
U. Confidentiality. After execution of the License
Agreement, MISONIX shall disclose to MDA all technical
information reasonably necessary to use Ultrasonic
Units or their equivalents, and MDA shall hold such
information except as provided in Paragraphs dealing
with Force Majeure and Inability To Supply Full
Requirement of this Agreement. MISONIX shall also
release to MDA all technical information and know-how
which are reasonably necessary to
-8-
manufacture Ultrasonic Units, and MDA may use such
information the manner set forth in the aforementioned
Paragraphs of this License Agreement to manufacture
Ultrasonic Units or to have such devices manufactured by
a third party only as permitted in this License
Agreement. In addition to and not in lieu hereof, the
parties re-affirm the provisions of the confidential
Disclosure Agreement dated 8/11/95 which remains in
effect and is annexed as Schedule C hereto.
Information which is necessary for obtaining or maintaining approval of
Ultrasonic Units or its equivalents by any regulatory agency of any foreign
country shall be an exception to the above confidentiality obligations, but only
to the extent necessary and provided said confidentiality is maintained to the
fullest extent possible by MDA.
IN WITNESS WHEREOF, this Letter Agreement has been entered into as of
the day and year first above written.
Very truly yours,
ACCEPTED AND AGREED:
MISONIX, INCORPORATED MEDICAL DEVICE ALLIANCE, INC.
By: s/Joseph Librizzi By: Donald K. McGhan
----------------- ----------------
Joseph Librizzi Donald K. McGhan
Its: President and CEO Its: Chairman
-9-
<PAGE>
SCHEDULE A
-10-
<PAGE>
Schedule A
Breakdown of estimated pricing of System components
===============================================================================
Item Price
- -------------------------------------------------------------------------------
For Minimum of 200
or more Units 100 or more Units
------------- -----------------
Generator $ 2,330 $ 2,950
Convertor 1,400 2050
RF Cable 700 700
Tools 50 50
Manuals 20 20
------- -------
Total System Cost $ 4,500* $ 5,770*
* Estimate as of 8/10/95
Tips and Sheaths
5MM Probe 500 750
5MM Sheath 100 150
7MM Probe 500 750
7MM Sheath 100 150
o Costs based upon initial commitment of 200 units
o All prices based upon designs and costs developed as of 9/94
o Costs subject to change as design is finalized
-11-
<PAGE>
SCHEDULE B
-12-
<PAGE>
Specifications of Ultrasonic system
Generator Model xxxx
================================================================================
Controls and Displays Timer: elapse time with US on resettable
Output power+/-3%
Power Setting
On/Off switch with pilot light
Fault indicator/shut down (possible audible)
Time Totalizer (rear)
- --------------------------------------------------------------------------------
Output Control Adjusts amplitude of power output 0 to 100%
Rear Connector foot switch control
- --------------------------------------------------------------------------------
Horn Frequency 20Khz+/-__ Khz and Output power ultrasonic __ Watts
- --------------------------------------------------------------------------------
Line Voltage Line Selectable Models for World Wide Distribution
100/120/220/240 VAC 48-60 Hz _____VA UL approval
- --------------------------------------------------------------------------------
Mechanical Weight __lbs _____in. L x ___ in. W x ___ in. H
- --------------------------------------------------------------------------------
Temperature Operating 10(degree) C to 40(degree) C
- --------------------------------------------------------------------------------
Tuning Factor Set with Matched converter & probe
- --------------------------------------------------------------------------------
Converter Weight ___ ozs. __ in. max dia. w/o cable Autoclavable*
- ---------
- --------------------------------------------------------------------------------
Probe style Type 7mm>25cm length Weight ___ ozs. Autoclavable*
- -----------
Titanium Type 5mm>25cm length Weight ___ ozs. Autoclavable*
ELI alloy Type 7mm>16cm length Weight ___ ozs. Autoclavable*
Type 5mm>16cm length Weight ___ ozs. Autoclavable*
- --------------------------------------------------------------------------------
Sheath style Type 7mm-25cm__ ozs. 16cm ___ ozs. Autoclavable*
- ------------
Type 5mm-25cm__ ozs. 16cm ___ ozs. Autoclavable*
- --------------------------------------------------------------------------------
Umbilical cable Weight ___ lbs Length 12 Ft. Autoclavable*
- ---------------
- --------------------------------------------------------------------------------
* Autoclavable 200 cycles (500 cycle goal) by Flash sterilizer for 3 minutes
at 270(degree)and 30 PSI or Normal cycle sterilizer for 30 minutes at
250(degree)F and 15 PSI
================================================================================
-13-
<PAGE>
Amendment to Employment Agreement
Amendment entered into on the 24th day of July, 1996 ("Amendment") to a
certain Employment Agreement dated 9/1, 1995 the ("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 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 Employment Agreement shall have the same
meanings when used herein.
2. Terms of Employment
The term of employment provided in this Amendment shall be for the 12
months commencing September 1, 1996 and ending August 31, 1997. Accordingly, the
reference in paragraph 1 of the Employment Agreement in the third line thereof
shall be to the 12 month period ending August 31, 1997; the balance of paragraph
1 of the Employment Agreement shall remain in effect.
3. Paragraph 4 of the Employment Agreement, dealing with
Compensation, is hereby amended as follows:
(a) The base salary provided in paragraph 4(a) shall be $160,000
per annum;
(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 1996:
"(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 August 31st expiration date
of that year for employment (so that, for example, the results
of the Company's fiscal year ending June 30, 1997 shall be
applicable to the initial year of employment under this
Amendment) the Company shall pay to Employee, as incentive
compensation:
<PAGE>
If Pretax Operating Earnings for fiscal year are:
Incentive Compensation Payment
less than $1,000,000 - None
$1,000,000 to $1,400,000 - 5% of pretax operating earnings in this
range
In excess of $1,400,000 - 10% of such excess pretax operating
earnings
For purposes hereof, "Pretax Operating Earnings" of the Company shall
mean, with respect to any fiscal year, the operating income*, if any, of the
Company 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 under this Agreement.
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
bonus shall be equitably adjusted.
Subparagraphs (c) and (d) of paragraph 4 shall remain as presently
stated in the Agreement.
4. Change of Control
Paragraph 12 of the Employment Agreement, dealing with change of
control of the Company, is hereby stricken in its entirety.
5. Except as expressly modified by this Amendment, the terms and
conditions of the Employment Agreement shall remain in full force and effect. In
the event of any conflict or inconsistency between the Employment Agreement and
this Amendment, the terms of this Amendment shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment on the day and year first above written.
*including royalties and license fees
MISONIX, INC.
BY: s/Gary Gelman
-------------
s/Joseph Librizzi
-----------------
JOSEPH LIBRIZZI
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated August 9, 1996, in
Amendment No. 1 to the Registration Statement (Form S-1 No.
33-43585) and related Prospectus of Misonix, Inc. dated January 17,
1997.
s/Ernst & Young LLP
Melville, New York
January 16, 1997
