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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year ended December 31, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28566
LASERMEDICS, INC.
(Name of small business issuer in its charter)
TEXAS 76-0335587
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
120 Industrial Boulevard, Sugar Land, Texas 77478
(Address of principal executive offices) (Zip code)
Issuer's telephone number: 281-276-7000
Securities registered under Section 12(b) of the Exchange Act:
Common Stock, $.01 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year are $12,485,961.
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 25, 1997, based upon the average bid and ask price as
reported on the National Association of Securities Dealers, Inc.'s OTC
Electronics Bulletin Board, was $12,920,196. The number of shares of the
issuer's common stock, $.01 par value, outstanding as of March 25, 1997 was
2,793,556.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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PART I
INCLUDED IN THIS REPORT ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS WILL PROVE TO HAVE BEEN CORRECT.
ITEM 1. BUSINESS
Lasermedics, Inc. (the "Company"), incorporated in November 1990 as a
Texas corporation, is a manufacturer and marketer of diversified products in the
physical therapy and rehabilitation industry. The Company provides high quality
products and services to healthcare professionals and has as its primary goal to
consolidate the largely-fragmented physical medicine and rehabilitation industry
and become a leader in that industry. The Company recently re-organized into
three divisions: Henley Healthcare, Microlight and Health Career Learning
Systems. The Company's Henley Healthcare Division ("Henley") is engaged in the
manufacture and marketing of diversified products in the physical therapy and
rehabilitation industry. The Microlight Division is engaged in the development
and application of portable, hand-held, battery-operated, low-energy laser
devices to treat soft tissue. The Health Career Learning Systems
Division("HCLS") provides training, safety products and technical support
necessary to meet federal Occupational Safety and Health Act ("OSHA") compliance
standards as well as coordination of the training of medical professionals in
the use of various other products offered by the Company.
ACQUISITIONS
On April 30, 1996, the Company acquired substantially all assets of (and
assumed certain liabilities associated with) Henley, formerly a division of
Maxxim Medical, Inc., a Delaware corporation, as more fully described in the
Notes to the Financial Statements. This acquisition provided the Company with an
expanded and stable base of products and customers as well as manufacturing and
marketing infrastructure. On November 12, 1996, the Company acquired
substantially all of the assets of MJH Medical Equipment, Inc., a privately-held
medical supplies and equipment distributor, which added distribution channels to
the Company's existing marketing outlets, and on November 27, 1996, the Company
acquired all of the issued and outstanding common stock of Health Career
Learning Systems, Inc., ("HCLSI"), which provides training, safety products and
technical support necessary to meet OSHA compliance standards. The Company's
HCLS division includes the operations of HCLSI, and the Company intends that the
division will expand its products and service offerings to fully integrate all
of the Company's training activities.
On January 24, 1997, the Company completed the following acquisitions:
(i) all of the issued and outstanding common stock of Texas T.E.N.S., Inc.
("Tens"), and (ii) the inventory, distribution systems and customers associated
with the Homecare (third-party billing) division of Gatti Medical Supply, Inc.
("Gatti"). Both Tens and Gatti are engaged in the marketing and distribution of
medical supplies and devices.
STRATEGIC OBJECTIVES
The Company's long-term strategic objectives are to (i) expand
distribution channels and explore new markets, (ii) consolidate the
highly-fragmented physical therapy and rehabilitation industry by pursuing
strategic acquisitions that complement existing product lines and increase
market share, (iii) maximize the utilization of existing facilities for
increased productivity, and (iv) obtain approval from the FDA for the Microlight
830(TM).
The Company believes that it should devote its efforts to exploring new
markets in the physical therapy and rehabilitation industry. An entire range of
the Company's products is proprietary and thus provides
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a certain advantage in the Company's efforts to expand into new markets.
Additionally, the Company licenses products from other companies which are
implemented into its existing and expanded distribution system.
As it seeks to consolidate the physical therapy and rehabilitation
industry through acquisitions, the Company's goal is to locate and combine
efficiencies that will deliver enhanced profits to the Company and increased
shareholder value. The Company believes that the current fragmentation of the
industry presents an opportunity for cost efficiencies and increased market
potential. When achieved, the consolidation will position the Company as a
leader in the industry and will provide an enhanced opportunity to better serve
the emerging integrated healthcare networks which are forming alliances and
buying their medical products on a national accounts basis.
The acquisition of Henley provided the Company with increased
manufacturing capacity. New products can be added and the manufacture of
existing products can be increased without incurring significant capital
expenditures; such increase in production may simply necessitate the addition of
operating shifts. The Company believes that as it enters new markets and expands
its distribution, the expected increase in production using existing facilities
should provide significant improvement in the Company's margins and
profitability.
OPERATING DIVISIONS
HENLEY HEALTHCARE DIVISION
The Company's Henley Healthcare division markets a complete line of
technologically advanced physical therapy products. The division also develops,
manufactures, distributes and markets various products and related accessories
used for control of acute or chronic pain by non-invasive methods or to
facilitate healing of wounds. Physical therapy involves the treatment of
disabilities or injuries with therapeutic exercise and the application of
various heat, hydrotherapy, traction, ultrasound or other modalities. The
division's products are marketed principally through two separate national sales
forces consisting of dedicated sales persons, dealers and sales representatives.
MICROLIGHT DIVISION
The Company's Microlight division is engaged in the development and
application of the Microlight 830(TM) to treat soft tissue. The Company
currently seeks approval from the FDA to sell the Microlight 830(TM) in
commercial quantities for human application. Based upon the results of recent
studies including those by General Motors Corporation ("GM") and the Mayo
Clinic, the Company believes, although no assurances can be given, that the
Microlight 830(TM) is an effective treatment for carpal tunnel syndrome ("CTS").
The Microlight 830(TM) is manufactured by CB Svendsen a/s ("CBS"), a
Danish company, which has sold its low level laser devices in more than 20
foreign countries to physicians, physical therapists, dermatologists and
veterinarians, for use in connection with wound healing, pain reduction and
anti-inflammatory indications. The Company has worked on the development and
marketing of the Microlight 830(TM) with CBS since June 1991. In March 1997, the
Company and CBS entered into new agreements pursuant to which the Company paid
one hundred thousand dollars ($100,000) to CBS and obtained unto perpetuity the
sole and exclusive world-wide distribution rights to all low level laser devices
manufactured by or for CBS. Also pursuant to the agreements, the Company
obtained unto perpetuity the exclusive world-wide manufacturing rights to all
low level laser devices manufactured by or for CBS subject to the payment to CBS
of the sum of one hundred seventy five thousand dollars ($175,000) by June 15,
1998.
HEALTH CAREER LEARNING SYSTEMS DIVISION
The Company's HCLS division provides training, safety products and
technical support necessary to meet OSHA compliance standards. The HCLS system
is designed to ease the task of implementing OSHA requirements in the workplace
by providing a simple, thoroughly planned training program. The system consists
of all needed information relevant to Bloodborne Pathogens Standard, Hazard
Communication
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Standards, Safety Regulations and State-Specific Regulations. It is the
Company's intention that the division will expand its training activities (i) to
include various other products offered by the Company and (ii) as results of
research and clinical studies using the Microlight 830(TM) emerge to provide new
and additional uses of laser technology including cold laser techniques and new
medical applications.
PRINCIPAL PRODUCTS
The Company manufactures and markets a variety of physical therapy
products used in the treatment of disabilities or injuries with therapeutic
exercise and the application of various heat, hydrotherapy, traction, ultrasound
or other modalities. The Company also develops, manufactures and distributes
various products and related accessories used for the control of acute or
chronic pain by non-invasive methods and to facilitate healing of wounds.
FLUIDOTHERAPY UNITS. Fluidotherapy is a patented dry heat treatment that
uses finely divided cellulose particles suspended and circulated in a heated air
stream to apply heat, stimulation and pressure to a specific area of the body.
Patients receive such therapy by placing the area to be treated (e.g., hand,
ankle or knee) into the unit in which the cellulose particles circulate at the
appropriate temperature, speed and density. Fluidotherapy enables physical
therapists to provide their patients with a combination of heat, stimulation,
pressure and other therapies designed to treat the symptoms of various ailments
and conditions including arthritis, circulatory disorders and certain
sports-related injuries. The Company currently manufactures, markets and
distributes several models of Fluidotherapy units.
TRU-TRAC TRACTION MACHINES AND TABLES. The Company develops,
manufactures, markets and distributes its Tru-Trac line of intermittent traction
machines, currently consisting of four models, including a clinical model and
three portable models. The Company also manufactures, markets and distributes a
proprietary line of Tru-Trac traction and therapy tables used in a variety of
physical therapy applications.
HYDRA-FITNESS EXERCISE AND REHABILITATION EQUIPMENT. Through its
Hydra-Fitness line of products, the Company develops, manufactures and sells
hydraulic exercise and rehabilitation systems. Hydraulic resistance is provided
by manipulating the size of the aperture in a patented, fluid-filled hydraulic
cylinder. Such hydraulic resistance provided by the machine is totally
accommodating throughout the full range of motion for each individual user and
the resistance stops when force is no longer applied. This contrasts with free
weight or weight stack equipment that must return to the starting point before
the resistance is zero. For this reason, Hydra-Fitness products can be utilized
for both medical and exercise purposes, and the majority of the Company's sales
of Hydra-Fitness products is for medical use by handicapped and rehabilitating
patients and in geriatrics. The Company manufactures numerous models of
Hydra-Fitness machines.
NERVE STIMULATORS. The Company markets and distributes nerve stimulators
that provide transcutaneous electrical nerve stimulation therapy, sometimes
known as "TENS" therapy. This treatment involves the continuous or intermittent
transmission of low voltage electrical impulses in different wave forms, on a
localized basis, as a treatment for chronic or acute pain resulting from a
variety of medical conditions. The therapy is provided through a small,
portable, battery-powered stimulator (resembling a paging device) connected by
wires to two or more small electrode pads placed at or near the site of the
patient's pain. For most patients, use of this therapy creates an analgesic
effect that assists in the reduction or elimination of localized pain. To the
extent this therapy is effective for a patient, it offers greater patient
comfort and mobility than competing remedies and elimination or reduction of
medications, and results in increased patient alertness, fewer side effects and
lower overall costs than prolonged medication. The Company currently sells
several different models of TENS devices and believes that the potential market
for these devices is huge and growing.
JELTRODE ELECTRODES. The Company manufactures, markets and distributes
its proprietary Jeltrode electrodes for use with the Company's nerve stimulators
in a variety of nerve and muscle stimulation and electrotherapy applications.
The Company believes that traditional electrodes used in these therapies often
irritate the skin, are messy to apply and painful to remove. A Jeltrode
electrode uses a unique adhesive gel, is
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hypoallergenic, virtually painless to apply and remove and can be re-hydrated,
cleaned and re-used. Since the adhesive gel is water-based, electrical
resistance between the electrode and skin is reduced, resulting in enhanced
product performance and prolonged battery life.
IOTRODE IONTOPHORESIS ELECTRODES. Iontophoresis is a process which uses
electric current to assist drug transfer through the skin. The Company
manufactures, markets and distributes its Iotrode iontophoresis electrode for
use with its Dynaphor iontophoresis device. Using the electrodes, clinicians are
able to deliver through the skin small molecule drugs that can be ionized for
the treatment of pain and inflammation. For many applications, the use of
iontophoresis is superior because it is non-invasive, allows medications to be
dispersed over a wider range of tissue and avoids many of the systemic and
localized side effects associated with oral medications and injections.
MEDIPADS/MEDIGELS. The Company's proprietary Medipads and Medigels are
marketed and distributed as drug-impregnated, water-based gels and gel pads used
for delivery of drugs directly through the skin on a localized basis. The
Medipads and Medigels can be used topically with various non-prescription
dosages of drugs such as hydrocortisone and lidocaine.
WOUND CARE PRODUCTS. The Company has recently obtained FDA market
clearance for the manufacture and sale of two sterile wound care products -
Dermaheal gel and Dermaheal impregnated gauze. These products are PVP/aloe
vera-based, ultrasound transparent and electrically conductive.
THE MICROLIGHT 830(TM). The Microlight 830(TM) is a portable, hand-held,
battery-operated low energy laser with an output which does not exceed 100
milliwatts. The Company currently distributes the Microlight 830(TM) to various
clinicians participating in the Company's current research program under its
Investigational Device Exemption ("IDE") as allowed by FDA regulations. Lasers
that do not exceed 100 milliwatts have no thermal effect on living tissue.
However, depending on the wavelength, the low level laser light will penetrate
and act on the tissue underlying the skin. The specific wavelength of the laser
incorporated within the Microlight 830(TM) penetrates the dermis, epidermis and
subcutaneous layers of the skin entering surrounding tissue. Along its path, the
laser deposits photons into the cells, which is believed to stimulate nerve
regeneration, reduce swelling and improve micro-circulation by bringing
increased oxygen and blood flow to the problem area.
The Company believes, although no assurances can be given, that the
Microlight 830(TM) is an effective treatment for CTS, which is the tendon and
nerve damage that results from the fast, forceful wrist and hand motions that
are repeated in production and manufacturing workplaces many times in each day,
such as operating a computer, cutting meat, cutting or plucking poultry or
assembling automobiles. Conventional surgical and non-surgical treatments for
CTS and other repetitive stress injuries have been for the most part
unsuccessful in allowing CTS sufferers to continue with or return to productive
employment. As a result of the limited success of these treatments, CTS
frequently results in temporary or permanent disability at substantial economic
costs. The Company believes that the potential market for the Microlight 830(TM)
could exceed two billion dollars worldwide and encompasses hospitals, clinics,
medical doctors, chiropractors, physical therapists, dentists, veterinarians
and, ultimately, individuals.
DISTRIBUTION AND MARKETING
The Company's products are marketed through a national network of
independent dealers and distributors, direct salespersons and commissioned sales
representatives to physicians, physical therapists, chiropractors and their
patients as well as to clinics and healthcare networks. In conjunction with
this, the Company also has a network for direct billing to insurance claims
offices, Medicare carriers and managed healthcare programs. The Company believes
that its approach to marketing is supported by the desire of its customers to
identify with individual account managers and product specialists. This enables
the Company to provide better customer service and to maintain specialized
expertise in each product line. As medical products are increasingly being
purchased on a national account or centralized basis by healthcare networks,
Company salespersons must also maintain relationships with purchasing managers
within these networks.
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The Company has product distribution centers in Ohio and Texas and
approximately 140 dealers and distributors, 30 sales representatives and 25
direct salespersons representing its product within the United States. The
Company also has both telemarketing and direct-mail programs for its
HCLS-related products and services and for the marketing and distribution of
medical supplies related to its TENS, wound-healing and other products.
Additionally, the Company sells many of its products to over 120
distributors and representatives in 57 countries around the world. The products
manufactured or sold by the Company in Europe are subject to the European
Community regulations for medical devices, including product certification ("CE
Marking"). The European Community has imposed a deadline of June 1998, after
which products without a CE Marking may not be sold in Europe. The Company is
seeking and anticipates obtaining the CE Marking certification for its products
sold in Europe prior to the deadline. The Company believes that its network of
international distributors will enhance its marketing and distribution efforts
as it seeks to extend its share in the international marketplace.
The Company began marketing the LASERMEDICS VMD 830(TM) for veterinary
application in November 1993. Sales are made to veterinarians for use in wound
healing and the treatment of muscle afflictions on horses and other animals
through a network of distributors and sales representatives. Research studies
have demonstrated the positive photobiostimulation effects of the LASERMEDICS
VMD 830(TM) cold laser technology on veterinary muscle ailments such as bowed
tendon, check ligament and plantar desmitis. Clinical results also show that
soft tissue healing on horses is accelerated with repeated applications of the
LASERMEDICS VMD 830(TM).
COMPETITION
Competition in the medical device and physical medicine markets is
intense. The Company's products compete with the products of many other
companies in the business of developing, manufacturing, distributing and
marketing physical therapy and rehabilitation products. Many of these companies
may have substantially greater financial and other resources than the Company,
and may have established reputations for success in the development, sale and
service of their products. The Company believes that the principal competitive
factors in each of its markets are product features and benefits, customer
service and pricing. Although the Company's products are not the lowest-priced
in its markets, the Company believes that it maintains a certain competitive
edge by emphasizing overall value through a combination of competitive pricing,
product quality and customer service.
There are several foreign as well as U.S. manufacturers of low energy
lasers using similar technology to the Microlight 830(TM). However, these
competitive lasers may emit light of a different wavelength, are not generally
portable and may be more expensive than the Company's product. Consequently, the
Company anticipates future competition relating to the Microlight 830(TM).
Furthermore, there may be no effective barrier to competitors using other
wavelengths of low-level laser light inasmuch as the manufacture of the
Microlight 830(TM) does not incorporate any patented inventions, and qualified
companies could reverse engineer such product and market it, subject to
obtaining the requisite FDA pre-marketing approval ("PMA"), for human use.
Although there may be no absolute barriers to entry for competitive lasers, the
Company believes that, pursuant to specific FDA regulations, the safety and
efficiency data submitted to the FDA by one entity supporting such entity's PMA
application cannot be used by another entity in its PMA application. Generally,
this means that another entity desiring to submit a PMA application for a laser
similar to the Microlight 830(TM) cannot rely on the Company's clinical trial
results to support such entity's PMA application, but must conduct its own
trials and gather its own data. Although no assurances can be given, this
provision could increase the length of time for a competitor of the Company to
obtain FDA approval to commercially sell a similar product in the United States
for human application.
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PATENTS AND PROPRIETARY RIGHTS
The Company actively pursues a policy of seeking patent protection both
in the U.S and abroad for its proprietary technology. The Company owns several
U.S. issued patents and various foreign counterparts. The Company also has one
patent application pending in the U.S. The Company also relies on trade secrets
and unpatented know-how in connection with the use of the Microlight 830(TM),
but the Company may be vulnerable to competitors who attempt to copy the laser
technology used in such product or to gain access to the Company's trade secrets
and know-how.
Although the Company has conducted a search to discover any patents
which the Microlight 830(TM) or its use may infringe, the Company is not aware
of any patents which may be infringed by this product. The product has been
marketed by CBS outside the United States for several years without any third
party claims alleging that its manufacturer is violating any one's rights being
made known to the Company.
Litigation, which could result in substantial cost to and diversion of
effort by the Company, may be necessary to enforce any patent issued to the
Company, to protect trade secrets or know-how owned by the Company or to
determine the scope and validity of the proprietary rights of others. Adverse
findings in any proceeding could subject the Company to significant liabilities
to third parties, require the Company to seek licenses from third parties and
adversely affect the Company's ability to sell its product.
GOVERNMENT REGULATION
All medical devices are subject to FDA regulation under the Medical
Device Amendments of the Food, Drug and Cosmetic Act, as amended ("FDCA".)
Pursuant to the FDCA, a medical device is ultimately classified as either a
Class I, Class II or Class III device. Class I devices are subject only to
general controls which are applicable to all devices. Such controls include
regulations regarding FDA inspections of facilities, "Good Manufacturing
Practices," labeling, maintenance of records and filings with the FDA. Class II
devices must meet general performance standards established by the FDA. Class
III devices are subjected to a more stringent PMA process by the FDA before they
can be commercially marketed and must adhere to such standards once on the
market. Such PMA can involve extensive testing to prove safety and efficacy of
the devices. Most of the Company's products are Class II devices. FDA marketing
approval of these devices is obtained under Section 510 (k) of the FDCA, which
provides for FDA approval for products that can be shown to be substantially
equivalent to devices in commerce prior to May 1976 (the month and year of
enactment of the FDCA.) Most of the Company's remaining products are Class I
devices (i.e., treatment tables and fitness and exercise equipment.)
Currently, all of the Company's products and manufacturing facilities
are subject to pervasive and continuing regulation by the FDA. All phases of the
manufacturing and distribution process are governed by FDA regulation. Products
must be produced in registered establishments and be manufactured in accordance
with "Good Manufacturing Practices," as such term is defined under the Code of
Federal Regulations. In addition, all such devices must be periodically listed
with the FDA. Labeling and promotional activities are subject to scrutiny by the
FDA and, in certain instances, by the Federal Trade Commission. The export of
devices is also subject to regulation in certain instances. The FDA conducts
inspections periodically to ensure compliance with these regulations.
The FDA's mandatory Medical Device Reporting ("MDR") regulation
obligates the Company to provide information to the FDA on injuries alleged to
have been associated with the use of a product or in connection with certain
product failures which could cause serious injury or death. If as a result of
FDA inspections, MDR reports or other information, the FDA believes that the
Company is not in compliance with regulations, the FDA can institute proceedings
to detain or seize products, enjoin future violations, or assess civil or
criminal penalties against the Company, its officers or employees. Although the
Company and its products have not been the subject of such FDA enforcement
action, any such action by the FDA could result in a disruption of the Company's
operations for an undetermined time.
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In addition to the foregoing, foreign countries in which the Company's
products may be sold, as well as state governments and other federal and local
agencies within the U.S., may impose additional regulatory requirements on the
Company, and such actions could have a material adverse effect on the Company's
ability to do business.
In March 1995, the Company submitted to the FDA a PMA application to
obtain clearance for commercial distribution of the MicroLight 830(TM) for use
on humans. Approval of the PMA application would permit the Company to sell the
Microlight 830(TM) in commercial quantities for the treatment of carpal tunnel
syndrome. There is no guarantee that the Company will ever receive FDA market
clearance to sell the Microlight 830(TM) for human application. In July 1995, in
response to the Company's submission, the FDA requested the Company to provide
additional information and some clarification of certain data submitted in the
PMA application, and notified the Company that the PMA was not considered to be
formally filed. In February 1997 the Company formally withdrew its PMA
application from the FDA to allow itself adequate time to respond to the
agency's requests and assemble the requested information.
There can be no assurance that the FDA will not require further
information in the future or that the agency will grant PMA approval for the
MicroLight 830(TM) for the treatment of carpal tunnel syndrome on a timely
basis, if at all. The Company is unable to sell the product in commercial
quantities for human application in the U.S. market until it obtains FDA market
clearance.
The Company is not required to notify or obtain approval from the FDA
regarding any of its devices sold for veterinarian applications. However, the
Company is required to obtain, prior to commencing any sales activities, a
radiological health registration number and to file an Initial Report for all
models of its devices. With no objection from the FDA to the introduction of the
LASERMEDICS VMD 830(TM) into commerce, the Company continues to market this
product in the veterinary market, although much of the Company's efforts is
focused on the marketing and distribution of its many other products.
THIRD-PARTY REIMBURSEMENT AND HEALTHCARE REFORM
Healthcare providers, such as hospitals and physicians, that purchase
medical products for use on patients generally rely on third party payors,
principally Medicare, Medicaid and private health insurance plans, to reimburse
all or part of the costs and fees associated with the products used, procedures
performed or services provided. The Company's products are purchased by
hospitals, corporations, clinics and private physicians, which then would bill
various third-party payors for the healthcare services provided to their
patients. These payors include Medicare, Medicaid and private insurance payors.
Generally, government agencies reimburse hospitals and other healthcare
providers for patient medical care at a fixed rate according to
diagnosis-related groups (DRGs) as mandated by Congress. Reimbursements are
dependent on many factors which may include the payor's determination that a
service or procedure was not experimental and was used for an approved
indication.
Although the Company believes that the nature of the non-intrusive
utilization of its products in patient care and the advantages concerning their
relative cost and ease of use may be positive factors in reducing health care
costs, the Company cannot predict the ultimate effect on the sale of its
products, of the current governmental focus on healthcare reform and the
proposed healthcare initiatives by the Clinton Administration and others.
Although the market for some of the Company's products could be adversely
affected by changes in governmental and private third-party payors' policies,
the Company believes that healthcare legislation may have some beneficial effect
on its business by increasing the availability of healthcare, emphasizing less
invasive surgery and increasing the need for efficiency by healthcare personnel.
RESEARCH AND DEVELOPMENT
The Company is continually conducting research and developing new
products by utilizing a team approach involving the engineering, manufacturing
and marketing resources. These research and development efforts are designed
primarily to apply state-of-the-art technology and the Company's expertise to
the treatment
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of wide-ranging medical conditions. Although the Company has developed a number
of its own products, such as the original Fluidotherapy device, Medipads and
others, most of its research and development efforts are directed towards
product improvement and enhancement of previously developed or acquired
products. Such enhancement may involve updating and redesigning existing
products to improve features, performance and reliability.
The Company is also involved in the development and application of
various new products many of which are in early stages of development and will
require additional development work, FDA approval, clinical or other testing or
market research and development efforts prior to commercial introduction. In
this regard, the Company is continuing its clinical research and investigation
using the Microlight 830(TM) under its IDE. Expenses incurred in connection with
research and development in 1996 and 1995 amounted to approximately $314,000 and
$174,000, respectively.
The Company also estimates that it will incur expenditures approximating
$500,000 for research and development, in the event it obtains FDA approval for
human application of the Microlight 830(TM), for which no assurance can be
given. Such research and development effort will primarily emphasize additional
photobiostimulation applications for the Microlight 830(TM), such as pain
suppression, wound healing and sports injuries, in various medical disciplines
including general medicine, dentistry, veterinary medicine, physical therapy,
orthopedic surgery, dermatology and re-constructive and cosmetic surgery.
CLINICAL TRIALS. The Microlight 830(TM) has been classified by the FDA
as a "non-significant risk" Class III medical device and, as such, the Company
is allowed to conduct clinical trials under an approved IDE. The Company's
clinical trials are subject to IDE regulations, including record keeping,
adverse event reporting and other clinical study requirements. Pursuant to IDE
regulations the Company's clinical researchers are required to be reviewed and
approved by an Institutional Review Board (IRB) to treat human patients for
research purposes. The objective of these clinical trials is to evaluate the
therapeutic effects of low-level laser energy in pain management, soft tissue
trauma (including RSI) and dental applications. The Company is sponsoring
independent research studies on the effects of the Microlight 830(TM) at various
clinical sites in the U.S.
No assurance can be given (i) that the results of the various research
studies that are being or have been conducted using the Microlight 830(TM), will
demonstrate to the FDA's satisfaction the safety and effectiveness of the
Microlight 830(TM) in treating CTS, (ii) that the FDA will agree that the design
of the studies is satisfactory, (iii) that the FDA will not require additional
clinical studies, or (iv) that the Company can obtain the necessary FDA
marketing clearance for the Microlight 830(TM) on a timely basis, if at all. The
FDA's rejection of the clinical design or the data generated could lead to
rejection of the application for commercial marketing of the Microlight 830(TM)
and/or the need to conduct additional clinical trials.
PRODUCT LIABILITY AND INSURANCE
The Company's business includes the risk of product liability claims.
Although the Company has not experienced any product liability claims to date,
any such claims could have an adverse impact on the Company. The Company
currently maintains product liability insurance covering up to $3,000,000 in
liability claims, but does not intend to seek additional coverage until after
such time, if ever, as it obtains marketing approval from the FDA for human
application of the Microlight 830(TM).
EMPLOYEES
As of March 20, 1997, the Company had approximately 169 full-time and 4
part-time employees. None of the Company's employees is represented by a union,
and management believes that its relations with its employees are good. The
Company believes that the success of its business will depend, in part, on its
ability to attract and retain qualified personnel.
9
<PAGE>
ITEM 2 PROPERTIES
The Company owns two buildings one of which is located in Sugar Land,
Texas, and the other in Belton, Texas. The addresses of these owned facilities
are 120 Industrial Boulevard, Sugar Land, Texas 77478 and 2121 Industrial Park
Road, Belton, Texas 76513. The Company's principal executive and administrative
offices are located in its Sugar Land facility consisting of approximately
25,000 square feet. The manufacturing and warehouse facilities for much of the
Company's physical therapy and fitness products are located at the Belton
facility consisting of approximately 59,000 square feet. The Sugar Land facility
is also the location of the manufacturing and warehouse operations for the
Company's pain management products.
In addition. the Company also leases two regional warehouse and
distribution facilities in Akron, Ohio and Cuyahoga Falls, Ohio, of
approximately 15,000 and 6,000 square feet, respectively. The Company also
leases approximately 4,900 and 5,000 square feet of office space in Plymouth,
Michigan, and Houston, Texas, respectively, as principal operations center for
its HCLS division and Tens operations, respectively.
The Company believes that its facilities, whether leased or owned, are
adequate to meet its current needs and should continue to be adequate for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On September 14, 1992, the Company commenced the initial public offering
of its securities. Prior to that time there had been no public trading market
for its securities. On January 19, 1993 the Company completed the initial public
offering of its securities. There can be no assurance that any public trading
market that has developed will be sustained.
The Company's Common Stock currently trades in over the counter ("OTC")
market and is quoted on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") Electronic Bulletin Board under the symbol "LMDX."
The following table sets forth the range of high and low bid prices on
the Company's Common Stock for calendar years 1996 and 1995 on the NASDAQ
Bulletin Board:
CALENDAR PERIOD HIGH LOW
--------------- ---- ---
1996:
First Quarter 8.750 4.250
Second Quarter 8.875 6.000
Third Quarter 8.125 4.750
Fourth Quarter 6.875 5.750
10
<PAGE>
CALENDAR PERIOD HIGH LOW
--------------- ---- ---
1995:
First Quarter 5.750 4.000
Second Quarter 7.000 5.250
Third Quarter 8.750 6.000
Fourth Quarter 8.125 4.000
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
The Company has authorized 20,000,000 shares of common stock, par value
$.01 per share. As of March 25, 1997, there were issued and outstanding
2,793,556 shares and 269 shareholders of record, although the Company believes
that there are other persons who are beneficial owners of the Company's
securities held in "street" names. All shares of Common Stock currently
outstanding are validly issued, fully paid and non-assessable.
The Company has neither declared nor paid any dividends on common stock
since its inception and presently anticipates that no dividends will be declared
in the foreseeable future. Any future dividends will be subject to the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, the operating and financial condition of the Company,
its capital requirements, debt obligation agreements, general business
conditions and other pertinent facts. Therefore, there can be no assurance that
any dividends on the Common Stock will be paid in the future.
RECENT SALES OF UNREGISTERED SECURITIES
The following sales of unregistered securities occurred during the year
ended December 31, 1996, in private transactions in which the Company relied on
the exemption from registration available under Section 4(2) of the Securities
Act of 1993, as amended:
In April 1996, the Company entered into an agreement with Maxxim,
whereby the Company purchased certain assets (and assumed certain liabilities)
associated with Henley for an estimated purchase price of approximately $13.5
million. The purchase price was paid by the issuance of the Company's
convertible subordinated promissory note in the principal amount of $7 million
(the "Note"), with the balance of the purchase price paid in cash provided
through a financing with a bank. The Note is convertible into common stock at an
initial conversion price of $3 per share, provided that upon the occurrence of
any default under the Note, the conversion price will be automatically adjusted
to an amount equal to the lesser of the conversion price then in effect or 80%
of the average market price for the Company's common stock for the 30 trading
days immediately preceding the event of default. The conversion price is also
subject to adjustment upon the occurrence of certain events (including certain
issuances of common stock for less than the conversion price) to provide
anti-dilution protection.
During the year ended December 31, 1996, the Company issued 33,333
shares of common stock and 33,333 warrants to purchase shares of the Company's
common stock at a price of $6.00 per share to Dr. Pedro A. Rubio for his
services in connection with the Company's PMA application submission to the FDA
for the Microlight 830(TM).
In connection with a "best efforts" private offering securities
consummated in June 1996, the Company received an aggregate of approximately
$1,934,000 from investors and issued to such investors in exchange therefor,
644,670 units of its securities ("Units"), each Unit consisting of one share of
common stock and one four-year warrant to purchase one share of common stock at
an exercise price of $6.00 per share. The Company filed a Form D with the
Securities and Exchange Commission in connection with this transaction.
11
<PAGE>
Also, in June 1996, the holders of certain convertible, unsecured,
non-negotiable promissory notes converted the amounts due thereunder into an
aggregate of 176,773 shares of common stock and four-year warrants to purchase
an aggregate of 176,773 shares of common stock at an exercise price of $6.00 per
share. The Company also filed a Form D in connection with this transaction.
On November 12, 1996, the Company acquired substantially all of the
assets of MJH Medical Equipment, Inc., a privately-held medical supplies and
equipment distributor. In connection with the acquisition, the Company issued
39,063 shares of its common stock to Mr. Michael J. Houska, the former sole
stockholder and owner of the company.
On November 27, 1996, the Company acquired all of the issued and
outstanding common stock of Health Career Learning Systems, Inc., a
privately-held company which provides training, safety products and technical
support necessary to meet OSHA compliance standards. In connection with the
acquisition, the Company issued an aggregate of 287,375 shares of its common
stock to the former owners of that company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During the fiscal year ended December 31, 1996, the Company experienced
dramatic growth through acquisitions of established business operations and
product lines. Due to the relative magnitude of the acquisitions, particularly
the acquisition of Henley in April 1996, the Company's operating results for
fiscal 1996, as reflected in the financial statements, are not directly
comparable on a year-to-year or other period-to-period basis with those of other
periods presented. Therefore, the results of operations for fiscal 1996 reflect
the partial results of operations from acquisitions, while the results of
operations for fiscal 1995 and 1994 reflect such results for the full twelve
months without the effects of any acquisitions.
As previously stated, in April 1996, the Company acquired substantially
all assets of (and assumed certain liabilities associated with) Henley, formerly
a division of Maxxim for an estimated purchase price of approximately $13.5
million. See RECENT SALES OF UNREGISTERED SECURITIES above.
The Company obtained the cash portion of the purchase price pursuant to
financing arrangements entered into with Comerica Bank - Texas, ("Comerica"),
which financing is secured by substantially all of the assets of the Company
including the Henley assets acquired from Maxxim. The financing arrangements
with Comerica provide for (i) a revolving loan ("Line of Credit"), which permits
borrowings up to $4,000,000 pursuant to a borrowing base calculation derived
from the Company's accounts receivable and inventory and (ii) two term loans in
the amount of $893,000 and $1,616,000, respectively, as more fully described in
the Notes to Consolidated Financial Statements. The Line of Credit also includes
a $250,000 letter of credit facility. All of the borrowings from Comerica are
secured by substantially all of the assets of the Company including the Henley
assets acquired from Maxxim.
The following discussion should be read in conjunction with the
consolidated financial statements and the related notes thereto and other
detailed information appearing elsewhere herein.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO 1995
Total revenue for fiscal year 1996 amounted to approximately $12,486,000
reflecting an increase of approximately $11,959,000 over the amount reported for
fiscal year 1995. The increase is primarily due to increased sales from the
acquired Henley operations. Net loss decreased about 38% from approximately
$1,420,000 in fiscal 1995 to approximately $879,000 in fiscal 1996. The decrease
in net loss is due to achievement of more profitable operations during the
second six-month period of fiscal 1996.
12
<PAGE>
The Company's gross profit for fiscal 1996 was approximately $6,770,000
compared to approximately $183,000 for fiscal 1995. Product gross margin as a
percentage of sales in 1996 increased to 54% from 35% in 1995. The increase in
the 1996 gross margin percentage compared with 1995 resulted primarily from
sales of many high margin products acquired from Henley.
Operating expenses in 1996 increased approximately $5,196,000 over the
amount of approximately $1,530,000 reported for 1995. However, as a percent of
sales, operating expenses in 1996 decreased to 54% compared to 290% a year
earlier. The increase in operating expenses is due to increased relative costs
of operating the acquired businesses. However, the decreased operating expenses
as a percent of sales reflects the effects of larger overall sales from the
Henley products and certain cost containment measures undertaken following the
Henley acquisition. The Company will continue to face the challenge of managing
expense growth as it seeks to expand distribution channels and explore new
markets while moving towards the consolidation of the highly-fragmented physical
therapy and rehabilitation industry.
Interest expense for fiscal 1996 amounted to $814,636 compared to
$83,779 in fiscal 1995. The increase in interest expense was primarily due to
the interest-bearing notes issued to finance the Company's acquisition of Henley
as well as the effects of the conversion of certain interest-bearing notes into
shares of the Company's common stock.
For the year ended December 31, 1996, the amount of other income and
expense, net included certain non-recurring employee relocation and severance
costs which were not incurred in 1995.
FISCAL 1995 COMPARED TO 1994
During fiscal 1995 and 1994, the Company had limited operating revenues
as it was still in the development stage. Net loss for fiscal 1995 amounted to
approximately $1,420,000 compared to net loss of approximately $3,365,000
reported for fiscal 1994.
Total revenue of $527,176 for fiscal 1995 showed a decrease of $349,048
or 40% from the amount reported for fiscal 1994. The decrease was primarily due
to the temporary discontinuation of operations of the Company's former training
division. Also contributing to the decrease in revenues was the Company's
realignment of its focus from intensive marketing in the veterinarian market to
more limited selling for human research and investigation of medical
feasibility. This shift in focus was for the specific purpose of expediting the
collection of research data to support the Company's PMA application with the
FDA.
Product gross margin as a percentage of sales in 1995 decreased to 35%
from 48% in 1994. This decline in the 1995 gross margin percentage compared with
1994 was primarily the result of certain pricing actions taken as the Company
expanded its sales for human research and investigation pursuant to the
Company's expansion of its clinical research program during 1995.
Gross margin as a percentage of sales of the Company's former training
division in 1995 was 39% compared to 33% recorded for 1994. This increase in the
gross margin percentage was due to a non-recurring profit arrangement under
which special seminars were conducted in the first quarter of 1995. The Company
temporarily ceased operations of its training division during the second quarter
of 1995. The Company's decision came as a result of many factors including the
shortage of new techniques and applications in laser technology, intense
competition in the medical seminars market and what the Company perceived as a
critical need during the period to direct its efforts to supporting its PMA
application process.
Operating expenses in 1995 decreased approximately $2,219,000 or 59%
from the amount reported for 1994. The decrease reflected approximately
$1,916,000 of less expenses recognized during 1995 in connection with stock,
stock options or stock warrants issued for compensation or under certain
agreements which the Company entered into as well as a decrease in expenses
incurred in connection with the Company's continuing efforts to meet all
governmental regulatory requirements in preparation for the commercial marketing
of its product for human application in the United States, in the event it
obtains the necessary FDA approval.
13
<PAGE>
For the period from January 1, 1991, through December 31, 1995, the
Company's other income (expense), net, of $30,827 consisted of interest income
from certificates of deposit.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had cash and cash equivalents in the
amount of $507,892 as compared to $203,364 at December 31, 1995. This resulted
from proceeds of a private offering consummated during the quarter ended June
30, 1996.
The Company's current sources of liquidity consist primarily of (i)
proceeds received from the private offering consummated during fiscal 1996,
discussed above under RECENT SALES OF UNREGISTERED SECURITIES, and (ii) the
amounts, if any, available under the Line of Credit with Comerica, also
discussed above. The Company used portions of the proceeds of the private
offering in operations and to reduce amounts outstanding under the Line of
Credit. As of December 31, 1996 the Company had approximately $800,000 available
for borrowing pursuant to the Line of Credit. The total amount available for
borrowing under the Line of Credit is the lesser of (i) $4,000,000 and (ii) a
variable borrowing base calculated based on the amount and type of outstanding
accounts receivable and the value of certain items of inventory.
At December 31, 1996, the Company had working capital of approximately
$5,592,000 and its current ratio was 2.21 to 1 as compared to ($174,000) and .72
to 1 at December 31, 1995.
Although no assurances can be given, the Company anticipates that its
operating cash flows will be sufficient to meet its current needs. If the
Company's operating cash flows is not adequate, the Company may require new
sources of liquidity to (i) fund future activities that may be required to
obtain FDA marketing clearance for the Microlight 830(TM), (ii) make the
required payments under the Note (with Maxxim) and financial commitments to
Comerica, (iii) make the payments required to obtain the exclusive manufacturing
rights to the Microlight 830(TM), (iv) expand the Henley Division's operations,
(v) begin full-scale manufacturing of the Microlight 830(TM) and (vi) pursue
additional acquisitions. The Company believes that its success in obtaining the
necessary financing will depend on, among other factors, successfully operating
the recently- acquired businesses and successfully marketing the Microlight
830(TM) if it is cleared for commercial distribution by the FDA. The failure to
accomplish any of the foregoing could have a significant adverse impact on the
Company's business and financial condition. Sources of additional financing may
include additional bank debt or public or private sale of equity or debt
securities. There can be no assurance that the Company will be successful in
arranging such financing on terms commercially acceptable to the Company.
Management believes that the funds generated from operations, along with
the Company's current working capital position and bank credit, will be
sufficient to satisfy the Company's capital requirements for the existing
operations for the foreseeable future.
14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set
forth in the "Index to Financial Statements."
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report ............................................ 17
Consolidated Balance Sheet .............................................. 18
Consolidated Statement of Operations .................................... 19
Consolidated Statement of Changes in Stockholders' Equity (Deficiency)... 20-21
Consolidated Statement of Cash Flows .................................... 22
Notes to Consolidated Financial Statements .............................. 23-34
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Lasermedics, Inc.
We have audited the accompanying consolidated balance sheet of
Lasermedics, Inc. and Subsidiary as of December 31, 1996, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years ended December 31, 1996 and 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Lasermedics,
Inc. and Subsidiary as of December, 31, 1996 and the results of their
operations and their cash flows for the years ended December 31, 1996
and 1995 in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
February 23, 1997
17
<PAGE>
LASERMEDICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1996
------------
ASSETS (Notes 2, 3 and 5)
Current Assets:
Cash and cash equivalents (Note 1) .......................... $ 507,892
Accounts receivable, net of allowance
for doubtful accounts of $140,260 ...................... 4,959,194
Inventory (Notes 1, 2 and 5) ............................. 4,427,991
Prepaid expenses ............................................ 176,290
Other current assets ........................................ 158,028
------------
Total current assets ................................. 10,229,395
Property, plant and equipment, net
(Notes 1, 3 and 5) .......................................... 3,488,586
Goodwill and other intangibles, net of accumulated
amortization of $74,744 (Notes 1 and 4) .................. 2,387,664
Other assets .................................................. 119,327
------------
Total Assets ......................................... $ 16,224,972
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit - bank (Note 5) ............................. $ 2,187,071
Accounts payable ............................................ 962,647
Accrued expenses and other current liabilities (Note 8) ..... 869,313
Note payable - bank (Note 6) ................................ 292,000
Current maturities of long-term debt (Notes 4 and 5) ........ 326,367
------------
Total current liabilities ............................ 4,637,398
Interest payable .............................................. 252,000
Long-term debt, net of current maturities (Notes 4 and 5) ... 9,129,034
------------
Total liabilities ................................... 14,018,432
Commitments and contingencies (Notes 5 and 12)
Stockholders' Equity (Note 10):
Preferred stock - $.10 par value; authorized
2,500,000 shares; none issued and outstanding
Common stock - $.01 par value; authorized
20,000,000 shares; issued 3,021,439 ..................... 30,214
Additional paid-in-capital .................................. 10,660,312
Accumulated deficit ......................................... (8,257,807)
------------
2,432,719
Treasury stock, at cost, 279,000 common shares ............ (226,179)
Stockholders' equity .................................. 2,206,540
------------
Total Liabilities and Stockholders' Equity .............. $ 16,224,972
============
See notes to consolidated financial statements.
18
<PAGE>
LASERMEDICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1996 1995
------------ -----------
Net sales (Note 1) .......................... $ 12,485,961 $ 527,176
Cost of sales ............................... 5,716,156 344,076
------------ -----------
Gross profit ................................ 6,769,805 183,100
Operating expenses .......................... 6,726,692 1,530,349
------------ -----------
Income (loss) from operations ............... 43,113 (1,347,249)
Interest expense ............................ (814,636) (83,779)
Other income (expense), net ............... (107,814) 11,427
------------ -----------
Net loss .................................... $ (879,337) $(1,419,601)
============ ===========
Net loss per common share ................... $ (0.44) $ (0.98)
============ ===========
Weighted average common shares outstanding .. 1,995,388 1,443,578
============ ===========
See notes to consolidated financial statements
19
<PAGE>
LASERMEDICS, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
PREFERRED STOCK
SERIES B COMMON STOCK
-------------------- ---------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT
------- ------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 .................. 10,000 $ 1,000 1,683,887 $ 16,838 $ 6,882,569 $(5,958,869)
Compensation related to change in January 1995
of price of stock options ..................... -- -- -- -- 3,900 --
Issuance of common shares for research services
in January 1995 ............................... -- -- 20,000 200 89,800 --
Common shares issued on conversion of Preferred
Stock in March 1995 exchange:
Series B ...................................... (10,000) (1,000) 3,333 33 967 --
Issuance of common shares for furniture in
April 1995 and other .......................... -- -- 1,505 16 10,980 --
Shares rescinded in March and April 1995
relating to July 1994 private offering ........ -- -- (11,500) (115) 115 --
Issuance of common shares related to Bridge
Financing in June 1995 ........................ -- -- 39,000 390 194,610 --
Issuance of common shares for research services
in July 1995 .................................. -- -- 5,000 50 19,950 --
Exercise of options for cash in November 1995 . -- -- 20,000 200 29,800 --
Compensation related to stock options issued
in January, June and December 1993 ............ -- -- -- -- -- --
Net loss ...................................... -- -- -- -- -- (1,419,601)
------- ------- ---------- -------- ----------- -----------
Balance at December 31, 1995 .................. -- -- 1,761,225 17,612 7,232,691 (7,378,470)
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK
---------------------- DEFERRED STOCKHOLDERS'
NUMBER OF ACQUISITION COMPENSATION EQUITY
SHARES COST EXPENSE (DEFICIENCY)
-------- --------- --------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 .................. (281,000) $(227,800) $(133,430) $ 580,308
Compensation related to change in January 1995
of price of stock options ..................... -- -- -- 3,900
Issuance of common shares for research services
in January 1995 ............................... -- -- -- 90,000
Common shares issued on conversion of Preferred
Stock in March 1995 exchange:
Series B ...................................... -- -- -- --
Issuance of common shares for furniture in
April 1995 and other .......................... -- -- -- 10,996
Shares rescinded in March and April 1995
relating to July 1994 private offering ........ -- -- -- --
Issuance of common shares related to Bridge
Financing in June 1995 ........................ -- -- -- 195,000
Issuance of common shares for research services
in July 1995 .................................. -- -- -- 20,000
Exercise of options for cash in November 1995 . -- -- -- 30,000
Compensation related to stock options issued
in January, June and December 1993 ............ -- -- 133,430 133,430
Net loss ...................................... -- -- -- (1,419,601)
-------- --------- --------- -----------
Balance at December 31, 1995 .................. (281,000) (227,800) -- (355,967)
</TABLE>
See notes to consolidated financial statements
20
<PAGE>
LASERMEDICS, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
PREFERRED STOCK
SERIES B COMMON STOCK
-------------------- ---------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT
------- ------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common shares for services
in February 1996 .............................. -- -- -- -- $ 6,379 --
Subscriptions for common stock at $3.00
per share in January through June 1996 ........ -- -- 644,670 $ 6,447 1,927,577 --
Issuance of common shares for services
(Note 7) ...................................... -- -- 33,333 333 99,667 --
Issuance of common shares on conversion
of Bridge Notes ............................... -- -- 176,773 1,768 528,552 --
Issuance of common shares on the
exercise of warrants .......................... -- -- 75,000 750 6,750 --
Issuance of common shares for
equipment ..................................... -- -- 4,000 40 11,960 --
Issuance of common shares for
acquisitions .................................. -- -- 121,170 1,211 748,789 --
Issuance of common shares related to
employment agreement (Note 12) ................ -- -- 205,268 2,053 97,947 --
Net loss ...................................... -- -- -- -- -- (879,337)
======= ======= ========== ======== =========== ===========
Balance at December 31, 1996 .................. -- -- 3,021,439 $ 30,214 $10,660,312 $(8,257,807)
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK
---------------------- DEFERRED STOCKHOLDERS'
NUMBER OF ACQUISITION COMPENSATION EQUITY
SHARES COST EXPENSE (DEFICIENCY)
-------- --------- --------- -----------
<S> <C> <C> <C> <C>
Issuance of common shares for services
in February 1996 .............................. 2,000 $ 1,621 -- $ 8,000
Subscriptions for common stock at $3.00
per share in January through June 1996 ........ -- -- -- 1,934,024
Issuance of common shares for services
(Note 7) ...................................... -- -- -- 100,000
Issuance of common shares on conversion
of Bridge Notes ............................... -- -- -- 530,320
Issuance of common shares on the
exercise of warrants .......................... -- -- -- 7,500
Issuance of common shares for
equipment ..................................... -- -- -- 12,000
Issuance of common shares for
acquisitions .................................. -- -- -- 750,000
Issuance of common shares related to
employment agreement (Note 12) ................ -- -- -- 100,000
Net loss ...................................... -- -- -- (879,337)
======== ========= ========= ===========
Balance at December 31, 1996 .................. (279,000) $(226,179) -- $ 2,206,540
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
LASERMEDICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net loss .............................................. $ (879,337) $(1,419,601)
----------- -----------
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization expense ................. 283,746 8,642
Amortization of discount on notes payable ............. 151,667 43,333
Interest expense ...................................... 294,820 --
Bad debt expense ...................................... 1,420,518 12,377
Compensation related to stock options and
warrants issued ....................................... -- 137,330
Shares issued for public relations agreement .......... 8,000 --
Shares issued for equipment ........................... 12,000 --
Shares issued for services/with employment agreement .. 200,000 --
Shares issued for clinical research studies ........... -- 110,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............ (2,623,498) 120,297
(Increase) decrease in inventory ...................... 1,381,689 (35,378)
(Increase) in prepaid expenses and other current assets (149,693) (24,960)
(Increase) in other assets ............................ (16,447) --
Decrease in accounts payable and accrued liabilities .. 500,785 465,941
----------- -----------
Total adjustments ..................................... 1,463,587 837,582
----------- -----------
Net cash provided by (used in) operating activities ... 584,250 (582,019)
----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired of $46,270 ......... (6,603,046) --
Intangible assets expenditures ........................ (1,036) --
Capital expenditures .................................. (139,534) (1,859)
----------- -----------
Net cash used in investing activities ................. (6,743,616) (1,859)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock ............ 1,941,524 35,000
Subscriptions refunded on common stock ................ -- (46,000)
Net proceeds from line of credit ...................... 2,187,071 --
Proceeds from long-term debt .......................... 2,509,000 487,500
Principal payments of long-term debt .................. (173,701) --
----------- -----------
Net cash provided by financing activities ............. 6,463,894 476,500
----------- -----------
Net increase (decrease) in cash and cash equivalents .. 304,528 (107,378)
Cash and cash equivalents at beginning of period ...... 203,364 310,742
----------- -----------
Cash and cash equivalents at end of period ............ $ 507,892 $ 203,364
=========== ===========
</TABLE>
See notes to consolidated financial statements
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................... $325,136 $ --
22
<PAGE>
LASERMEDICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Lasermedics, Inc. and subsidiary (collectively, the "Company") is a
manufacturer and marketer of diversified products in the physical
therapy and rehabilitation industry. Substantially all of the Company's
customers are located throughout the United States.
Lasermedics, Inc., organized in November 1990, was in the development
stage through April 30, 1996, and for the year ended December 31, 1996,
is considered an operating company.
Following is a summary of the Company's significant accounting policies:
The consolidated financial statements include the accounts of
Lasermedics, Inc. and its wholly-owned subsidiary. Inter-company
transactions and balances have been eliminated in consolidation.
Revenue is recognized when title passes to the buyer, typically when the
product is shipped.
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
Company maintains cash in bank deposit accounts which, at times, exceed
federally insured limits. The Company has not experienced any losses on
these accounts.
Inventory is stated at the lower of cost, determined by the first-in,
first-out (FIFO) valuation method, or market.
Depreciation and amortization of property, plant and equipment is
provided using the straight-line method over the estimated useful lives
of the assets.
The Company employs the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109, under
which method recorded deferred income taxes reflect the tax consequences
on future years of temporary differences (differences between the tax
basis of assets and liabilities and their financial amounts at
year-end). The Company provides a valuation allowance that reduces
deferred tax assets to their net realizable value.
The calculation of net loss per common share is based on the weighted
average number of shares outstanding during the period, after
consideration of the dilutive effect of stock options and warrants
reflected under the treasury stock method.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions by management affecting the reported amounts of assets and
liabilities and revenue and expenses and the disclosure of contingent
assets and liabilities. Actual results could differ from those
estimates.
The Company measures compensation cost using APB Opinion No. 25 as is
permitted by the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation."
Expenditures relating to research and development are expensed as
incurred. The amount charged to operations was approximately $314,000
and $174,000 for the years ended December 31, 1996 and 1995,
respectively.
23
<PAGE>
Goodwill represents the excess of the aggregate purchase price paid by
the Company over the fair market value of the tangible and identifiable
intangible net assets acquired arising from business acquisitions
accounted for under the purchase method. Goodwill and intangibles are
being amortized on a straight-line basis over 15 years and for periods
ranging from 3 to 7 years, respectively.
2. INVENTORY:
Inventory at December 31, 1996, included the following:
Raw material ............................ $1,504,876
Work-in-process ......................... 33,578
Finished goods .......................... 2,889,537
----------
$4,427,991
==========
Substantially all of the Company's inventory is pledged as collateral
for the Company's long-term debt (see Note 5).
3. PROPERTY, PLANT AND EQUIPMENT:
At December 31, 1996, property and equipment, at cost, included:
ESTIMATED
USEFUL LIFE
------------
Land $ 190,000
Buildings 1,896,234 25 years
Machinery and equipment 1,412,908 3 to 7 years
Office furniture and fixtures 207,998 5 years
Automobile 7,000 5 years
----------
3,714,140
Less accumulated depreciation
and amortization (225,554)
----------
Property, plant and equipment, net $3,488,586
==========
Substantially all of the Company's property, plant and equipment is
pledged as collateral for the Company's long-term debt (see Note 5).
4. ACQUISITIONS:
On April 30, 1996 the Company entered into an agreement with Maxxim
Medical, Inc., a Delaware corporation ("Maxxim"), whereby the Company
purchased certain assets of (and assumed certain liabilities associated
with) the Henley Healthcare Division ("Henley") of Maxxim for an
estimated purchase price of approximately $13.5 million including
related acquisition costs of approximately $650,000. The assets acquired
consist of real property; tangible personal property including
machinery, equipment, furniture and fixtures; general intangibles;
contracts; business licenses; accounts receivable; inventory; and
prepaid expenses. The purchase price was paid by the issuance of the
Company's convertible subordinated promissory note in the principal
amount of $7,000,000 (the "Note") with the balance of the purchase price
being paid in cash. The Company obtained the cash portion of the
purchase price pursuant to financing arrangements entered into with
Comerica Bank - Texas, a Texas banking corporation ("Comerica"), which
financing is secured by substantially all of the assets of the Company
including the Henley assets acquired from Maxxim (see Note 5).
24
<PAGE>
On November 12, 1996, the Company purchased substantially all of the
assets of (and assumed certain liabilities associated with) MJH Medical
Equipment, Inc. ("MJH") for an estimated purchase price of approximately
$435,000 including related acquisition costs of approximately $45,000.
The assets acquired consist of tangible personal property including
equipment, furniture and fixtures; contracts; business licenses;
accounts receivable; inventory; and prepaid expenses. The purchase price
was paid by the issuance of the Company's promissory note in the
principal amount of approximately $120,000 and 39,063 shares of common
stock, with a market value of approximately $6.40 per share, with the
balance of the purchase price being paid in cash.
On November 27, 1996, the Company, through a wholly-owned subsidiary,
acquired all of the outstanding shares of common stock of Health Career
Learning Systems, Inc., ("HCLSI"), a Michigan corporation, for an
estimated purchase price of approximately $680,000 including related
acquisition costs of approximately $80,000. The purchase price was paid
by the issuance of 82,107 shares of common stock, with a market value of
approximately of $6.09 per share, with the balance of the purchase price
being paid in cash (see Note 5).
These acquisitions have been accounted for as purchases for accounting
purposes, and the results of operations of the acquisitions have been
included in the consolidated statement of operations from the dates of
acquisition. The estimated purchase price in excess of the estimated
fair value of the net assets acquired, aggregating approximately
$2,261,000 for all of the acquisitions, has been calculated as follows:
<TABLE>
<CAPTION>
Henley MJH HCLSI Total
----------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Purchase price ..... $12,847,000 $390,000 $ 600,000 $13,837,000
Acquisition costs .. 650,000 45,000 80,000 775,000
----------- -------- ------------ -----------
13,497,000 435,000 680,000 14,612,000
----------- -------- ------------ -----------
Assets acquired .... 12,683,000 215,000 355,000 13,253,000
Liabilities assumed 397,000 115,000 390,000 902,000
Net assets (liabilities)
acquired ........... 12,286,000 100,000 (35,000) 12,351,000
----------- -------- ------------ -----------
Excess of cost over
fair value of net assets
acquired (goodwill) $ 1,211,000 $335,000 $ 715,000 $ 2,261,000
=========== ======== ============ ===========
</TABLE>
The following summarized pro forma (unaudited) information assumes the
acquisitions had occurred on January 1, 1996 and 1995, respectively:
For year ended December 31, 1996 1995
------------ ------------
Net sales ....................... $ 20,120,000 $ 21,125,000
Net loss ........................ (1,462,000) (2,288,000)
------------ ------------
Net loss per common share ....... $ (.73) $ (1.58)
============ ============
The above amounts reflect adjustments for interest on the Note and the
financing arrangement with Comerica, amortization of goodwill,
compensation related to an employment agreement and depreciation on
re-valued property, plant and equipment.
25
<PAGE>
5. LONG-TERM DEBT:
The following table summarizes the Company's long-term debt at December
31, 1996, which is described below:
Note payable - Maxxim (a) ........................ $7,000,000
Term Note A - Comerica (b) ....................... 788,817
Term Note B - Comerica (b) ....................... 1,553,156
Note payable - MJH (c) ........................... 113,428
----------
9,455,401
Less: Current maturities ........................ 326,367
----------
$9,129,034
==========
(a) In connection with the acquisition of Henley, the Note payable to
Maxxim is due and payable on March 1, 2003 with interest payable
semi-annually on November 1 and May 1 of each calendar year and
calculated at a rate equal to 2% per annum and increasing annually 2%
per annum. The Company may redeem all or any portion of the outstanding
principal amount of the Note at redemption prices ranging from 104% to
110% of the principal amount being redeemed, depending on when the
redemption occurs as set forth in the Note. In addition, the Note is
subject to mandatory redemption in annual installments of $1.4 million
commencing on March 1, 1999 at premiums starting at 7% and decreasing 1%
each year. The Company is also required to redeem 40% of the Note upon
the completion of a public offering. The Note is convertible into common
stock at an initial conversion price of $3 per share, provided that upon
the occurrence of any default under the Note, the conversion price will
be automatically adjusted to an amount equal to the lesser of the
conversion price then in effect or 80% of the average market price for
the Company's common stock for the 30 trading days immediately preceding
the event of default. The conversion price is also subject to adjustment
upon the occurrence of certain events (including certain issuances of
common stock for less than the conversion price) to provide
anti-dilution protection. Such conversion could, depending on the fair
market value of the Company's common stock at the time of conversion,
result in substantial dilution to holders of the Company's common stock.
The Company's common stock issuable upon conversion of the Note is
subject to the terms of a registration rights agreement entered into by
the Company and Maxxim whereby Maxxim (and certain subsequent holders)
shall retain certain demand and piggyback registration rights with
respect to those shares of common stock.
(b) The financing arrangements with Comerica (the "Financing") provides
for (i) a two-year revolving loan ("Line of Credit"), which permits
borrowings up to $4,000,000 through April 1998, pursuant to a monthly
borrowing base calculation derived from the Company's accounts
receivable and inventory and (ii) two term loans in the amount of
$893,000 ("Term Note A") and $1,616,000 ("Term Note B"), respectively.
Term Note A and Term Note B are payable in monthly installments of
$14,883 and $8,978, respectively, plus interest through May 2001 and
2011, respectively. The Line of Credit also includes a $250,000 letter
of credit facility. Interest on the Line of Credit and the two term
loans is payable monthly and is calculated at a rate equal to the Prime
Rate (8.25% at December 31, 1996) plus one-half of one percent per
annum. Term Note B is callable by Comerica beginning on the fifth
anniversary of the Financing. All of the borrowings from Comerica are
secured by substantially all of the assets of the Company including the
Henley assets acquired from Maxxim. The Financing also contains a number
of affirmative covenants, negative covenants and financial covenants
with which the Company must comply including a minimum tangible net
worth, leverage ratio, working capital ratio, fixed charge ratio and
interest coverage ratio. The Company, among other matters, is also
limited in the amount of its capital expenditures, research and
development expenditures and dividends and all future acquisitions and
major corporate transactions require approval of Comerica, as do
offerings of securities by the Company.
26
<PAGE>
(c) In connection with the MJH acquisition, the Company issued a note
payable to the seller, an officer of the Company, in the amount of
approximately $120,000. The note is payable in monthly principal
installments of $3,336 plus interest at a bank's prime lending rate plus
2% per annum through November 1999.
The estimated fair value of the Note payable to Maxxim amounted to
$7,000,000 pursuant to a valuation by an investment banking firm. Based
on borrowing rates currently available to the Company for loans with
similar terms and average maturities the fair value of the Company's
other long-term debt approximates the carrying amount.
Aggregate maturities of long-term debt are as follows:
For the year ending December 31, 1997 $ 326,367
1998 326,367
1999 1,719,694
2000 1,686,332
2001 1,582,169
2002 and thereafter 3,814,472
--------------
9,455,401
Less current maturities 326,367
--------------
$ 9,129,034
==============
6. NOTE PAYABLE:
The Company has a demand note payable to a bank in the amount of
$292,000. Interest is payable monthly at the rate of 10.25% per annum.
The note is collaterized by substantially all of the assets of HCLSI.
7. RELATED PARTY TRANSACTIONS:
In August 1995, the Company entered into an agreement with Mezzanine
Financial Relations, Inc., (Mezzanine) a financial relations company, to
assist the Company in the evaluation of, and formulation of terms for
certain companies identified in the Company's strategic acquisition
plan. The executive vice president, chief financial officer and a
director of the Company was Chairman of the Board and a shareholder of
Mezzanine. The agreement provided, among other things, for the Company
to pay Mezzanine a cash fee of $115,000 concurrent with the closing of
the Henley acquisition transaction. Pursuant to the agreement the
Company issued to Mezzanine a four-year warrant to purchase 25,000
shares of the Company's common stock at a price of $6.75 per share,
which was the market price of the Company's common stock on the date of
the grant. The warrant is exercisable from February 16, 1996 through
August 16, 1999.
In May 1996, the Company entered into an additional agreement with
Mezzanine, which agreement the parties amended in November 1996, whereby
Mezzanine agreed to provide financial consulting services with regard to
potential mergers and acquisitions in consideration for a monthly fee of
$10,000. The agreement terminated on January 31, 1997.
During the year ended December 31, 1996, the Company paid fees
aggregating $25,000 and issued 33,333 shares of common stock to a
director of the Company for his services in connection with the
Company's pre-market approval application submission to the FDA.
27
<PAGE>
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
The following are included in accrued expenses and other current
liabilities at December 31, 1996:
Property taxes ................................. $196,993
Payroll and commissions ........................ 199,403
Interest payable ............................... 81,888
Accrued acquisition costs ...................... 92,583
Accrued professional fees ...................... 93,966
Other .......................................... 204,480
--------
$869,313
========
9. INCOME TAXES:
The components of deferred tax assets as of December 31, 1996 were as
follows:
1996
-----------
Total deferred tax assets ...................... $ 1,181,000
Valuation allowance ............................ (1,181,000)
-----------
Net deferred tax assets ................... -0-
===========
The tax effects of temporary differences, loss carryforwards and the
valuation allowance that give rise to deferred tax assets (liabilities)
at December 31, 1996, were as follows:
1996
-----------
Temporary differences:
Compensation expense not
deductible until options exercised ......... $ 239,000
Depreciation .................................. (35,000)
Customer deposits received .................... 3,000
Net operating losses .......................... 974,000
Less valuation allowance ..................... (1,181,000)
-----------
-0-
===========
Following is a reconciliation of the amount of the income tax benefit to
result from applying the statutory federal income tax rates to pretax
loss and the reported amount of income tax benefit for the year ended
December 31, 1996 and 1995:
1996 1995
--------- ---------
Tax benefit of statutory rate of 15% ....... $ 132,000 $ 212,940
Increases in valuation allowance ........... (76,000) (211,641)
Other ...................................... (56,000) (1,299)
--------- ---------
-0- -0-
========= =========
As of December 31, 1996, the Company had net operating loss
carryforwards available to offset future taxable income of approximately
$6,493,000 expiring through 2010. Between January 1993 and December
1996, the Company completed an initial public offering, had warrants
exercised, completed private offerings of securities and made
acquisitions of established businesses or product lines. Under the
Internal Revenue Code Section 382 these activities effected
28
<PAGE>
an ownership change and thus severely limit on an annual basis, the
Company's ability to utilize its net operating loss carryforwards. The
Company uses the lowest marginal U.S. corporate tax rate of 15% to
determine deferred tax amounts and the related valuation allowance
because the Company has had no taxable earnings through December 31,
1996.
10. STOCKHOLDERS' EQUITY:
In February 1995, 10,000 shares of Series B preferred stock were
converted to common stock at the rate of three preferred shares for one
common share There was no cash involved in the transaction. The effect
of this transaction had it occurred on January 1, 1995 would have
resulted in weighted average shares outstanding of 1,444,189 and net
loss per share of $0.98 for the year ended December 31, 1995. As of
December 31, 1995 there were no shares of Preferred Stock issued and
outstanding.
In March 1995, the Company made a rescission offer to stockholders
owning in the aggregate 24,150 shares of common stock, who purchased
such shares at a price of $4.00 per share in the Company's private
placement which closed on October 31, 1994 and who reside in the states
of Texas and New York. The offer expired on March 31, 1995 and
shareholders owning in the aggregate 11,500 shares rescinded, and
received a refund of, their investment.
During April 1995, the Company issued in a private placement
transaction, 12% convertible, unsecured, non-negotiable promissory notes
(the "Bridge Notes") in the principal amount of $487,500 and 39,000
shares of common stock valued at $195,000. The Bridge Notes were due and
payable on the earlier of June 12, 1998, or the closing of any public
offering or private placement of the Company's securities in which the
Company received gross proceeds of at least $3,000,000.
In December 1995, the Company commenced a "best-efforts" private
placement of its securities (the "Offering".) A total of 300,000 units
were offered at a price of $3.00 per unit and a minimum subscription of
2,000 units. Each unit consisted of one share of common stock and one
warrant to purchase one share of common stock at $6.00 for a period of
four years. The units offered were not registered, and the offering was
to expire on January 31, 1996. At December 31, 1995, no subscriptions
had been received in connection with the offering. During March 1996,
the Company amended the terms of the Offering by extending the
expiration date from January 31, 1996 to June 21, 1996, increasing the
size of the Offering up to 1,000,000 units and modifying the provisions
of certain common stock registration rights granted in the Offering.
On April 30, 1996 the Company consummated the Offering with respect to
those subscriptions received to that date. Pursuant to such consummation
the Company received an aggregate of approximately $1,200,000 from
investors and issued to such investors in exchange therefor, 400,000
units of its securities ("Units"), each Unit consisting of one share of
the Company's common stock and one four-year warrant to purchase one
share of the Company's common stock at an exercise price of $6.00 per
share. Subsequent to April 30, 1996 the Company consummated the Offering
with respect to those subscription agreements received after that date
and, in connection therewith, received approximately $746,000 and issued
an additional 248,670 Units.
Additionally, on April 30, 1996 all of the holders of the Bridge Notes
converted the amounts due thereunder into an aggregate of 176,773 shares
of common stock and four-year warrants to purchase an aggregate of
176,773 shares of common stock at an exercise price of $6.00 per share.
Such conversion was effected under the same terms as those offered to
investors in the Offering.
In connection with an agreement the Company entered into (in December
1995) with a public relations firm, the Company issued to the firm, in
February 1996, 2,000 shares of its treasury common stock as compensation
for services. The Company has recognized $8,000 in related compensation
expense based on the market price of the common stock of $4.00 per share
on the date of the agreement.
29
<PAGE>
At the Company's annual shareholders' meeting held in July 1996, the
Company's shareholders, among other things, approved (i) a proposal
amending the Company's Articles of Incorporation which (a) increased the
authorized number of shares of the Company's Common Stock, par value
$.01 per share from 10,000,000 shares to 20,000,000 shares and (b)
increased the authorized number of shares of the Company's Preferred
Stock, par value $.10 per share from 1,000,000 shares to 2,500,000
shares and (ii) the 1996 Incentive Stock Option Plan (the "Incentive
Plan") and the 1996 Amended and Restated Non-Employee Director Stock
Option Plan (the "Director Plan") as adopted by the Company's Board of
Directors (the "BOD") in January 1996.
11. STOCK OPTIONS & WARRANTS:
As discussed in Note 10, the Company has reserved for future issuance
1,200,000 and 250,000 shares of common stock for the Incentive Plan and
the Director Plan, respectively. The Incentive Plan provides for the
granting of options, to purchase common stock, to employees and
consultants of the Company at a price not less than the fair market
value of the shares on the date of the option grant, provided that the
exercise price of any option granted to an employee owning more than 10%
of the outstanding common stock of the Company may not be less than 110%
of the fair market value of the shares on the date of the option grant.
The term of each option and the manner of exercise is determined by the
BOD, but in no case can the options be exercisable in excess of 10 years
beyond the date of grant. The Director Plan provides for the granting of
options, to purchase common stock, to non-employee directors of the
Company at a price equal to the fair market value of the shares on the
date of the option grant. The Director Plan also provides for the
granting of an option for 10,000 shares of common stock to all
non-employee directors on an annual basis, coinciding with the
anniversary of the director's date of election to the BOD. Each option
granted under the Director Plan expires 10 years from the date of grant.
A summary of the Company's options as of December 31, 1996 and 1995 and
changes during the years then ended is presented below:
1996 1995
-------------------------- ----------------------------
WEIGHTED AVG. WEIGHTED AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- -------- --------------
Outstanding at
beginning of
year ........... 962,726 $3.81 950,082 $3.67
Canceled/
expired .......... (50,000) 0.10 (82,801) 3.94
Granted ........... 973,776 6.02 125,445 4.56
Exercised ......... (75,000) 0.10 (30,000) 1.00
---------- ----- -------- -----
Outstanding at
end of year ...... 1,811,502 $5.24 962,726 $3.81
========== ===== ======== =====
Options
exercisable
at year-end ..... 1,811,502 962,726
========== ========
Weighted-average
fair value of
options granted
during the year .. $1.26 $1.81
================================================================================
30
<PAGE>
The following table summarizes the information about fixed stock options
outstanding at December 31, 1996:
OPTIONS OUTSTANDING AND EXERCISABLE
WEIGHTED
NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED
EXERCISE AT DECEMBER 31, CONTRACTUAL AVERAGE
PRICES 1996 LIFE EXERCISE PRICE
--------------------------------------------------------------
$1.00-$3.00 270,000 3.0 $ 2.74
$4.00-$5.50 475,000 4.8 $ 4.46
$6.00-$7.75 1,066,502 3.4 $ 6.22
---------------------------------------------------------------
$1.00-$7.75 1,811,502 3.7 $ 5.24
===============================================================
The Company has elected. in accordance with the provisions of Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123") to apply the
current accounting rules under APB Opinion No 25 and related
interpretations in accounting for stock options, and accordingly, has
presented the disclosure-only information as required by SFAS No. 123.
If the Company had elected to recognize compensation cost based on the
fair value of the options granted at the grant date as prescribed by
SFAS No. 123, the Company's net loss and net loss per common share for
the years ended December 31, 1996 and 1995 would approximate the pro
forma amounts shown in the table below.
Year ended December 31, 1996 1995
------------- --------------
Net loss - as reported $ (879,337) $ (1,419,601)
Net loss - pro forma $ (1,023,837) $ (1,646,318)
Net loss per common share - as reported $ (.44) $ (.98)
Net loss per common share - pro forma $ (.51) $ (1.14)
========================================================================
The fair value of each option grant on the date of grant was valued by
an investment banking firm taking into account as of the grant date the
exercise price and expected life of the option, the current price of the
underlying stock and its expected volatility, expected dividends on the
stock and the risk-free interest rate for the expected term of the
option as prescribed by SFAS No. 123.
In connection with their election to the BOD in January 1996, two
non-employee directors were each granted a stock option under the
Director Plan to purchase 25,000 shares of the Company's common stock at
a price of $5.50 per share. Also, in connection with his election to the
BOD concurrent with the closing of the Henley transaction in April 1996,
one non-employee director was granted an option under the Director Plan
to purchase 25,000 shares of the Company's common stock at a price of
$7.75 per share. The grants of these options were subject to stockholder
approval of the Director Plan which approval was obtained in July 1996.
In February 1996, the Company extended the expiration date from February
16, 1997 to February 1, 1999 of an immediately exercisable option to
purchase 75,000 shares of the Company's common stock at a price of $4.25
per share granted in connection with an agreement entered into with a
consultant of the Company in February 1994.
In March 1996, the Company extended the expiration date from July 15,
1996 to March 12, 1998 of an immediately exercisable option to purchase
20,000 shares of the Company's common stock at a price of $4.00 per
share granted in connection with an agreement entered into with a
financial public relations firm in December 1995.
31
<PAGE>
Effective June 14, 1996 the Company entered into a settlement agreement
with J.W. Cabott Holding Corp. ("JWC") and certain of JWC's principals
with respect to an agreement the Company entered into with JWC in July
1994 pursuant to which JWC was granted a warrant to purchase 125,000
shares of the Company's common stock at $.10 per share. The settlement
agreement provides for, among other things, a reduction in the number of
shares issuable pursuant to the warrant granted to JWC from 125,000 to
75,000 and the transfer of such warrant to three principals of JWC. The
Company subsequently issued 75,000 shares of its common stock to the
three principals of JWC pursuant to their exercise of the warrant at the
specified price of $.10 per share.
In connection with their re-election to the BOD in July 1996, four
non-employee directors were each granted a stock option under the
Director Plan to purchase 10,000 shares (for an aggregate of 40,000
shares) of the Company's common stock at a price of $6.125 per share.
12. COMMITMENTS AND CONTINGENCIES:
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into various employment and consulting
agreements with various directors, key personnel and certain
shareholders aggregating $1,339,000 which expire at various dates
through November 1999. Certain of these agreements provide for incentive
bonuses and or commissions, as defined in the agreements. In connection
with the HCLSI acquisition, the Company entered into an employment
agreement with one of the sellers which provides for a signing bonus of
$100,000, paid by the issuance of 16,421 shares of the Company's common
stock. The agreement also provides for the issuance of 188,847 shares of
the Company's common stock to be held in escrow. Such shares will be
released from escrow over a three-year period if the employee meets
certain performance goals as defined in the agreement. The Company will
recognize a charge to operations upon the release of such shares from
escrow based upon the fair market value of the shares as of the release
date.
EXCLUSIVE LICENSE AGREEMENT
In November 1993, the Company entered into an agreement, amended in June
and December 1994, November 1995 and as of December 1996, with CB
Svendsen a/s ("CBS"), the Danish manufacturer of the Company's low
energy laser device, the Microlight 830, under which the Company obtains
sole and exclusive world-wide manufacturing, marketing, and distribution
rights in perpetuity to all low-energy laser devices currently made by
CBS, upon the payment to CBS of the sums of $150,000 by December 31,
1997 and $125,000 by June 30, 1998, respectively, in each case subject
to an extension of up to eight weeks obtainable by a payment of $1,000
per week of extension, plus royalties of 3% on sales for a period of
seven years following the respective grants of exclusivity (see Note
16).
32
<PAGE>
LEASES
The Company is obligated under various non-cancelable operating leases
(including certain related-party leases aggregating approximately $8,300
per month) for warehouse and office space expiring through June 2001,
which are subject to increase for real estate taxes and operating
expense escalations. Rent expense charged to operations under these
operating leases amounted to approximately $45,000 and $16,000 for the
years ended December 31, 1996 and 1995, respectively. Minimum future
rental payments are as follows:
FISCAL YEARS
1997 $ 109,204
1998 101,904
1999 103,704
2000 95,304
2001 26,652
---------
$ 436,768
=========
13. MAJOR CUSTOMERS:
During 1996 and 1995 no customer accounted for 10% or more of total
sales.
14. EMPLOYEE BENEFIT PLANS
During the year ended December 31, 1996, the Company adopted a 401 (k)
savings plan (the "Plan") covering all qualified employees. The Plan
permits participants to contribute up to 15% of their base compensation
(as defined) each year. The Company will match at least 25% of the
participant's contribution up to a maximum of 6% of gross pay. The
Company's matching percentage may be adjusted as Company profitability
dictates. Two officers of the Company serve as trustees of the Plan.
Matching contributions to the Plan for the year ended December 31, 1996,
amounted to approximately $25,000.
15. SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing and financing transactions during the years ended
December 31, 1996 and 1995 were as follows:
1996 1995
-------- --------
Common shares issued in connection
with acquisitions ........................... $750,000 --
Common shares issued in connection
with conversion of bridge notes ............. 530,320 --
Common shares issued for
equipment and furniture ..................... 12,000 $ 5,995
Common shares issued for employment
agreement and services ...................... 208,000 --
Compensation related to common stock
options issued .............................. -- 3,900
Common shares issued in connection with
research and development agreement .......... -- 110,000
Deferred compensation related to common
stock options ............................... -- 133,430
Accrued amounts relating to acquisitions ........... 92,583 --
33
<PAGE>
16. SUBSEQUENT EVENTS:
On January 24, 1997, the Company entered into an agreement pursuant to
which it acquired Texas T.E.N.S., Inc., a Texas corporation, as a
wholly-owned subsidiary for an estimated purchase price of approximately
$850,000 including related acquisition costs of approximately $50,000.
On January 24, 1997, the Company purchased substantially all of the
inventory, distribution systems and customers associated with the
Homecare (third-party billing) division of Gatti Medical Supply, Inc., a
Pennsylvania corporation, for an estimated purchase price of
approximately $600,000 including related acquisition costs of
approximately $50,000.
In March 1997, the Company and CBS entered into a new and superseding
agreement, pursuant to which the Company paid $100,000 to CBS and
obtained unto perpetuity the sole and exclusive world-wide distribution
rights to the Microlight 830. Also pursuant to the agreement, the
Company obtained unto perpetuity the exclusive world-wide manufacturing
rights to the Microlight 830 subject to the payment to CBS of $175,000
by June 15, 1998.
34
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (A) OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information concerning each executive
officer and director of the Company as of the date hereof:
AGE TITLE
Michael M. Barbour 52 President, Chief Executive Officer, Director
Dan D. Sudduth 54 Executive Vice President, Chief Financial
Officer, Director
Chike J. Ogboenyiya 45 Vice President - Finance, Secretary
Michael J. Houska 38 Vice President - Sales
Chadwick F. Smith, MD 63 Medical Director, Director, Chairman of Board
Pedro A. Rubio, MD, Ph.D. 52 Director
Kenneth W. Davidson 49 Director
Ernest J. Henley, Ph.D. 70 Director
Michael M. Barbour has been President, Chief Executive Officer and
Director of the Company since May 1991. He has over 13 years experience in the
field of laser products. Prior to forming Lasermedics, from April 1984 to
January 1987 he was President of Surgimedics, a Houston, Texas, manufacturer and
distributor of laser accessory products. Mr. Barbour graduated from the
University of Houston in 1967 with a B.B.A. in marketing.
Dan D. Sudduth joined the Company as Executive Vice President and Chief
Financial Officer in February 1997. He has been a Director of the Company since
January 1996. Mr. Sudduth was Chief Financial Officer, and currently serves as a
Director, for Mezzanine Telecom., Inc., a Houston, Texas, telecommunications
company. He also is a Director for CQI Solutions, Inc., a medical computer
software company in New Braunfels, Texas. During 1995 and 1996, Mr. Sudduth was
President and Director of AMC Home Healthcare, Inc., a respiratory therapy
company in Houston, chairman of Mezzanine Financial Relations, Inc., a merchant
banking firm in Houston and chief financial officer and director of Creative
Communications International, Inc., a Houston telecommunications company. From
1992-1994 Mr. Sudduth served as Chairman and Chief Executive Officer of Heart
Labs of America, Inc., a provider of continuous passive motion services. Mr.
Sudduth received a Bachelor of Business Administration degree in 1964 from Lamar
University.
Chike J. Ogboenyiya has been Vice President-Finance of the Company since
January 1994 and Secretary since August 1994. He has over 20 years of extensive
industry experience in accounting, corporate finance and business management.
From 1984 to 1990 he was a Director and Chief Financial Officer for Kaulimax
International Corporation, a Houston, Texas, privately-held, small exporter of
apparel. Mr. Ogboenyiya is a Certified Public Accountant, graduated with an M.S.
from the University of Houston in 1979, and graduated cum laude from Texas
Southern University in 1977 with a B.B.A in Accounting.
Michael J. Houska has been Vice President-Sales of the Company since May
1996. He has over 13 years of experience in the medical devices industry. Mr.
Houska is a Director of Love Inc./Love for Children,
35
<PAGE>
an affiliate of World Vision. From 1987 to 1996, Mr. Houska was divisional Vice
President of Sales and Marketing for Maxxim. Mr. Houska holds a B.A. degree in
business management from Hiram College in Ohio.
Chadwick F. Smith, MD has been a Director of the Company since May 1991
and Chairman of the Board of Directors since June 1993. He is also a Consultant
to the Company. Dr. Smith is Clinical Professor of Orthopedic Surgery at the
School of Medicine of the University of Southern California, a position he has
held since 1981, and he has been a member of the Medical Staff of Orthopedic
Hospital, Los Angeles, California, since 1966. Dr. Smith graduated with a B.A.
from Southern Methodist University in 1954, graduated from the University of
Texas medical school in 1958, and has been a diplomate of the American Board of
Orthopedic Surgery since 1968.
Pedro A. Rubio, MD., Ph.D., has been a Director of the Company since
January 1996. He is Clinical Associate Professor of Surgery at the University of
Texas Health Science Center (Houston) and was Director of Education of the Laser
Training Institute (Houston). He served as World President of the International
College of Surgeons (Chicago) in 1995, and is Chairman Emeritus of the
Department of Surgery at the Columbia/HCA Medical Center Hospital (Houston). Dr.
Rubio holds the degrees of Bachelor of Science, Master of Science in Surgical
Technology, Doctor of Philosophy in Biomedical Technology and Doctor of Medicine
and Surgery. Dr. Rubio is a Diplomate of the American Boards of Surgery, Laser
Surgery, Abdominal Surgery, Forensic Medicine, Quality Assurance and Pain
Management.
Kenneth W. Davidson has been a Director of the Company since April 1996.
He is President, Chief Executive Officer and Chairman of the Board of Directors
of Maxxim. Mr. Davidson has been a Director of Maxxim since 1982, but became
Maxxim's President, Chief Executive Officer and Chairman of the Board of
Directors in November 1986.
Ernest J. Henley, Ph.D., has been a Director of the Company since April
1996. He is also a Consultant to the Company and has been a Director of Maxxim
since 1976. Dr. Henley's principal employment for more than the past fifteen
years has been as a Professor of Chemical Engineering at the University of
Houston.
All directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified. All
non-employee directors of the Company are reimbursed for expenses incurred for
attendance at meetings of the Board of Directors and any Board committee and are
eligible to receive stock options pursuant to the 1996 Non-Employee Director
Stock Option Plan. See "Item 10. Executive Compensation."
Each officer of the Company serves at the discretion of the Board of
Directors, subject to the terms of his employment agreement, if any, and is
eligible to receive stock options pursuant to the 1996 Incentive Stock Plan. See
"Item 10. Executive Compensation" below, for a discussion of the Company's
employment agreement with Mr. Barbour. Each member of management devotes his
full time to the Company's affairs.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
During the fiscal year ended December 31, 1996, the Company failed to
file on a timely basis a Form 4 - Statement of Changes in Beneficial Ownership -
in connection with shares of the Company's common stock issued to Mr. Michael
J. Houska, an officer of the Company, in the asset purchase transaction with MJH
Medical Equipment, Inc.
SCIENTIFIC ADVISORY BOARD
The Company established a Scientific Advisory Board of distinguished
physicians and scientists with a wide range of experience in the medical field.
The Board meets formally or by teleconference at the Company's expense every six
months to discuss research data regarding the Company's products.
36
<PAGE>
By selection, the medical and scientific advisors are geographically
diverse and have varied experience within the laser field, including hospital
work, teaching at universities, and working within different industries or types
of private practice. All of the advisors are in private practice, employed by
hospitals, universities or other organizations, none of which in the future is
expected by the Company to compete with the Company. These advisors are expected
to devote only a small portion of their time to the Company, and they are not
expected to participate actively in the Company's affairs. Certain of the
institutions with which the Scientific Advisors are affiliated may adopt new
regulations or policies that limit the ability of the advisors to consult with
the Company; however, the loss of the services of any of the Scientific Advisors
is unlikely to adversely affect the Company.
The Scientific Advisory Board is comprised of the following individuals:
JACK ANSTANDIG, MD. - Neurologist, Acupuncture and Pain Management Specialist;
Member, American Academy of Neurology, American Academy of Medical Acupuncture
and International Association.
CHADWICK F. SMITH, MD. - Clinical Professor of Orthopedic Surgery, University of
Southern California School of Medicine; Medical Director, International
Children's Program, Orthopedic Hospital, Los Angeles. Dr. Smith is also a
director of the Company.
C. THOMAS VANGSNESS, MD. - Assistant Professor, Orthopedic Surgery and Chief of
Sports Medicine, University of Southern California. Dr. Vangsness owns 22,833
shares of the Company's common stock.
PEDRO A. RUBIO, MD., PH.D. - Past World President of the International College
of Surgeons (Chicago); Clinical Associate Professor of Surgery, University of
Texas Health Science Center, Houston; Diplomate, American Boards of Surgery,
Laser Surgery, Forensic Medicine, Quality Assurance and Pain Management. Dr.
Rubio is also a director of the Company.
ITEM 10. EXECUTIVE COMPENSATION
The following tables summarize information concerning compensation paid
or accrued during the fiscal years ended December 31, 1996, 1995 and 1994 to the
Company's named Chief Executive Officer. No other executive officers received
compensation which exceeded $100,000.
37
<PAGE>
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------
Annual Compensation Awards Payouts
--------------------------------------------
Name and Year Salary Other Options/
Princi- Annual SARs
pal Compen-
Position sation
- -------- ---- -------- ------- --------
Michael 1996 $171,657 -
Barbour, 1995 $110,000 $9,000
CEO 1994 $110,000 $9,000 225,000
OPTIONS/SAR GRANTS IN YEARS PRIOR TO LAST FISCAL YEAR
INDIVIDUAL GRANTS
NAME Number of % of total Exercise Market Expiration
Securities Options/SARs or Base Price at Date
underlying Granted to Price/ Date of
Options/ Employees in Share Grant
SARs Granted Fiscal Year
Michael 100,000 40% $3.00 $7.25 04/01/2000
Barbour, 125,000 50% $4.50 $4.50 04/01/2000
CEO
COMPENSATION OF DIRECTORS
Effective January 15, 1996, the Board of Directors of the Company (the
"BOD") adopted the following plans which were approved by the Company's
shareholders in July 1996: (i) a 1996 Incentive Stock Option Plan under which
the Company can issue up to 1.2 million shares of the Company's common stock to
eligible officers, employees, and consultants of the Company and (ii) a 1996
Non-Employee Directors Stock Option Plan (the "Outside Director Plan") under
which the Company can issue up 250,000 shares of common stock to its outside
directors.
In connection with their election to the BOD in January 1996, Mr.
Sudduth and Dr. Rubio were each granted a stock option under the Outside
Director Plan to purchase 25,000 shares of the Company's common stock at a price
of $5.50 per share. Also, in connection with his election to the BOD concurrent
with the closing of the Henley transaction in April 1996, Dr. Henley was granted
an option under the Outside Director Plan to purchase 25,000 shares of the
Company's common stock at a price of $7.75 per share. Additionally, in
connection with their re-election to the BOD in July 1996, Drs. Henley and Rubio
and Messrs. Sudduth and Davidson were each granted a stock option under the
Outside Director Plan to purchase 10,000 shares (for an aggregate of 40,000
shares) of the Company's common stock at a price of $6.125 per share.
38
<PAGE>
The Outside Director Plan also provides that at the discretion of the
BOD, the Company may pay a cash fee to non-employee directors from time to time
for serving on and for attendance at meetings of, the BOD or any committee
thereof (as such fees are set by the BOD from time to time.) During the year
ended December 31, 1996, the Company paid Drs. Henley and Rubio and Messrs.
Sudduth and Davidson $500 per person for attendance at each meeting of the Board
of Directors.
EMPLOYMENT CONTRACTS
In November 1996, the Company entered into an agreement with Michael M.
Barbour, effective as of May 1, 1996, employing him as its Chief Executive
Officer at a base annual salary of $160,000. The agreement also provides for an
annual bonus amount payable to Mr. Barbour based on specific formula as provided
in the agreement. The agreement terminates on December 31, 1998.
Effective November 12, 1996, the Company entered into an agreement with
Michael J. Houska employing him as its Vice President - Sales at a base annual
salary of $120,000. The agreement also provides for a monthly sales commission
of $6,700 payable to Mr. Houska based on specific formula as provided in the
agreement. The agreement terminates on November 11, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the number
and percentage of shares of Common Stock beneficially owned as of March 25,
1997, by any person (including any group of affiliated persons) known by the
Company to own 5% or more of the outstanding shares of the Company's Common
Stock, each named executive officer and director, and all executive officers and
directors of the Company as a group. Unless otherwise indicated, the Company has
been advised that all holders listed have the sole power to vote and dispose of
the number of shares set forth as beneficially owned by them.
39
<PAGE>
Amount And
Nature Of
Name And Address Beneficial
Of Beneficial Owner Ownership Percent Of Class
- ------------------- --------- ----------------
Maxxim Medical, Inc. ............ 2,333,333(2) 40.30%
104 Industrial Boulevard
Sugar Land, Texas 77478
Michael M. Barbour .............. 411,748(1) 7.11%
120 Industrial Boulevard
Sugar Land, Texas 77478
Chadwick F. Smith, MD ........... 420,666(1) 7.26%
120 Industrial Boulevard
Sugar Land, Texas 77478
Dan D. Sudduth .................. 60,000(2) 1.03%
120 Industrial Boulevard
Sugar Land, Texas 77478
Pedro A. Rubio, MD., Ph.D ....... 105,003(3) 1.81%
120 Industrial Boulevard
Sugar Land, Texas 77478
Ernest J. Henley, Ph.D .......... 35,000(2) 0.60%
120 Industrial Boulevard
Sugar Land, Texas 77478
Kenneth W. Davidson ............. 10,000(2) 0.17%
104 Industrial Boulevard
Sugar Land, Texas 77478
All Executive Officers ......... 1,131,980 19.55%
and Directors as a
Group (8) Persons
- -----------------
(1) Includes 225,000 shares issuable upon exercise of currently-exercisable
options granted to each of such persons.
(2) Consists entirely of options, warrants or other convertible securities
which conversion privilege is currently exercisable as of the date
hereof.
40
<PAGE>
(3) Includes 69,508 shares issuable upon exercise of currently-exercisable
options or warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During January 1992, the Company entered into a five-year consulting
agreement with Dr. Chadwick F. Smith, one of its directors. The agreement
provided for a monthly fee of $1,500 commencing in July 1992. During 1993, the
agreement was amended to provide a monthly fee of $5,000 commencing in June
1993. The agreement terminated in April 1996 and a new agreement was entered
into with Dr. Smith effective May 1, 1996. For the year ended December 31, 1996,
$90,000 of such fees were expensed.
During 1993, the Company entered into an employment agreement with
Stephen Barbour, who is the brother of the Company's Chief Executive Officer,
whereby Mr. S. Barbour would receive, as part of his employment contract, a
salary of $60,000 per year, 15,000 shares of the Company's common stock and
commission of 15% on the monthly gross profit of the Company's former training
division. The agreement terminated in April 1996.
In August 1995, the Company entered into an agreement with Mezzanine
Financial Relations, Inc., (Mezzanine) a financial relations company, to assist
the Company in the evaluation of, and formulation of terms for certain companies
identified in the Company's strategic acquisition plan. Mr. Dan D. Sudduth who
is Executive Vice President, Chief Financial Officer and a Director of the
Company was Chairman of the Board and a shareholder of Mezzanine. The agreement
provided, among other things, for the Company to pay Mezzanine a cash fee of
$115,000 concurrent with the closing of the Henley transaction. Pursuant to the
agreement the Company issued to Mezzanine a four-year warrant to purchase 25,000
shares of the Company's common stock at a price of $6.75 per share, which was
the market price of the Company's common stock on the date of the grant. The
warrant is exercisable from February 16, 1996 through August 16, 1999.
On April 30, 1996, the Company entered into an agreement with Maxxim,
whereby the Company purchased certain assets (and assumed certain liabilities)
associated with Henley for an estimated purchase price of approximately $13.5
million. The purchase price was paid by the issuance of the Company's
convertible subordinated promissory note in the principal amount of $7 million,
with the balance of the purchase price paid in cash provided through a financing
with a bank. Mr. Davidson and Dr. Henley are currently employed by Maxxim, with
Mr. Davidson serving in the capacities of Chairman of the Board, Chief Executive
Officer and President and Dr. Henley serving as a Director.
In May 1996, the Company entered into an additional agreement with
Mezzanine, which agreement the parties amended in November 1996, whereby
Mezzanine agreed to provide financial consulting services with regard to
potential mergers and acquisitions in consideration for a monthly fee of
$10,000. The agreement terminated on January 31, 1997.
In May and July 1996, the Company paid to Dr. Rubio fees aggregating
$25,000 and issued 33,333 shares of common stock and 33,333 warrants to purchase
shares of common stock at a price of $6.00 per share for his services in
connection with the Company's PMA application submission to the FDA.
In November 1996, the Company entered into an agreement with MJH Medical
Equipment, Inc., whereby the Company purchased substantially all of the assets
(and assumed certain liabilities) of MJH for a purchase price of approximately
$400,000. The purchase price was paid by the issuance of the Company's common
stock with an estimated market value of $250,000 and promissory note in the
principal amount of approximately $120,000, with the balance of the purchase
price paid in cash. Mr. Michael J. Houska, the Company's Vice President Sales,
was the owner and sole stockholder of the company
41
<PAGE>
The Company leases approximately 15,000 square feet of warehouse and
distribution space in Akron, Ohio, for a monthly rental of approximately $3,900.
Mr. Michael J. Houska, the Company's Vice President of Sales, is one of the
owners of the leased facility. Also, the Company leases approximately 4,900
square feet of office space in Plymouth, Michigan, for a monthly rental of
approximately $4,400. Dr. Karson L. Carpenter, an employee of the Company, is
one of the owners of the leased facility.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
See "Index of Exhibits" below which lists the documents required to be
filed as exhibits to this Form 10-KSB by Item 601 of Regulation S-B.
REPORTS ON FORM 8-K
None.
42
<PAGE>
SIGNATURES
IN ACCORDANCE WITH SECTION 13 OR 15(D) OF THE EXCHANGE ACT, THE
REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, ON THE 28TH DAY OF MARCH, 1997.
LASERMEDICS, INC.
(Registrant)
By: MICHAEL M. BARBOUR
------------------------
Michael M. Barbour
(President and Chief Executive
Officer)
IN ACCORDANCE WITH THE EXCHANGE ACT, THIS REPORT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
- --------- ----- ----
MICHAEL M. BARBOUR President and Chief Executive March 28, 1997
____________________ Officer and Director (Principal
(Michael M. Barbour) Executive Officer)
DAN D. SUDDUTH Executive Vice President and March 28, 1997
____________________ Director (Principal Financial
(Dan D. Sudduth) Officer)
CHIKE J. OGBOENYIYA Vice President, Finance March 28, 1997
____________________ (Principal Accounting Officer)
(Chike J. Ogboenyiya)
CHADWICK F. SMITH, MD. Chairman and Director March 28, 1997
- --------------------
(Chadwick F. Smith, MD.)
PEDRO A. RUBIO, MD, Ph.D. Director March 28, 1997
- --------------------
(Pedro A. Rubio, MD, Ph.D.)
ERNEST J. HENLEY, Ph.D. Director March 28, 1997
- --------------------
(Ernest J. Henley, Ph.D.)
KENNETH W. DAVIDSON Director March 28, 1997
- --------------------
(Kenneth W. Davidson)
43
<PAGE>
LASERMEDICS, INC.
EXHIBITS TO FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996
INDEX OF EXHIBITS
Exhibits incorporated by reference to a prior filing are designated by
an asterisk (*); all exhibits not so designated are documents required to be
filed as exhibits to this Form 10-KSB by Item 601 of Regulation S-B:
REPORT OR
EXHIBIT REGISTRATION REGISTRATION
NUMBER DESCRIPTION STATEMENT NUMBER
- ------ ----------- --------- ------
3.1* Articles of Incorporation Form S-18 dated
July 22, 1992. 33-49972
3.2* Amendment to Articles Form S-18 dated
of Incorporation July 22, 1992. 33-49972
3.3* Articles of Amendment Form 10-QSB for
to Articles of Incorporation the quarter ended
June 30, 1996 0-28566
3.4* By-Laws Form S-18 dated
July 22, 1992. 33-49972
3.5* Amendment to By-Laws Form 10-QSB for
the quarter ended
June 30, 1996 0-28566
4.1* Specimen Stock Certificate Form S-18 dated
and Underwriter's Warrant July 22, 1992. 33-49972
4.2* Specimen Form of Warrant Form 10-KSB for
Certificate year ended
December 31, 1995 0-28566
10.1* Consultation Agreement Form 10-KSB
with Mezzanine Financial for year ended
Relations, Inc. dated December 31, 1995 0-28566
September 5, 1995
10.2* 1996 Amended and Restated Proxy Statement
Non-Employee Director dated June 24, 1996 0-28566
Stock Option Plan
10.3* 1996 Incentive Stock Plan Proxy Statement
dated June 24, 1996 0-28566
10.4 Employment Agreement
with Michael Barbour dated
November 22, 1996
10.5 Consulting Agreement
with Chadwick F. Smith, MD
dated November 22, 1996
10.6 Asset Purchase Agreement
dated November 12, 1996
with MJH Medical Equipment
and Michael J. Houska
44
<PAGE>
INDEX OF EXHIBITS, CONTINUED
REPORT OR
EXHIBIT REGISTRATION REGISTRATION
NUMBER DESCRIPTION STATEMENT NUMBER
- ------ ----------- --------- ------
10.7 Employment Agreement
with Michael J. Houska
dated November 12, 1996
10.8 Plan and Agreement of Merger
with Health Career Learning
Systems, Inc. dated
November 27, 1996
10.9 Stock Purchase Agreement
with Paula L. Buhr
dated January 24, 1996
10.10 Asset Purchase Agreement
with Gatti Medical Supply
dated January 24, 1996
10.11 Master Agreement and
Manufacturing Agreement with
CB Svendsen, a/s dated
March 12, 1997
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent
Accountants
45
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made and entered
into this ___ day of November, 1996 to be effective as of May 1, 1996 between
LASERMEDICS, INC., a Texas corporation having its principal executive office at
120 Industrial Boulevard, Sugar Land, Texas 77478 (hereinafter referred to as
the "Company"), and Michael M. Barbour (hereinafter referred to as the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee in an executive
capacity and the Employee desires to enter the Company's employ.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Employee hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the meanings prescribed below:
ACCOUNTING FIRM shall have the meaning assigned thereto in Section 11
hereof.
AFFILIATE is used in this Agreement to define a relationship to a
person or entity and means a person or entity who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such person or entity.
AGREEMENT PAYMENTS shall have the meaning assigned thereto in Section
11 hereof.
ANNUAL BONUS shall have the meaning assigned thereto in Section
4.2(a) hereof.
BASE SALARY shall have the meaning assigned thereto in Section 4.1
hereof.
BENEFICIAL OWNER shall have the meaning assigned thereto in Rule
13d-3 under the Exchange Act; PROVIDED, HOWEVER, and without limitation, that
any individual, corporation, partnership, group, association or other person or
entity that has the right to acquire any Voting Stock at any time in the future,
whether such right is (a) contingent or absolute or (b) exercisable presently or
at any time in the future, pursuant to any agreement or understanding or upon
the exercise or conversion of rights, options or warrants, or otherwise, shall
be the Beneficial Owner of such Voting Stock.
CAUSE shall have the meaning assigned thereto in Section 5.3 hereof.
1
<PAGE>
CODE means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated by the Internal Revenue Service thereunder,
all as in effect from time to time during the Employment Period.
COMMON STOCK means the Company's common stock, par value $.01 per
share.
COMPANY means Lasermedics, Inc., a Texas corporation, the principal
executive office of which is located at 120 Industrial Boulevard, Sugar Land,
Texas 77478.
CONFIDENTIAL INFORMATION shall have the meaning assigned thereto in
Section 8.2 hereof.
DATE OF TERMINATION means the earliest to occur of (i) the date of
the Employee's death, (ii) the date on which the Employee terminates this
Agreement for any reason other than Good Reason or (iii) the date of receipt of
the Notice of Termination, or such later date as may be prescribed in the Notice
of Termination in accordance with Section 5.6 hereof.
DISABILITY means an illness or other disability which prevents the
Employee from discharging his responsibilities under this Agreement for a period
of 180 consecutive calendar days, or an aggregate of 180 calendar days in any
calendar year, during the Employment Period, all as determined in good faith by
the Board of Directors of the Company (or a committee thereof).
EFFECTIVE DATE means May 1, 1996.
EMPLOYEE means Michael M. Barbour, an individual whose principal
place of business is at 120 Industrial Boulevard, Sugar Land, Texas 77478.
EMPLOYMENT PERIOD shall have the meaning assigned thereto in Section
3 hereof.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the Securities and Exchange
Commission thereunder, all as in effect from time to time during the Employment
Period.
GOOD REASON shall have the meaning assigned thereto in Section 5.5
hereof.
NOTICE OF TERMINATION shall have the meaning assigned thereto in
Section 5.6 hereof.
OVERPAYMENT shall have the meaning assigned thereto in Section 11
hereof.
PAYMENT shall have the meaning assigned thereto in Section 11 hereof.
PRE-TAX PROFIT shall have the meaning assigned thereto in Section
4.2(b) hereof.
2
<PAGE>
REDUCED AMOUNT shall have the meaning assigned thereto in Section 11
hereof.
UNDERPAYMENT shall have the meaning assigned thereto in Section 11
hereof.
VACATION PAY shall have the meaning assigned thereto in Section 4.3
hereof.
VACATION TIME shall have the meaning assigned thereto in Section 4.3
hereof.
VOTING STOCK means all outstanding shares of capital stock of the
Company entitled to vote generally in an election of directors; PROVIDED,
HOWEVER, that if the Company has shares of Voting Stock entitled to more or less
than one vote per share, each reference to a proportion of the issued and
outstanding shares of Voting Stock shall be deemed to refer to the proportion of
the aggregate votes entitled to be cast by the issued and outstanding shares of
Voting Stock.
WITHOUT CAUSE shall have the meaning assigned thereto in Section 5.4
hereof.
2. GENERAL DUTIES OF COMPANY AND EMPLOYEE.
2.1 The Company agrees to employ the Employee, and the Employee
agrees to accept employment by the Company and to serve the Company as President
and Chief Executive Officer, and shall also serve as a director of the Company.
The authority, duties and responsibilities of the Employee shall include those
duties of President as specified in the Bylaws of the Company as in effect on
the date hereof, and such other or additional duties as may from time to time be
assigned to the Employee by the Board of Directors. While employed hereunder,
the Employee shall devote his full time and attention during normal business
hours to the affairs of the Company and use his best efforts to perform
faithfully and efficiently his duties and responsibilities. The Employee may (i)
serve on corporate, civic or charitable boards or committees provided that (A)
such boards or committees do not control or advise business entities that
compete with the Company and (B) all such services are promptly disclosed in
writing to the Board of Directors, (ii) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (iii) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Employee's duties and responsibilities.
2.2 The Employee agrees and acknowledges that he owes a fiduciary
duty of loyalty, fidelity and allegiance to act at all times in the best
interests of the Company and to do no act and to make no statement, oral or
written, which would injure Company's business, its interests or its reputation.
2.3 The Employee agrees to comply at all times with all applicable
policies, rules and regulations of the Company, including, without limitation,
the Company's Code of Ethics and the Company's policy regarding trading in the
Common Stock, as each is in effect from time to time during the Employment
Period.
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3. TERM. Unless sooner terminated pursuant to other provisions hereof, the
Employee's period of employment under this Agreement shall be the period
beginning on the Effective Date and ending on December 31, 1998. The period of
time beginning on the Effective and ending on December 31, 1998 (notwithstanding
termination of this Agreement prior to the end of such period pursuant to other
provisions hereof) is referred to elsewhere herein as the "Employment Period."
4. COMPENSATION AND BENEFITS.
4.1 BASE SALARY. As compensation for services to the Company, the
Company shall pay to the Employee until the Date of Termination an annual base
salary of $160,000 (the "Base Salary"). The Base Salary shall be payable in
equal semi-monthly installments or in accordance with the Company's established
policy, subject only to such payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the
Company for insurance and other employee benefit plans.
4.2 ANNUAL BONUS.
(a) In addition to the Base Salary, the Company shall pay to the
Employee, for each calendar year until the Date of Termination, an annual bonus
(the "Annual Bonus") in the amount specified in Section 4.2(b) hereof for each
calendar year in which the Annual Bonus is earned in accordance with Section
4.2(b) hereof.
(b) An Annual Bonus of $40,000 shall be considered earned for
calendar year 1996 if the Pre-Tax Profit (defined below) for calendar year 1996
meets or exceeds $150,000. An Annual Bonus of $80,000 shall be considered earned
for calendar year 1997 if the Pre-Tax Profit for calendar year 1997 meets or
exceeds $300,000. An Annual Bonus of $80,000 shall be considered earned for
calendar year 1998 if the Pre-Tax Profit for calendar year 1998 meets or exceeds
an amount to be established by resolution of the Board of Directors, in its sole
discretion, before January 1, 1998 (if not so established by such date, the
amount shall be $300,000). The term "Pre-Tax Profit" for a given calendar year
means the Company's net income before taxes for that calendar year.
(c) The Annual Bonus shall be payable on or before the 30th day
following the Company's determination of the Pre-Tax Profit for a given calendar
year.
4.3 VACATION. Until the Date of Termination, the Employee shall be
entitled to two weeks paid vacation during each one-year period commencing on
the Effective Date (the "Vacation Time") and each anniversary thereof. All
unused Vacation Time accrued through the Termination Date and not taken or
previously forfeited at the Date of Termination shall be paid to the Employee in
accordance with Article 6 hereof, with such payment being referred to elsewhere
herein as the "Vacation Pay."
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4.4 INCENTIVE, SAVINGS AND RETIREMENT PLANS. Until the Date of
Termination, the Employee shall be eligible to participate in and shall receive
all benefits under all executive incentive, savings and retirement plans
(including 401(k) plans) and programs currently maintained or hereinafter
established by the Company for the benefit of its executive officers and/or
employees.
4.5 WELFARE BENEFIT PLAN. Until the Date of Termination, the Employee
and/or the Employee's family, as the case may be, shall be eligible to
participate in and shall receive at the Company's expense all benefits under
each welfare benefit plan of the Company currently maintained or hereinafter
established by the Company for the benefit of its employees. Such welfare
benefit plans may include, without limitation, medical, dental, disability,
group life, accidental death and travel accident insurance plans and programs.
4.6 REIMBURSEMENT OF EXPENSES. The Employee may from time to time
until the Date of Termination incur various business expenses customarily
incurred by persons holding positions of like responsibility, including, without
limitation, travel, entertainment and similar expenses incurred for the benefit
of the Company. Subject to the Company's policy regarding the reimbursement of
such expenses as in effect from time to time during the Employment Period, which
does not necessarily allow reimbursement of all such expenses, the Company shall
reimburse the Employee for such expenses from time to time, at the Employee's
request, and the Employee shall account to the Company for all such expenses.
4.7 STOCK OPTIONS. The Board of Directors, in its sole discretion,
may grant to the Employee options to acquire shares of Common Stock at an
exercise price equal to the Fair Market Value (as defined in the Company's 1996
Incentive Stock Plan) of the Common Stock on the effective date of such grant.
All such options will be granted under the Company's 1996 Incentive Stock Plan
using the Company's standard form of stock option agreement and will be under
such terms and conditions as determined by the Board of Directors in its sole
discretion consistent therewith. To the extent permitted under the Code, such
options will be Incentive Stock Options (as defined in the Company's 1996
Incentive Stock Plan).
5. TERMINATION.
5.1 DEATH. This Agreement shall terminate automatically upon the
death of the Employee.
5.2 DISABILITY. The Company may terminate this Agreement, upon
written notice to the Employee delivered in accordance with Sections 5.6 and
13.1 hereof, upon the Disability of the Employee.
5.3 CAUSE. The Company may terminate this Agreement, upon written
notice to the Employee delivered in accordance with Sections 5.6 and 13.1
hereof, for Cause. For purposes of this Agreement, "Cause" means (i) the
conviction of the Employee of a felony (which, through lapse of time or
otherwise, is not subject to appeal), (ii) the Employee's refusal, without
proper legal cause, to perform his duties and responsibilities as contemplated
in this Agreement or
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otherwise follow the direction of the Board of Directors or (iii) the Employee's
engaging in activities which would (A) constitute a breach of any term of this
Agreement, the Company's Code of Ethics, the Company's policies regarding
trading in the Common Stock or reimbursement of business expenses or any other
applicable policies, rules or regulations of the Company, or (B) result in a
material injury to the business, condition (financial or otherwise), results of
operations or prospects of the Company or its Affiliates (as determined in good
faith by the Board of Directors of the Company).
5.4 WITHOUT CAUSE. The Company may terminate this Agreement Without
Cause, upon written notice to the Employee delivered in accordance with Sections
5.6 and 13.1 hereof. For purposes of this Agreement, the Employee will be deemed
to have been terminated "Without Cause" if the Employee is terminated by the
Company for any reason other than Cause, Disability of the Employee or death of
the Employee.
5.5 GOOD REASON. The Employee may terminate this Agreement for Good
Reason, upon written notice to the Company delivered in accordance with Sections
5.6 and 13.1 hereof. For purposes of this Agreement, "Good Reason" means (i) the
assignment to the Employee of any duties inconsistent in any material respect
with the Employee's duties or responsibilities as contemplated in this
Agreement, (ii) any other action by the Company which results in a material
diminishment in the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities, (iii) any
material breach by the Company of any of the provisions of this Agreement, (iv)
requiring the Employee to relocate permanently to any office or location other
than Houston, Texas, and its surrounding metropolitan area without his consent,
or (v) any reduction, or attempted reduction, at any time during the Employment
Period, of the Base Salary.
5.6 NOTICE OF TERMINATION. Any termination of this Agreement by the
Company for Cause, Without Cause or as a result of the Disability of the
Employee, or by the Employee for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Employee's employment under the
provision so indicated and (iii) specifies the termination date, if such date is
other than the date of receipt of such notice (which termination date shall not
be more than 15 days after the giving of such notice).
6. OBLIGATIONS OF COMPANY UPON TERMINATION.
6.1 CAUSE; OTHER THAN GOOD REASON; DISABILITY. If this Agreement
shall be terminated (i) by the Company for Cause or Disability of the Employee
or (iii) by the Employee for any reason other than Good Reason:
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(a) the Company shall pay to the Employee or his estate, in
a lump sum in cash within 30 days after the Date of Termination, the
aggregate of the following amounts:
(1) the Vacation Pay, if any, owed to the
Employee;
(2) if not theretofore paid, the Base Salary
through the Date of Termination; and
(3) in the case of compensation previously
deferred by the Employee, all amounts of such compensation
previously deferred and not yet paid by the Company; and
(b) the Company shall, promptly upon submission by the
Employee of supporting documentation, pay or reimburse to the
Employee any costs and expenses paid or incurred by the Employee
prior to the Date of Termination which would have been payable under
Section 4.6 hereof if the Employee's employment had not terminated.
.
6.2 DEATH. Subject to the provisions of this Section 6.2, if this
Agreement is terminated as a result of the Employee's death, the Company shall
pay to the Employee's estate, in a lump sum in cash within 30 days of the Date
of Termination, that portion of the Base Salary owing in respect of the balance
of the Employment Period. The Company may purchase insurance to cover all or any
part of the obligation contemplated in the foregoing sentence, and the Employee
agrees to submit to a physical examination to facilitate the procurement of such
insurance. If the physical examination reveals that the Employee is uninsurable,
such death benefit referred to in this Section 6.2 shall not be provided, and
the Employee's estate shall be entitled to receive only those death benefits to
which it is entitled under the Company's benefit plans.
6.3 GOOD REASON; WITHOUT CAUSE. If this Agreement shall be terminated
either by the Employee for Good Reason or by the Company Without Cause:
(a) the Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the aggregate of
the following amounts:
(1) the Vacation Pay, if any, owed to the
Employee;
(2) if not theretofore paid, the Base Salary
through the Date of Termination; and
(3) in the case of compensation previously
deferred by the Employee, all amounts of such compensation
previously deferred and not yet paid by the Company;
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(b) the Company shall, promptly upon submission by the
Employee of supporting documentation, pay or reimburse to the
Employee any costs and expenses paid or incurred by the Employee
prior to the Date of Termination which would have been payable under
Section 4.6 hereof if the Employee's employment had not terminated;
(c) for the remainder of the Employment Period, the Company
shall continue benefits to the Employee and/or the Employee's family
at least equal to those which would have been provided to them under
Section 4.5 hereof if the Employee's employment had not been
terminated; and
(d) the Company shall pay to the Employee, in equal
semi-monthly installments, the Base Salary for the remainder of the
Employment Period.
7. EMPLOYEE'S OBLIGATION TO AVOID CONFLICTS OF INTEREST.
7.1 Consistent with the Employee's fiduciary duties to the Company,
the Employee agrees that he shall not knowingly become involved in a conflict of
interest with the Company, or upon discovery thereof, allow such a conflict to
continue. The Employee further agrees to disclose to the Company, promptly after
discovery, any facts or circumstances which might involve a conflict of interest
with the Company.
7.2 The Company and the Employee recognize that it is impossible to
provide an exhaustive list of actions or interests which constitute a "conflict
of interest." Moreover, the Company and the Employee recognize that there are
many borderline situations. In some instances, full disclosure of facts by the
Employee to the Company is all that is necessary to enable the Company to
protect its interests. In others, if no improper motivation appears to exist and
the Company's interests have not suffered, prompt elimination of the outside
interest will suffice. In still others, it may be necessary for the Company to
terminate the employment relationship. The Company and the Employee agree that
the Company's determination as to whether or not a conflict of interest exists
shall be conclusive. The Company reserves the right to take such action as, in
its judgment, will end the conflict of interest.
7.3 In this connection, it is agreed that any direct or indirect
interest in, connection with or benefit from any outside activities,
particularly commercial activities, which interest might in any way adversely
affect the Company or its Affiliates, involves a possible conflict of interest.
Circumstances in which a conflict of interest on the part of the Employee would
or might arise, and which should be reported immediately to the Company,
include, but are not limited to, the following:
(a) Ownership of a material interest in any lender,
supplier, contractor, subcontractor, customer or other entity with
which the Company does business.
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(b) Acting in any capacity, including director, officer,
partner, consultant, employee, distributor, agent or the like, for
any lender, supplier, contractor, subcontractor, customer or other
entity with which the Company does business.
(c) Acceptance, directly or indirectly, of payments,
services or loans from a lender, supplier, contractor, subcontractor,
customer or other entity with which the Company does business,
including, without limitation, gifts, trips, entertainment or other
favors of more than a nominal value, but excluding loans from
publicly held insurance companies and commercial or savings banks at
market rates of interest.
(d) Use of information or facilities to which the Employee
has access in a manner which will be detrimental to the Company's
interests, such as use for the Employee's own benefit of know-how or
information developed through the Company's business activities.
(e) Disclosure or other misuse of information of any kind
obtained through the Employee's connection with the Company.
(f) Acquiring or trading in, directly or indirectly, other
properties or interests connected with the design or marketing of
products or services designed or marketed by the Company.
8. EMPLOYEE'S CONFIDENTIALITY OBLIGATION.
8.1 The Employee hereby acknowledges, understands and agrees that all
Confidential Information is the exclusive and confidential property of the
Company and its Affiliates which shall at all times be regarded, treated and
protected as such in accordance with this Section 8. The Employee acknowledges
that all such Confidential Information is in the nature of a trade secret.
8.2 For purposes of this Agreement, "Confidential Information" means
information which is used in the business of the Company or its Affiliates and
(i) is proprietary to, about or created by the Company or its Affiliates, (ii)
gives the Company or its Affiliates some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company or its Affiliates, (iii) is
designated as Confidential Information by the Company or its Affiliates, is
known by the Employee to be considered confidential by the Company or its
Affiliates, or from all the relevant circumstances should reasonably be assumed
by the Employee to be confidential and proprietary to the Company or its
Affiliates, or (iv) is not generally known by non-Company personnel. Such
Confidential Information includes, without limitation, the following types of
information and other information of a similar nature (whether or not reduced to
writing or designated as confidential):
(a) Internal personnel and financial information of the
Company or its Affiliates, vendor information (including vendor
characteristics, services, prices, lists and agreements), purchasing
and internal cost information, internal service and operational
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manuals, and the manner and methods of conducting the business of the
Company or its Affiliates;
(b) Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting
procedures, marketing techniques, forecasts and forecast assumptions
and volumes, and future plans and potential strategies (including,
without limitation, all information relating to any acquisition
prospect and the identity of any key contact within the organization
of any acquisition prospect) of the Company or its Affiliates which
have been or are being discussed;
(c) Names of customers and their representatives, contracts
(including their contents and parties), customer services, and the
type, quantity, specifications and content of products and services
purchased, leased, licensed or received by customers of the Company
or its Affiliates; and
(d) Confidential and proprietary information provided to
the Company or its Affiliates by any actual or potential customer,
government agency or other third party (including businesses,
consultants and other entities and individuals).
8.3 As a consequence of the Employee's acquisition or anticipated
acquisition of Confidential Information, the Employee shall occupy a position of
trust and confidence with respect to the affairs and business of the Company and
its Affiliates. In view of the foregoing and of the consideration to be provided
to the Employee, the Employee agrees that it is reasonable and necessary that
the Employee make each of the following covenants:
(a) Until the Date of Termination and at all times
thereafter, the Employee shall not disclose Confidential Information
to any person or entity, either inside or outside of the Company,
other than as necessary in carrying out his duties and
responsibilities as set forth in Section 2 hereof, without first
obtaining the Company's prior written consent (unless such disclosure
is compelled pursuant to court orders or subpoena, and at which time
the Employee shall give notice of such proceedings to the Company).
(b) Until the Date of Termination and at all times
thereafter, the Employee shall not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties and
responsibilities as set forth in Section 2 hereof, without first
obtaining the Company's prior written consent.
(c) On the Date of Termination, the Employee shall promptly
deliver to the Company (or its designee) all written materials,
records and documents made by the Employee or which came into his
possession on or before the Date of Termination (even if prior to the
date hereof) concerning the business or affairs of the Company or its
Affiliates, including, without limitation, all materials containing
Confidential Information.
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9. DISCLOSURE OF INFORMATION, IDEAS, CONCEPTS, IMPROVEMENTS, DISCOVERIES
AND INVENTIONS.
As part of the Employee's fiduciary duties to the Company, the
Employee agrees that during his employment by the Company and for a period of
three years following the Date of Termination, the Employee shall promptly
disclose in writing to the Company all information, ideas, concepts,
improvements, discoveries and inventions, whether patentable or not, and whether
or not reduced to practice, which are conceived, developed, made or acquired by
the Employee, either individually or jointly with others, and which relate to
the business, products or services of the Company or its Affiliates,
irrespective of whether the Employee used the Company's time or facilities and
irrespective of whether such information, idea, concept, improvement, discovery
or invention was conceived, developed, discovered or acquired by the Employee on
the job, at home, or elsewhere. This obligation extends to all types of
information, ideas and concepts, including information, ideas and concepts
relating to new types of services, corporate opportunities, acquisition
prospects, the identity of key representatives within acquisition prospect
organizations, prospective names or service marks for the Company's business
activities, and the like.
10. OWNERSHIP OF INFORMATION, IDEAS, CONCEPTS, IMPROVEMENTS, DISCOVERIES
AND INVENTIONS, AND ALL ORIGINAL WORKS OF AUTHORSHIP.
10.1 All information, ideas, concepts, improvements, discoveries and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by the Employee or which are disclosed or made known to the Employee,
individually or in conjunction with others, during the Employee's employment by
the Company and which relate to the business, products or services of the
Company or its Affiliates (including, without limitation, all such information
relating to corporate opportunities, research, financial and sales data, pricing
and trading terms, evaluations, opinions, interpretations, acquisition
prospects, the identity of customers or their requirements, the identity of key
contacts within the customers' organizations or within the organization of
acquisition prospects, marketing and merchandising techniques, and prospective
names and service marks) are and shall be the sole and exclusive property of the
Company. Furthermore, all drawings, memoranda, notes, records, files,
correspondence, manuals, models, specifications, computer programs, maps and all
other writings or materials of any type embodying any of such information,
ideas, concepts, improvements, discoveries and inventions are and shall be the
sole and exclusive property of the Company.
10.2 In particular, the Employee hereby specifically sells, assigns,
transfers and conveys to the Company all of his worldwide right, title and
interest in and to all such information, ideas, concepts, improvements,
discoveries or inventions, and any United States or foreign applications for
patents, inventor's certificates or other industrial rights which may be filed
in respect thereof, including divisions, continuations, continuations-in-part,
reissues and/or extensions thereof, and applications for registration of such
names and service marks. The Employee shall assist the Company and its nominee
at all times, until the Date of Termination and at all times thereafter, in the
protection of such information, ideas, concepts, improvements, discoveries or
inventions,
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both in the United States and all foreign countries, which assistance shall
include, but shall not be limited to, the execution of all lawful oaths and all
assignment documents requested by the Company or its nominee in connection with
the preparation, prosecution, issuance or enforcement of any applications for
United States or foreign letters patent, including divisions, continuations,
continuations-in-part, reissues and/or extensions thereof, and any application
for the registration of such names and service marks.
10.3 In the event the Employee creates, during the Employee's
employment by the Company, any original work of authorship fixed in any tangible
medium of expression which is the subject matter of copyright (such as,
videotapes, written presentations on acquisitions, computer programs, drawings,
maps, architectural renditions, models, manuals, brochures or the like) relating
to the Company's business, products or services, whether such work is created
solely by the Employee or jointly with others, the Company shall be deemed the
author of such work if the work is prepared by the Employee within the scope of
his employment; or, if the work is not prepared by the Employee within the scope
of his employment but is specially ordered by the Company as a contribution to a
collective work, as a part of a motion picture or other audiovisual work, as a
translation, as a supplementary work, as a compilation or as an instructional
text, then the work shall be considered to be a work made for hire, and the
Company shall be the author of such work. If such work is neither prepared by
the Employee within the scope of his employment nor a work specially ordered and
deemed to be a work made for hire, then the Employee hereby agrees to sell,
transfer, assign and convey, and by these presents, does sell, transfer, assign
and convey, to the Company all of the Employee's worldwide right, title and
interest in and to such work and all rights of copyright therein. The Employee
agrees to assist the Company and its Affiliates, at all times, until the Date of
Termination and at all times thereafter, in the protection of the Company's
worldwide right, title and interest in and to such work and all rights of
copyright therein, which assistance shall include, but shall not be limited to,
the execution of all documents requested by the Company or its nominee and the
execution of all lawful oaths and applications for registration of copyright in
the United States and foreign countries.
11. CERTAIN REDUCTION OF PAYMENTS BY THE COMPANY. Anything in this Agreement to
the contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise) (a "Payment") would be nondeductible by the
Company for federal income tax purposes because of Section 280G of the Code,
then the aggregate present value of amounts payable or distributable to or for
the benefit of the Employee pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced (but not below zero) to the Reduced
Amount. The "Reduced Amount" shall be an amount expressed in present value which
maximizes the aggregate present value of Agreement Payments without causing any
Payment to be nondeductible by the Company because of Section 280G of the Code.
Anything in this Agreement to the contrary notwithstanding, if the Reduced
Amount is zero and it is determined further that any Payment which is not an
Agreement Payment would nevertheless be nondeductible by the Company for federal
income tax purposes because of Section 280G of the
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Code, then the aggregate present value of Payments, which are not Agreement
Payments, shall also be reduced (but not below zero) to an amount expressed in
present value which maximizes the aggregate present value of Payments without
causing any Payment to be nondeductible by the Company because of Section 280G
of the Code. For purposes of this Section 11, present value shall be determined
in accordance with Section 280G(d)(4) of the Code. All determinations required
to be made under this Section 11 shall be made by the Company's independent
certified public accountant (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Employee within 15 business
days of the Date of Termination. Any such determination by the Accounting Firm
shall be binding upon the Company and the Employee. The Employee shall determine
which and how much of the Agreement Payments (or, at the election of the
Employee, other Payments) shall be eliminated or reduced consistent with the
requirements of this Section 11; provided, that if the Employee does not make
such determination within ten business days of the receipt of the calculations
made by the Accounting Firm, the Company shall elect which and how much of the
Agreement Payments shall be elimi nated or reduced consistent with the
requirements of this Section 11 and shall notify the Employee promptly of such
election. Within five business days thereafter, the Company shall pay to or
distribute for the benefit of the Employee such amounts as are then due to the
Employee under this Agreement and shall promptly pay to or distribute for the
benefit of the Employee in the future such amounts as become due to the Employee
under this Agreement. As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Agreement Payments will have been
made by the Company which should not have been made ("Overpayment") or that
additional Agreement Payments which have not been made by the Company could have
been made ("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. In the event that the Accounting Firm determines
that an Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan to the Employee which the Employee shall repay to the
Company, together with interest at the applicable federal rate provided for in
Section 7872(E)(2) of the Code; provided, however, that no amount shall be
payable by the Employee to the Company if and to the extent such payment would
not reduce the amount which is subject to taxation under Section 4999 of the
Code. In the event that the Accounting Firm determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Company to or for
the benefit of the Employee, together with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code.
12. EMPLOYEE'S NON-COMPETITION OBLIGATION.
12.1 (a) Until the Date of Termination, the Employee shall not,
acting alone or in conjunction with others, directly or indirectly, in any of
the business territories in which the Company or any of its Affiliates is
presently or from time to time conducting business, invest or engage, directly
or indirectly, in any business which is competitive with that of the Company or
accept employment with or render services to such a competitor as a director,
officer, agent, employee or consultant, or take any action inconsistent with the
fiduciary relationship of an employee to his employer; provided, however, that
the beneficial ownership by the Employee of
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up to three percent of the Voting Stock of any corporation subject to the
periodic reporting requirements of the Exchange Act shall not violate this
Section 12.1(a).
(b) In addition to the other obligations agreed to by the
Employee in this Agreement, the Employee agrees that until the Date of
Termination, he shall not at any time, directly or indirectly, (i) induce,
entice or solicit any employee of the Company to leave his employment, (ii)
contact, communicate or solicit any customer or acquisition prospect of the
Company derived from any customer list, customer lead, mail, printed matter or
other information secured from the Company or its present or past employees or
(iii) in any other manner use any customer lists or customer leads, mail,
telephone numbers, printed material or other information of the Company relating
thereto.
12.2 (a) If this Agreement is terminated by the Employee for any
reason or by the Company for Cause or Disability of the Employee, then for a
period of two years following the Date of Termination, the Employee shall not,
acting alone or in conjunction with others, directly or indirectly, in any of
the business territories in which the Company or any of its Affiliates is
presently or at the Date of Termination conducting business, invest or engage,
directly or indirectly, in any business which is competitive with that of the
Company as of the Date of Termination or accept employment with or render
services to such a competitor as a director, officer, agent, employee or
consultant, or take any action inconsistent with the fiduciary relationship of
an employee to his employer; provided, however, that the beneficial ownership by
the Employee of up to three percent of the Voting Stock of any corporation
subject to the periodic reporting requirements of the Exchange Act shall not
violate this Section 12.2(a).
(b) In addition to the other obligations agreed to by the
Employee in this Agreement, the Employee agrees that if this Agreement is
terminated by the Employee for any reason or by the Company for Cause or
Disability of the Employee, then for a period of two years following the Date of
Termination, The Employee shall not at any time, directly or indirectly, (i)
induce, entice or solicit any employee of the Company to leave his employment,
(ii) contact, communicate or solicit any customer or acquisition prospect of the
Company derived from any customer list, customer lead, mail, printed matter or
other information secured from the Company or its present or past employees or
(iii) in any other manner use any customer lists or customer leads, mail,
telephone numbers, printed material or other information of the Company relating
thereto.
12.3 If this Agreement is terminated by the Company Without Cause,
then the Employee shall not be subject to any non-competition obligations
hereunder.
12.4 The parties hereto acknowledge and agree that (i) the agreements
and covenants set forth in this Section 12 are being made for good and valuable
consideration, the receipt and sufficiency of which is acknowledged; (ii) the
covenants contained in this Section 12 are an important aspect of this
Agreement, and the Company would not have entered into this Agreement absent the
inclusion of this Section 12; and (iii) the restrictions imposed in this Section
12, including
14
<PAGE>
the geographic area and duration of the covenants made herein, are reasonable
and necessary to protect the Company. If the Employee breaches or indicates an
intention to breach any term or provision of this Section 12, the parties hereto
agree that the Company shall be entitled to the right of both temporary and
permanent injunctive relief and/or specific performance. The right of the
Company to such relief shall not be construed to prevent the Company from
pursuing, either consecutively or concurrently, any and all other legal or
equitable remedies available to it for such breach or threatened breach,
specifically including, without limitation, the recovery of monetary damages. If
any court determines that any provision of this Section 12, or any part thereof,
is unenforceable because of the duration or geographic scope of such provision,
the parties hereto agree that such court shall have the power to reduce the
duration or geographic scope of such provision, as the case may be, and the
parties hereto agree to request the court to exercise such power, and, in its
amended form, such provision shall then be enforceable and shall be enforced.
13. MISCELLANEOUS.
13.1 NOTICES. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall be
in writing and shall be deemed to have been given when delivered by hand or
mailed by registered or certified mail, return receipt requested, as follows
(provided that notice of change of address shall be deemed given only when
received):
If to the Company to:
Lasermedics, Inc.
120 Industrial Boulevard
Sugar Land, Texas 77478
If to the Employee to:
Michael M. Barbour
120 Industrial Boulevard
Sugar Land, Texas 77478
or to such other names or addresses as the Company or the Employee, as the case
may be, shall designate by notice to the other party hereto in the manner
specified in this Section 13.1.
13.2 WAIVER OF BREACH. The waiver by any party hereto of a breach of
any provision of this Agreement shall neither operate nor be construed as a
waiver of any subsequent breach by any party.
15
<PAGE>
13.3 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors, legal representatives and assigns,
and upon the Employee, his heirs, executors, administrators, representatives and
assigns; provided, however, the Employee agrees that his rights and obligations
hereunder are personal to him and may not be assigned without the express
written consent of the Company.
13.4 ENTIRE AGREEMENT; NO ORAL AMENDMENTS. This Agreement, together
with any exhibit attached hereto and any document, policy, rule or regulation
referred to herein, replaces and merges all previous agreements and discussions
relating to the same or similar subject matter between the Employee and the
Company and constitutes the entire agreement between the Employee and the
Company with respect to the subject matter of this Agreement. This Agreement may
not be modified in any respect by any verbal statement, representation or
agreement made by any employee, officer, or representative of the Company or by
any written agreement unless signed by an officer of the Company who is
expressly authorized by the Company to execute such document.
13.5 ENFORCEABILITY. If any provision of this Agreement or
application thereof to anyone or under any circumstances shall be determined to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application.
13.6 JURISDICTION; ARBITRATION. The laws of the State of Texas shall
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof. Any controversy
or claim arising out of or relating to this Agreement, or the breach thereof,
shall be settled by arbitration located in Houston, Texas administered by the
American Arbitration Association in accordance with its applicable arbitration
rules, and the judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof, which judgment shall be
binding upon the parties hereto.
13.7 INJUNCTIVE RELIEF. The Company and the Employee agree that a
breach of any term of this Agreement by the Employee would cause irreparable
damage to the Company and that, in the event of such breach, the Company shall
have, in addition to any and all remedies of law, the right to any injunction,
specific performance and other equitable relief to prevent or to redress the
violation of the Employee's duties or responsibilities hereunder.
[SIGNATURE PAGE FOLLOWS]
16
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Agreement as of the date first written above.
LASERMEDICS, INC.
By: /S/ CHIKE OGBOENYIYA
Chike Ogboenyiya
Vice President and Secretary
EMPLOYEE:
/S/ MICHAEL M. BARBOUR
Michael M. Barbour
17
EXHIBIT 10.5
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into
effective as of May 1, 1996, by and between Lasermedics, Inc., a Texas
corporation (the "Company"), and Chadwick F. Smith, M.D., a resident of Los
Angeles, California (the "Consultant").
W I T N E S S E T H
WHEREAS, the Company desires to engage the Consultant, and the
Consultant desires to perform marketing, sales, management and other consulting
services for the Company.
NOW, THEREFORE, in consideration of the mutual covenants, promises and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. CONSULTING SERVICES. (a) The Company hereby engages the Consultant,
and the Consultant agrees to perform and provide marketing, sales, management
and other consulting services to the Company, on an independent contractor
basis. While acting in the capacity as an independent contractor, the Consultant
shall devote time and effort to the tasks assigned to the Consultant by the
Company and shall perform those tasks in a timely and professional manner.
Consultant agrees that such services will require that he be involved in and be
available to provide services on a regular daily basis, but that no minimum
number of hours will be required to be performed.
(b) The Consultant's services hereunder shall be performed at such
locations as the parties hereto may mutually agree upon from time to time;
provided, that the parties acknowledge and agree that Consultant will be
required to periodically travel to other locations as are reasonably required.
(c) The Consultant shall be reimbursed for all reasonable expenses
incurred on behalf of the Company, and all expense reimbursements by the Company
to the Consultant shall be made pursuant to the expense reimbursement policies
of the Company.
2. TERM. Subject to the terms and conditions hereof, this Agreement
shall be effective on May 1, 1996 and shall terminate on December 31, 1998 (the
"Consulting Period").
3. COMPENSATION. For all services rendered under this Agreement, the
Company agrees to pay to the Consultant until the Date of Termination (as
defined in paragraph 4 below) the sum of $90,000 per annum, payable in equal
monthly payments of $7,500.
4. TERMINATION. (a) This Agreement will terminate automatically upon
the earliest to occur of (the "Date of Termination"): (i) the termination of the
Consultant's services by the Company for Cause (as defined below); or (ii) the
expiration of the Consulting Period. As used in this Agreement, the term "Cause"
shall be defined as (x) the conviction of the Consultant of a felony or
<PAGE>
other crime involving moral turpitude or (y) the Consultant's refusal, without
reasonable cause, to perform the services contracted for under this Agreement.
(b) Upon termination of this Agreement pursuant to paragraphs 4(a)(i)
or (ii) hereof, the Company will have no obligation to pay any amount to the
Consultant other than amounts earned or accrued as of the Date of Termination,
pursuant to the provisions of this Section 4. In the event of the death or
disability of the Consultant during the Consulting Period, the compensation set
forth in Section 3 will be paid the Consultant or his estate or legal
representatives as the case may be through the date of death or disability.
5. INDEPENDENT CONTRACTOR STATUS. The Consultant acknowledges and
agrees that as an independent contractor to the Company, no federal, state, or
local taxes or social security withholdings will be made by the Company from the
payments referenced in Section 3, above. The Consultant agrees to report and pay
any contributions for taxes, unemployment insurance, social security and other
benefits for himself.
6. CONFIDENTIALITY. During the term of this Agreement and all times
thereafter, the Consultant will not, directly or indirectly, for itself or on
behalf of any other corporation, person, firm, partnership, association or any
other entity (except with respect to its employees and agents for the sole
purpose of performing its obligations hereunder), disclose to any person or
entity any of the confidential information, proprietary information, financial
and accounting information, pricing, advertising or marketing plans, methods,
systems, procedures and such data bases or other software programs or
applications or processes as are or may be developed by the Company or its
Affiliates (as hereinafter defined) and used by the Company or its Affiliates;
provided, however, that (after reasonable measures have been taken to maintain
confidentiality and after giving reasonable prior notice to the Company
specifying the information involved and the manner and extent of the proposed
disclosure thereof) any disclosure of such information may be made to the extent
required by applicable law or regulation or judicial or regulatory process.
7. ENFORCEABILITY. If any court determines that any provision of this
Agreement, or any part thereof, is invalid or unenforceable, the remainder of
this Agreement shall not thereby be affected and shall be given full effect,
without regard to the invalid portions. If any court determines that any
provision of this Agreement, or any part thereof, is unenforceable against any
person, the parties agree that such court shall have the power to modify such
provision to the extent necessary to make the Agreement enforceable and valid,
and the parties agree to request the court to exercise such power, and, in its
modified form, such provision shall then be enforceable and shall be enforced.
8. SUCCESSORS OF THE COMPANY. This Agreement shall be binding upon and
inure to the benefit of any Successor, as hereinafter defined, and any such
Successor shall be deemed substituted for the Company under the terms of this
Agreement. This Agreement may not be assigned by either party without the prior
written consent of the other party, which consent shall not be unreasonably
withheld; PROVIDED, HOWEVER, the Company may assign this Agreement without the
Consultant's prior consent to any Affiliate (as hereinafter defined) of the
Company or to any Successor of the Company.
2
<PAGE>
As used in this Agreement, (i) the term "Successor" shall include any person,
firm, corporation or other business entity which at any time, whether by merger,
purchase or otherwise, acquires all or substantially all of the assets or
businesses of the Company, but no such substitution shall relieve such companies
of their original obligations hereunder; and (ii) the term "Affiliate" shall
have the meaning ascribed thereto in Rule 145 under the Securities Act of 1933,
as amended.
9. NOTICES. All notices or other communications which are required or
may be given under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered in person, transmitted by telecopier or
mailed by registered or certified first class mail, postage prepaid, return
receipt requested to the parties hereto at the address set forth below (as the
same may be changed from time to time by notice similarly given) or the last
known business or residence address of such other person as may be designated by
either party hereto in writing.
If to the Company:
Lasermedics, Inc.
120 Industrial Boulevard
Sugarland, Texas 77478
Attention: President
If to the Consultant:
Chadwick F. Smith
1127 Wilshire Boulevard, Suite 1008
Los Angeles, California 90017
10. WAIVER OF BREACH. A waiver by the Company or the Consultant of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other party.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties. It may be changed only by an agreement in writing signed by a party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
12. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Texas.
13. SEVERABILITY. If any provisions of this Agreement shall, for any
reason, be held to violate any applicable law, and so much of said Agreement is
held to be unenforceable, then the invalidity of such specific provision herein
shall not be held to invalidate any other provision herein which shall remain in
full force and effect.
3
<PAGE>
14. ARBITRATION. Any dispute arising out of, or in connection with any
term or provision of this Agreement shall be resolved by binding arbitration in
Houston, Texas in accordance with the Commercial Rules of American Arbitration
Association then in effect, and judgment on the award rendered by the
arbitrators(s) may be entered in any court of competent jurisdiction. The
location of such arbitration in Houston, Texas shall be selected by the Company
in its sole and absolute discretion. All costs and expenses, including
attorneys' fees, relating to the resolution of any such dispute shall be borne
by the party incurring such costs and expenses.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first hereinabove written.
COMPANY:
LASERMEDICS, INC.
By: /S/ MICHAEL M. BARBOUR
Michael M. Barbour
President and Chief Executive Officer
CONSULTANT:
/S/ CHADWICK F. SMITH, M.D.
Chadwick F. Smith, M.D.
4
EXHIBIT 10.6
ASSET PURCHASE AGREEMENT
Dated November 12, 1996
By and Among
MJH MEDICAL EQUIPMENT, INC.,
MICHAEL J. HOUSKA
and
LASERMEDICS, INC.
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT dated as of November 12, 1996 (this
"Agreement"), is by and among LASERMEDICS, INC., a Texas corporation ("Buyer"),
MICHAEL J. HOUSKA ("Shareholder") and MJH MEDICAL EQUIPMENT, INC., an Ohio
corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the business of designing, manufacturing
and distributing certain medical equipment and related materials (the
"Business"); and
WHEREAS, Seller desires to sell substantially all of its assets, and
Buyer desires to acquire such assets, and to assume only such liabilities as are
expressly set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions
set forth in this Agreement, Seller hereby agrees to sell, convey, transfer,
assign and deliver to Buyer all of the assets of Seller existing on the date
hereof other than the Excluded Assets (defined below), whether real, personal,
tangible or intangible, including without limitation the following assets of
Seller relating to or used or useful in the operation of the Business (all such
assets being sold hereunder are referred to collectively herein as the
"Assets"):
(a) all tangible personal property of Seller (such as
machinery, equipment, leasehold improvements, furniture and fixtures,
and vehicles), including, without limitation, that which is more fully
described on SCHEDULE 1.1(A) attached hereto but excluding the
Inventories (as defined in Section 1.1(b) hereof) (collectively, the
"Tangible Personal Property");
(b) all of Seller's inventory, including without limitation,
that which is more fully described on SCHEDULE 1.1(B) attached hereto
(collectively, the "Inventories"), subject to changes in the ordinary
course of business since the Balance Sheet Date (as defined in Section
2.1.4 hereof);
(c) all of Seller's accounts receivable and all other rights
of Seller to payment for goods sold or leased or for services rendered
including, without limitation, that which is
<PAGE>
more fully described in SCHEDULE 1.1(C) attached hereto (the "Accounts
Receivable"), subject to changes in the ordinary course of business
since the Balance Sheet Date;
(d) all of Seller's intangible assets, including without
limitation, (i) all of Seller's rights to the name "MJH Medical
Equipment, Inc.", (ii) all of Seller's rights to any patents, patent
applications, copyrights, trademarks and service marks (including
registrations and applications therefor), trade names, copyrights,
licenses or sublicenses and written know-how, trade secrets and all
other similar proprietary data and the goodwill associated therewith
(collectively, the "Intellectual Property") used or held in connection
with the Business, including without limitation, that which is more
fully described on SCHEDULE 1.1(D) attached hereto (collectively, the
"Seller's Intellectual Property") and (iii) Seller's phone numbers and
all of its account ledgers, sales and promotional literature, computer
software, books, records, files and data (including customer and
supplier lists), copies of contracts and documents evidencing accounts
and contracts receivable and payable, and all other records of Seller
relating to the Assets or the Business, excluding the corporate minute
books of Seller (collectively, the "Intangibles");
(e) all leases, subleases, contracts, contract rights, and
agreements relating to the Assets or the operation of the Business,
including, but not limited to, that which is more fully described on
SCHEDULE 1.1(E) attached hereto (collectively, the "Contracts");
(f) all of Seller's franchises, approvals, permits, licenses,
orders, registrations, certificates, variances, and similar rights
obtained from governments and governmental agencies relating
principally to all or any of the Assets or to the operation of the
Business, including, but not limited to, that which is more fully
described on SCHEDULE 1.1(F) attached hereto (collectively, the
"Business Licenses");
(g) the goodwill and going concern value of the Business;
(h) all of Seller's backlog of orders for products
manufactured or sold by Seller relating to the Business, which were
accepted by Seller in the ordinary course of business prior to the date
hereof and not invoiced or shipped (or canceled) prior to the date
hereof (collectively, the "Backlog Orders");
(i) all right, title and interest of Seller in and to all
prepaid rentals, other prepaid expenses, bonds, deposits and financial
assurance requirements, and other current assets relating to any of the
Assets or the Business;
(j) all petty cash of Seller kept on hand for use in the
Business; and
(k) all other or additional privileges, rights, interests,
properties and assets of Seller of every kind and description and
wherever located that are used in the Business or intended
2
<PAGE>
for use in the Business in connection with, or that are necessary for
the continued conduct of, the Business as conducted by Seller prior to
the date hereof.
The Assets shall not include the following (collectively, the "Excluded
Assets"): (i) all assets in possession of Seller but owned by third parties;
(ii) the corporate charter, related organizational documents and minute books of
Seller; and (iii) the cash or other consideration paid or payable by Buyer to
Seller pursuant to Section 1.2 hereof.
1.2 CONSIDERATION FOR ASSETS. As consideration for the sale of the
Assets to Buyer and for the other covenants and agreements of Seller and
Shareholder contained herein, Buyer agrees to:
(a) pay to Seller, on the date hereof, the amount of $20,000
(the "Cash Consideration") in the form of a cashier's check or bank
check or wire transfer to an account designated by Seller;
(b) issue in the name of Seller, in accordance with Section
1.3 hereof, an aggregate of 39,063 shares (the "Buyer Shares") of
Buyer's common stock, par value $.01 per share (the "Common Stock"),
such shares being subject to the terms, conditions and restrictions set
forth in Section 1.3 hereof;
(c) execute and deliver to Seller, on the date hereof, that
certain promissory note of even date herewith in the original principal
amount of $120,101.07 made by Buyer payable to Seller;
(d) assume only those liabilities of Seller listed on SCHEDULE
1.2(D) attached hereto (the "Assumed Liabilities"). Seller shall be
responsible for all other liabilities of Seller (collectively, the
"Retained Liabilities"), including, without limitation, (i) any sales
taxes which are payable as a result of the consummation of the
transactions contemplated hereby, and (ii) all obligations and
liabilities owed by Seller to the Employees (as defined in Section
2.1.24 hereof).
1.3 TERMS, CONDITIONS AND RESTRICTIONS ON THE BUYER SHARES. The Buyer
Shares issued hereunder shall be subject to the following terms, conditions and
restrictions:
(a) Prior to the vesting of the Buyer Shares in accordance with Section
1.3(c) hereof, the Buyer Shares shall be subject to forfeiture in accordance
with Section 1.3(e) hereof and, except as provided below, no transfer of
Seller's rights with respect to such shares, whether voluntary or involuntary,
by operation of law or otherwise, shall vest the transferee with any interest or
right in or with respect to such shares, but immediately upon any attempt to
transfer such rights, such share, and all of the rights related thereto, shall
be forfeited by Seller and the transfer shall be of no force or effect.
Notwithstanding the foregoing, (i) Seller may transfer all, but not less than
all, of the Buyer Shares to Shareholder and/or Patrick A. Meridieth
("Meridieth") and (ii) the Buyer Shares shall be transferrable by will or the
laws of descent and distribution.
3
<PAGE>
(b) Reasonably promptly after the date hereof (and reasonably promptly
after the transfer, if any, of the Buyer Shares from Seller to Shareholder),
Buyer shall cause to be issued two stock certificates, registered in the name of
Seller, one certificate evidencing 19,532 Buyer Shares and the other certificate
evidencing 19,531 Buyer Shares; PROVIDED, HOWEVER, that Buyer shall not cause to
be issued such stock certificates unless it has received a stock power duly
endorsed in blank with respect to such shares. Such stock certificates (and any
replacements thereof) shall bear the following legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF
STOCK REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS,
TERMS AND CONDITIONS (INCLUDING FORFEITURE AND RESTRICTIONS
AGAINST TRANSFER) CONTAINED IN THAT CERTAIN ASSET PURCHASE
AGREEMENT DATED NOVEMBER 12, 1996 BY AND AMONG MJH MEDICAL
EQUIPMENT, INC., MICHAEL J. HOUSKA AND LASERMEDICS, INC. A
COPY OF THIS AGREEMENT IS ON FILE IN THE OFFICE OF THE
SECRETARY OF LASERMEDICS, INC., 120 INDUSTRIAL BOULEVARD,
SUGARLAND, TEXAS 77478.
Such legend shall not be removed from the certificates evidencing the Buyer
Shares until such shares vest pursuant to the terms of Section 1.3(c) hereof.
The certificates representing the Buyer Shares, together with the stock powers
relating to the Buyer Shares, shall be held by Buyer.
(c) The Buyer Shares are subject to the following vesting schedule:
19,532 shares shall vest on November 12, 1997.
19,531 shares shall vest on November 12, 1998.
(d) Upon the vesting of the Buyer Shares pursuant to Section 1.3(c)
hereof, the restrictions of this Section 1.3 shall cease to apply to such
shares. Reasonably promptly after the Buyer Shares vest pursuant to Section
1.3(c) hereof, Buyer shall cause to be issued and delivered to Seller (or
Shareholder or Meridieth, if so transferred), a certificate evidencing that
number of Buyer Shares so vested, free of the legend set forth in Section 1.3(b)
hereof.
(e) In the event of termination of Shareholder's employment with Buyer
pursuant to that certain Employment Agreement of even date herewith by and
between Buyer and Shareholder (the "Employment Agreement") by the Company for
Cause (as such term is defined in the Employment Agreement) or by the Employee
for any reason other than Good Reason (as such term is defined in the Employment
Agreement), all of the Buyer Shares which have not vested pursuant to Section
1.3(c) hereof as of the commencement of business on the date of such termination
shall immediately be forfeited.
4
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
SELLER AND SHAREHOLDER
2.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER. Seller
and Shareholder hereby jointly and severally represent and warrant to Buyer as
follows:
2.1.1 ORGANIZATION AND STANDING. Seller is a corporation duly
organized and validly existing under the laws of the State of Ohio and
has full requisite corporate power and authority to carry on its
business as currently conducted, and to own and operate the properties
owned and operated by it. Seller is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to
do business in all jurisdictions in which the character of the
properties owned or the nature of the business conducted by it would
make such qualification or licensing necessary, except where the
failure to so qualify or be licensed would not have a material adverse
effect on the Business or the Assets.
2.1.2 AGREEMENT AUTHORIZED AND ENFORCEABLE; NON-INTERFERENCE.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby has been duly and validly
authorized by all necessary corporate or shareholder action on the part
of Seller, and this Agreement is a valid and binding obligation of
Seller and Shareholder, enforceable against each of them in accordance
with its terms, except as may be limited by applicable bankruptcy laws,
insolvency laws and other similar laws affecting the rights of
creditors generally. The execution and delivery of this Agreement by
Seller and Shareholder and the consummation of the transactions
contemplated hereby will not conflict with or result in a violation or
breach of any term or provision of (i) the articles of incorporation,
bylaws or other organizational documents of Seller, (ii) any indenture,
mortgage, deed of trust, credit agreement or other contract or
agreement of any nature whatsoever to which Seller or Shareholder is a
party or by which its or his properties are bound, (iii) any provision
of any law, rule, regulation, order, permit, certificate, writ,
judgment, injunction, decree, determination, award or other decision of
any court, arbitrator or other governmental authority to which Seller
or Shareholder or its or his properties are subject, or (iv) an event
that would permit any party to terminate any Contract.
2.1.3 SUBSIDIARIES. Seller has no subsidiary corporations or
any interest in any other organization, incorporated or unincorporated,
partnership or any other entity of any type.
2.1.4 FINANCIAL STATEMENTS. Seller has delivered to Buyer
copies of (i) Seller's unaudited balance sheet and related statements
of income, retained earnings and cash flows, for Seller's fiscal year
ended December 31, 1995 (collectively, the "Annual Financial
Statements") and (ii) Seller's unaudited balance sheet (the "Interim
Balance Sheet") as at June 30, 1996 (the "Balance Sheet Date") and
Seller's related statements of income, retained
5
<PAGE>
earnings and cash flows for the six months ended the Balance Sheet Date
(collectively, the "Interim Financial Statements"). The Annual
Financial Statements and the Interim Financial Statements, copies of
which are attached hereto as SCHEDULE 2.1.4, are true, correct and
complete in all material respects and present fairly and fully the
financial condition of Seller as at the dates indicated and the results
of operations for the respective periods indicated, and have been
prepared in accordance with generally accepted accounting principles as
promulgated by the American Institute of Certified Public Accountants
("GAAP") applied on a consistent basis, except as noted therein. The
Interim Financial Statements include all adjustments which are
necessary for a fair presentation of Seller's results for that period.
The accounts receivable reflected in the Interim Balance Sheet, or
which have been thereafter acquired by Seller, have been collected or
are current and collectible within 90 days of the date hereof at the
aggregate recorded amounts thereof. The inventories of Seller reflected
in the Interim Balance Sheet, or which have thereafter been acquired by
it, consist of items of a quality and quantity salable in the normal
course of the Business. The values at which such inventories are
carried are in accordance with GAAP applied on a consistent basis, and
are consistent with the normal inventory level and practices of Seller
with respect to the Business.
2.1.5 LIABILITIES. Seller does not have any liabilities or
obligations, either accrued, absolute, contingent, or otherwise, and
neither Seller nor Shareholder has knowledge of any potential
liabilities or obligations that would adversely affect the value of the
Assets or the conduct of the Business, other than those (i) adequately
reflected or reserved against in the Interim Balance Sheet or (ii)
incurred in the ordinary course of business since the Balance Sheet
Date.
2.1.6 ABSENCE OF CERTAIN CHANGES AND EVENTS. Other than as a
result of the ransactions contemplated by this Agreement, since the
Balance Sheet Date, there has not been:
2.1.6.1 FINANCIAL CHANGE. Any adverse change in the
Assets, the Business or the financial condition, operations,
liabilities or prospects of Seller;
2.1.6.2 PROPERTY DAMAGE. Any damage, destruction, or
loss to the Assets or the Business (whether or not covered by
insurance);
2.1.6.3 WAIVER. Any waiver or release of a material
right of or claim held by Seller;
2.1.6.4 CHANGE IN ASSETS. Any acquisition,
disposition, transfer, encumbrance, mortgage, pledge or other
encumbrance of any asset of Seller other than in the ordinary
course of business;
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2.1.6.5 LABOR DISPUTES. Any labor dispute between
Seller and the Employees; or
2.1.6.6 OTHER CHANGES. Any other event or condition
known to Seller or Shareholder that particularly pertains to
and has or might have an adverse effect on the Assets, the
operations of the Business or the financial condition or
prospects of Seller.
2.1.7 TAXES. Proper and accurate federal, state and local
income, sales, use, franchise, gross revenue, turnover, excise,
payroll, property, employment, customs duties and any and all other tax
returns, reports, and estimates have been filed with appropriate
governmental agencies, domestic and foreign, by Seller for each period
for which any returns, reports, or estimates were due. All taxes shown
by such returns to be payable have been paid. All sales taxes have been
properly collected and accounted for through the date hereof by Seller,
and Seller has made all required deposits of such taxes with all taxing
authorities. The tax provision reflected in the Interim Financial
Statements is adequate to cover liabilities of Seller at the date
thereof for all taxes of any character whatsoever applicable to Seller,
the Assets or the Business. No waiver of any statute of limitations
executed by Seller with respect to federal or state income or any other
tax is in effect for any period. No deficiencies for any taxes have
been proposed, asserted or assessed against Seller, and no requests or
waivers of the time to assess any such tax are pending. The federal
income tax returns of Seller have never been audited by the Internal
Revenue Service. No audit of any federal or state or other tax return
of Seller is presently in process nor has an appointment for or notice
of any such audit been requested or given by any taxing authority.
2.1.8 TITLE TO ASSETS. Seller has and will convey to Buyer
good and marketable title to the Assets, free and clear of any
Encumbrance (defined below) except liens for current taxes not yet due
and payable and except as set forth in SCHEDULE 2.1.8 attached hereto.
Seller is in possession of all property leased to it from others. The
Assets constitute all of the material property, whether real, personal,
mixed, tangible or intangible, that is used in the Business by Seller
and that is necessary for the continued conduct of the Business as
conducted by Seller prior to the date hereof. The term "Encumbrance"
shall mean all restrictions or conditions to transfer or assignment,
mortgages, deeds of trust, liens, security interests, pledges, claims,
rights of first refusal, options, charges, liabilities, obligations,
privileges, equities, easements, rights-of-way, limitations,
reservations, restrictions and other encumbrances of any kind or
nature. SCHEDULE 2.1.8 attached hereto contains a description of all of
the personal property leased pursuant to the Contracts, which are the
only assets used in the conduct of the Business which are not owned by
Seller.
2.1.9 CONTRACTS. SCHEDULE 1.1(E) attached hereto and
incorporated herein by reference lists all of the material contracts,
agreements, and other written arrangements to which Seller is a party,
or by which Seller or the Assets are bound pertaining to the Business.
Each of the Contracts is valid and in full force and effect. There has
not been any default by
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Seller, or to Seller's or Shareholder's knowledge, any other party to
any of the Contracts, or any event that with notice or lapse of time or
both, would constitute a default by Seller, or to Seller's or
Shareholder's knowledge, any other party to any of the Contracts.
Neither Seller nor Shareholder has received notice that any party to
any of the Contracts intends to cancel or terminate any of the
Contracts or exercise or not exercise any options that they might have
under any of the Contracts. Except as provided in SCHEDULE 1.1(E)
attached hereto, all Contracts are assignable in full to Buyer without
the consent of any of the other parties thereto.
2.1.10 TANGIBLE PERSONAL PROPERTY AND INVENTORIES. SCHEDULE
1.1(A) attached hereto constitutes an accurate list of all of the
material personal property as of the Balance Sheet Date prepared by
Seller based on perpetual records and cycle counts which is owned by,
leased by, in the lawful possession of, or used by Seller in connection
with the ownership and operation of the Business. Except as disclosed
on SCHEDULE 2.1.8 attached hereto, no material Tangible Personal
Property (i) is held under any lease, security agreement, conditional
sales contract, or other title retention or security arrangement, or
(ii) is located other than in the possession of Seller. To Seller's or
Shareholder's knowledge, all items of raw materials, work in process
and finished goods included in the Inventories, consist of items of a
quality and quantity useable and saleable in the ordinary course of
business by Seller, except for obsolete and slow moving items and items
below standard quality, all of which have been written down on the
books of Seller to net realizable market value or have been provided
for by adequate reserves on the Interim Balance Sheet. No materials
items included in the Inventories have been pledged as collateral or
are held by Seller on consignment from others. The Inventories are
valued at the lower of cost (determined on a first-in, first-out basis)
or market value and on a basis consistent with that of prior years.
2.1.11 BUSINESS LICENSES. SCHEDULE 1.1(F) attached hereto, is
a schedule of all material Business Licenses owned by Seller or in
which Seller has any rights or licenses in connection with the
Business, together with a brief description of each. Seller owns or
holds adequate licenses or other rights to use all licenses necessary
for the Business as now conducted by Seller. Seller is in compliance in
all material respects with the terms of the Business Licenses. None of
the Business Licenses have been, or to the knowledge of Seller or
Shareholder, are threatened to be, revoked, canceled, suspended or
modified.
2.1.12 INTELLECTUAL PROPERTY. SCHEDULE 1.1(D) attached hereto
constitutes an accurate list of all of the material Intellectual
Property owned by Seller. Seller owns or possesses licenses to use all
Intellectual Property that is material to or necessary for the
continued conduct of the Business. The Seller's Intellectual Property
is owned or licensed by Seller free and clear of any Encumbrance.
Seller has not granted to any other person any license to use any of
the Seller's Intellectual Property. Use of the Seller's Intellectual
Property will not, and the conduct of the Business prior to the date
hereof did not, infringe, misappropriate or conflict with the
intellectual property rights of others. Neither Seller nor Shareholder
has received any notice of infringement, misappropriation, or conflict
with the intellectual
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property rights of others in connection with the use by Seller of the
Seller's Intellectual Property.
2.1.13 LITIGATION. There is no suit, action, or legal,
administrative, arbitration, or other proceeding or governmental
investigation pending or, to the knowledge of Seller or Shareholder,
threatened to which Seller is a party or, to the knowledge of Seller or
Shareholder, might become a party or which particularly affects Seller,
the Assets or the Business. There are no changes in the zoning or
building ordinances directly affecting the leasehold interests of
Seller, pending or threatened.
2.1.14 ENVIRONMENTAL MATTERS. None of the current or past
operations of the Business or the Assets is being or has been conducted
or used in such a manner as to constitute a violation of any Applicable
Environmental Laws (defined below). Neither Seller nor Shareholder has
received any notice (whether formal or informal, written or oral) from
any entity, governmental agency or individual regarding any existing,
pending or threatened investigation or inquiry related to violations of
any Applicable Environmental Laws or regarding any claims for remedial
obligations or contribution for removal costs or damages under any
Applicable Environmental Laws. There are no writs, injunction decrees,
orders or judgments outstanding, or lawsuits, claims, proceedings or
investigations pending or, to Seller's or Shareholder's knowledge,
threatened relating to the ownership, use, maintenance or operation of
the Assets or the conduct of the Business, nor, to Seller's or
Shareholder's knowledge, is there any basis for any of the foregoing.
Buyer is not required to obtain any permits, licenses or similar
authorizations pursuant to any Applicable Environmental Laws in effect
as of the date hereof to operate and use any of the Assets for their
current or proposed purposes and uses or to otherwise conduct the
Business. To Seller's or Shareholder's knowledge, the Assets include
all environmental and pollution control equipment necessary for
compliance with all Applicable Environmental Laws. No Hazardous
Materials (defined below) have been or are currently being used by
Seller in its operations. No Hazardous Materials are or have ever been
situated on or under Seller's properties, whether owned or leased, or
incorporated into any of the Assets. To Seller's or Shareholder's
knowledge, there are no, and there have never been any, underground
storage tanks (as defined under Applicable Environmental Laws) located
under Seller's properties, whether owned or leased. The term
"Applicable Environmental Laws" means any applicable federal, state or
local law, statute, ordinance, rule, regulation, order or notice
requirement pertaining to human health, the environment, or to the
storage, treatment, discharge, release or disposal of hazardous wastes
or hazardous substances, including, without limitation (i) the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. ss.ss.9601 ET SEQ.), as amended from time to time,
including, without limitation, as amended pursuant to the Superfund
Amendments and Reauthorization Act of 1986 ("CERCLA"), and regulations
promulgated thereunder, (ii) the Resources Conservation and Recovery
Act of 1976 (42 U.S.C. ss.ss.6901 ET SEQ.), as amended from time to
time ("RCRA"), and regulations promulgated thereunder, (iii) the
Federal Water Pollution Control Act (U.S.C.A. ss.9601 ET SEQ.), as
amended, and regulations promulgated thereunder, and (iv) any
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applicable state laws or regulations relating to the environment. The
term "Hazardous Materials" means (x) asbestos, polychlorinated
biphenyls, urea formaldehyde, lead based paint, radon gas, petroleum,
oil, solid waste, pollutants and contaminants, and (y) any chemicals,
materials, wastes or substances that are defined, regulated, determined
or identified as toxic or hazardous in any Applicable Environmental
Laws, including, but not limited to, substances defined as "hazardous
substances," "hazardous materials," or "hazardous waste" in CERCLA,
RCRA, the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801,
ET SEQ.), or comparable state and local statutes or in the regulations
adopted and publications promulgated pursuant to said statutes.
2.1.15 COMPLIANCE WITH OTHER LAWS. Seller is not in violation
of or in default with respect to, or in alleged violation of or alleged
default with respect to, any other applicable law or any applicable
rule, regulation, or any writ or decree of any court or any
governmental commission, board, bureau, agency, or instrumentality, and
Seller is not delinquent with respect to any report required to be
filed with any governmental commission, board, bureau, agency or
instrumentality.
2.1.16 EMPLOYMENT PRACTICES. There are no labor or employment
disputes or controversies pending or, to Seller's or Shareholder's
knowledge, threatened against Seller or any of the Employees, and
Seller has not taken or failed to take any action which action or
omission would provide a reasonable basis for any such controversy. To
Seller's or Shareholder's knowledge, after due inquiry, there are no
organizational efforts presently being made or threatened by or on
behalf of any labor union with respect to any Employees. Seller has
complied with all requirements under the Occupational Safety and Health
Act, all laws, rules and regulations with respect to worker's
compensation insurance or, if applicable, all requirements relating to
obtaining "non-subscriber status" thereunder, and all other laws
relating to the employment of labor, including, without limitation,
laws relating to equal employment opportunity and employment
discrimination, employment of illegal aliens or undocumented or
ineligible workers, wages, hours, collective bargaining and the
collection or payment of social security and withholding taxes, or
both, and similar taxes. Seller is not liable for any arrearage of
wages or any taxes or penalties for failure to comply with any of the
foregoing. Seller does not have any employment contracts, collective
bargaining agreements, pension, bonus, or profit sharing plans
providing for employee remuneration or benefits with respect to the
Employees that by their terms or by law will become binding upon or the
obligations of Buyer. Seller is in compliance with, and will remain in
compliance with all of its obligations under such agreements or other
arrangements following the date hereof.
2.1.17 FINDER'S FEE. No person, organization or entity
representing Seller or Shareholder is due any finder's fee, or similar
consideration, as a result of this Agreement or the transactions
contemplated hereby.
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2.1.18 COMPLIANCE WITH ERISA. SCHEDULE 2.1.18 attached hereto
sets forth a list of all "employee benefit plans" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), that are maintained or sponsored by Seller for the
benefit of any Employee (the "Plans"). Each Plan is in full force and
effect, and neither Seller nor, to Seller's or Shareholder's knowledge,
any other party is in default under such Plan. To Seller's or
Shareholder's knowledge, there have been no claims of default, and
there are no facts or conditions which if continued, or on notice, will
result in a default under any Plan. No Plan will, by its terms or under
applicable law, become binding upon or become an obligation of Buyer.
No assets of or liabilities under the Plan shall be transferred to
Buyer or to any plan of Buyer.
2.1.19 NECESSARY CONSENTS. Seller and Shareholder have
obtained and delivered to Buyer all consents to assignment or waivers
thereof required to be obtained from any governmental authority or from
any other third party in order to validly transfer the Assets
hereunder, including without limitation, the assignment of the
Contracts and Business Licenses and the transfer of the Intangibles.
2.1.20 CUSTOMERS. SCHEDULE 2.1.20 attached hereto constitutes
a complete and accurate list of the names of substantially all
customers of the Business. Neither Seller nor Shareholder has any
information, nor is Seller or Shareholder aware of any facts,
indicating that any of these customers intend to cease being customers
of the Business as conducted by Buyer on and after the date hereof.
2.1.21 INSURANCE POLICIES. Seller has maintained and now
maintains (i) insurance on all the Assets and the Business of a type
customarily insured, covering property damage and loss of income by
fire or other casualty, and (ii) insurance protection against all
liabilities, claims and risks against which it is customary to insure.
2.1.22 INVESTMENT REPRESENTATIONS. Each of Seller and
Shareholder acknowledges, represents and agrees that:
(a) the Buyer Shares to be issued in accordance with Article 1
hereof have not been and will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"), or registered or
qualified under any applicable state securities laws;
(b) the Buyer Shares to be issued in accordance with Article 1
hereof will be issued in reliance upon exemptions from such
registration or qualification requirements, and the availability of
such exemptions depends in part upon Seller's and Shareholder's bona
fide investment intent with respect to the Buyer Shares.
(c) its or his acquisition of the Buyer Shares will be solely
for its or his own account for investment, and it or he is not
acquiring the Buyer Shares for the account of any
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other person or with a view toward resale, assignment,
fractionalization, or distribution thereof;
(d) it or he shall not offer for sale, sell, transfer, pledge,
hypothecate or otherwise dispose of any of the Buyer Shares except in
accordance with Section 1.3(a) hereof and the registration requirements
of the Securities Act and applicable state securities laws or upon
delivery to Buyer of an opinion of legal counsel reasonably
satisfactory to Buyer that an exemption from registration is available;
(e) it or he has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and
risks of an investment in the Buyer Shares, and to make an informed
investment decision;
(f) it or he has had the opportunity to ask questions of, and
receive answers from Buyer's officers and directors concerning the
acquisition of the Buyer Shares and to obtain such other information
concerning Buyer and the Buyer Shares, to the extent they possessed the
same or could acquire it without unreasonable effort or expense, as it
or he deemed necessary in connection with making an informed investment
decision;
(g) since the Buyer Shares have not been registered under the
Securities Act or applicable state securities laws and as a result of
the restrictions imposed by Section 1.3 hereof, it or he must bear the
economic risk of holding the Buyer Shares for an indefinite period of
time, and is capable of bearing such risk; and
(h) in addition to the legend specified in Section 1.3(b)
hereof and any other legends required by law or the other agreements
entered into in connection herewith, each certificate evidencing the
Buyer Shares will bear a conspicuous restrictive legend substantially
as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE
STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED EXCEPT IN ACCORDANCE
WITH THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH OTHER STATE LAWS
OR UPON DELIVERY TO THIS CORPORATION OF AN OPINION OF LEGAL COUNSEL
SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
2.1.23 SOLVENCY. Neither Seller nor Shareholder is now
insolvent, nor will Seller or Shareholder be rendered insolvent by the
occurrence of the transactions contemplated by this Agreement. The term
"insolvent" means, for any person or entity, that the sum of the
present fair saleable value of its assets does not and/or will not
exceed its debts and other probable
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liabilities, and (y) the term "debts" includes any legal liability,
whether matured or unmatured, liquidated or unliquidated, absolute,
fixed or contingent, disputed or undisputed or secured or unsecured.
2.1.24 EMPLOYEES. SCHEDULE 2.1.24 attached hereto, designates
a list of all employees of Seller as of the date hereof (the
"Employees"), all of whom will be terminated by Seller on the date
hereof, and their current salary or wage rate.
2.1.25 UNTRUE STATEMENTS. This Agreement, and the schedules
hereto, do not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements made herein
and therein not misleading. Copies of all documents furnished to Buyer
in connection with this Agreement or pursuant hereto are or will be
true and complete in all material respects. There are no facts, the
existence of which could or will materially adversely affect the Assets
or Buyer's future conduct of the Business.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
3.1 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller and Shareholder as follows:
3.1.1 ORGANIZATION AND STANDING. Buyer is a corporation duly
organized and validly existing under the laws of the State of Texas and
has full requisite corporate power and authority to carry on its
business as currently conducted, and to own and operate the properties
owned and operated by it. Buyer is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to
do business in all jurisdictions in which the character of the
properties owned or the nature of the business conducted by it would
make such qualification or licensing necessary, except where the
failure to so qualify or be licensed would not have a material adverse
effect on Buyer.
3.1.2 AGREEMENT AUTHORIZED AND ENFORCEABLE. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Buyer. This Agreement
constitutes the valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except as may be limited by
applicable bankruptcy laws, insolvency laws and other similar laws
affecting the rights of creditors generally.
3.1.3 FINDER'S FEE. No person, organization or entity
representing Buyer is due any finder's fee, or similar consideration,
as a result of this Agreement or the transactions contemplated hereby.
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ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 COVENANTS NOT TO COMPETE. For the two-year period beginning on the
date hereof (the "Non-Compete Term"), each of Seller and Shareholder shall not
(and shall cause its or his Affiliates (defined below) not to) directly or
indirectly, for itself or himself or on behalf of any other person, corporation,
firm, partnership, association or any other entity (whether as an individual,
agent, servant, employee, employer, officer, director, shareholder, investor,
lender, financier, principal, consultant or in any other capacity) (i) engage or
participate in any Competing Business (defined below) anywhere within the
Restricted Territory (defined below); (ii) induce any customers of Buyer or its
Affiliates to patronize any Competing Business; (iii) canvass, solicit or accept
any Competing Business from any customer of Buyer or its Affiliates unless
directed to do so by Buyer; (iv) request or advise any customers of Buyer or its
Affiliates to withdraw, curtail or cancel such customer's business with respect
to any Competing Business; or (v) disclose to any other person, firm or
corporation engaged in any Competing Business the names or addresses of any of
the customers of Buyer or its Affiliates. The term "Competing Business" means
the business of manufacturing, selling and/or leasing medical products, supplies
and equipment of any type. The term "Restricted Territory" means the geographic
areas where Buyer conducts the Business during the Non-Compete Term. The term
"Affiliate" shall have the meaning ascribed thereto in Rule 144 under the
Securities Act. The parties hereto acknowledge and agree that (i) the agreements
and covenants set forth in this Section 4.1 are being made for good and valuable
consideration, the receipt and sufficiency of which is acknowledged; (ii) the
covenants contained in this Section 4.1 are an important aspect of this
Agreement, and Buyer would not have entered into this Agreement absent the
inclusion of this Section 4.1; and (iii) the restrictions imposed in this
Section 4.1, including the geographic area and duration of the covenants made
herein, are reasonable and necessary to protect Buyer. If Seller, Shareholder or
their Affiliates breach or indicate an intention to breach any term or provision
of this Section 4.1, the parties hereto agree that Buyer shall be entitled to
the right of both temporary and permanent injunctive relief and/or specific
performance. The right of Buyer to such relief shall not be construed to prevent
Buyer from pursuing, either consecutively or concurrently, any and all other
legal or equitable remedies available to it for such breach or threatened
breach, specifically including, without limitation, the recovery of monetary
damages. If any court determines that any provision of this Section 4.1, or any
part thereof, is unenforceable because of the duration or geographic scope of
such provision, the parties hereto agree that such court shall have the power to
reduce the duration or geographic scope of such provision, as the case may be,
and the parties hereto agree to request the court to exercise such power, and,
in its amended form, such provision shall then be enforceable and shall be
enforced.
4.2 REFERRALS; NON-SOLICITATION. During the Non-Compete Term, each of
Seller and Shareholder shall (and shall cause its or his Affiliates to)
immediately submit or refer to Buyer all inquiries or bid requests received by
them from customers regarding any Competing Business to be conducted in the
Restricted Territory. During the Non-Compete Term, each of Seller and
Shareholder shall not (and shall cause its or his Affiliates not to) directly or
indirectly, induce or
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attempt to influence any employee of Buyer or any of its Affiliates to terminate
his/her employment or to hire any such employee, whether or not so induced or
influenced.
4.3 HIRING EMPLOYEES. Effective as of the date hereof, all of the
Employees shall be terminated by Seller. Buyer may, but shall be under no
obligation to, hire any or all of the Employees. Buyer shall have no liability
or obligation with respect to any employee benefits of any Employee except those
benefits that accrue pursuant to such Employee's employment with Buyer on or
after the date hereof. Seller shall cooperate with Buyer in connection with any
offer of employment from Buyer to the Employees, and use its best efforts to
cause the acceptance of any and all such offers. All Employees hired by Buyer
shall be at-will employees of Buyer.
4.4 RELATIONS WITH CUSTOMERS AND SUPPLIERS. For the Non-Compete Term,
each of Seller and Shareholder agrees to use its or his best efforts to assist
Buyer in maintaining the goodwill and business relationships of the suppliers
and customers of Seller prior to the date hereof.
4.5 ALLOCATION OF PURCHASE PRICE. The parties hereto agree to allocate
the purchase price paid by Buyer for the Assets hereunder in a manner mutually
agreeable to all parties hereto, such mutual agreement to be reached by
negotiations among the parties to be held in good faith at all times. The
parties hereto shall report this transaction for federal income tax purposes in
accordance with the allocation so agreed upon. The parties hereto for themselves
and for their respective successors and assigns covenant and agree that they
will file coordinating Form 8594's in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
4.6 NAME CHANGE. Seller and Shareholder shall, within ten (10) days
from the date hereof, caused to be filed (i) with the Secretary of State of Ohio
an amendment to its charter to change the name of Seller from "MJH Medical
Equipment, Inc." to a name that is not similar to such name, and (ii) with the
appropriate authorities of other states such documents as are required to effect
such name change, including without limitation, amendments or withdrawals of
certificates of authority to do business and assumed name filings. Seller and
Shareholder shall, within five (5) days from the date of receipt of confirmation
of such filings from the applicable state authorities, cause to be delivered to
Buyer copies of all such confirmations.
4.7 FURTHER ASSURANCES. On and after the date hereof, each of the
parties hereto shall take all appropriate action and execute all documents of
any kind which may be reasonably necessary or desirable to carry out the
transactions contemplated hereby. Seller or Shareholder, as appropriate, at any
time on or after the date hereof, will execute, acknowledge and deliver any
further bills of sale, assignments and other assurances, documents and
instruments of transfer, reasonably requested by Buyer, and will take any other
action consistent with the terms of this Agreement that may be reasonably be
requested by Buyer, for the purpose of assigning and confirming to Buyer, all of
the Assets.
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ARTICLE 5
INDEMNIFICATION
5.1 INDEMNIFICATION BY SELLER. In addition to any other remedies
available to Buyer under this Agreement, or at law or in equity, each of Seller
and Shareholder shall jointly and severally indemnify, defend and hold harmless
Buyer, and its officers, directors, employees, agents and shareholders, against
and with respect to any and all claims, costs, damages, losses, expenses,
obligations, liabilities, recoveries, suits, causes of action and deficiencies,
including interest, penalties and reasonable attorneys' fees and expenses
(collectively, the "Damages") that such indemnitees shall incur or suffer, which
arise, result from or relate to (i) any breach of, or failure by Seller or
Shareholder to perform, any of its or his respective representations,
warranties, covenants or agreements in this Agreement or in any schedule,
certificate, exhibit or other instrument furnished to Buyer by Seller or
Shareholder under this Agreement or (ii) the Retained Liabilities.
5.2 INDEMNIFICATION BY BUYER. In addition to any other remedies
available to Seller and Shareholder under this Agreement, or at law or in
equity, Buyer shall indemnify, defend and hold harmless each of Seller and
Shareholder and its or his officers, directors, employees, agents and
shareholders against and with respect to any and all Damages that such
indemnitees shall incur or suffer, which arise, result from or relate to any
breach of, or failure by Buyer to perform, any of its representations,
warranties, covenants or agreements in this Agreement or in any schedule,
certificate, exhibit or other instrument furnished or to be furnished by or on
behalf of Buyer under this Agreement.
5.3 INDEMNIFICATION PROCEDURE. In the event that any party hereto
discovers or otherwise becomes aware of an indemnification claim arising under
Section 5.1 or Section 5.2 of this Agreement, such indemnified party shall give
written notice to the indemnifying party, specifying such claim, and may
thereafter exercise any remedies available to such party under this Agreement;
PROVIDED, HOWEVER, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of any obligations
hereunder, to the extent the indemnifying party is not materially prejudiced
thereby. Further, promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Article 5, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party, give written notice to the latter of the commencement of
such action; PROVIDED, HOWEVER, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of any
obligations hereunder, to the extent the indemnifying party is not materially
prejudiced thereby. In case any such action is brought against an indemnified
party, the indemnifying party shall be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified, to the extent that it may wish, with counsel reasonably satisfactory
to such indemnified party, and after such notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense
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thereof unless the indemnifying party has failed to assume the defense of such
claim and to employ counsel reasonably satisfactory to such indemnified person.
An indemnifying party who elects not to assume the defense of a claim shall not
be liable for the fees and expenses of more than one counsel in any single
jurisdiction for all parties indemnified by such indemnifying party with respect
to such claim or with respect to claims separate but similar or related in the
same jurisdiction arising out of the same general allegations. Notwithstanding
any of the foregoing to the contrary, the indemnified party will be entitled to
select its own counsel and assume the defense of any action brought against it
if the indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party, the expenses of such defense to be paid by the indemnifying
party. No indemnifying party shall consent to entry of any judgment or enter
into any settlement with respect to a claim without the consent of the
indemnified party, which consent shall not be unreasonably withheld, or unless
such judgment or settlement includes as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim. No indemnified party shall consent to
entry of any judgment or enter into any settlement of any such action, the
defense of which has been assumed by an indemnifying party, without the consent
of such indemnifying party, which consent shall not be unreasonably withheld.
5.4 OFFSET. The parties hereto agree that if Buyer shall incur any
Damages for which it is entitled to indemnification by Seller or Shareholder
pursuant to the terms of this Agreement, Buyer shall have the right to offset
any payments due or to be due under the terms of this Agreement or any other
agreement executed in connection herewith, by the amount of the Damages,
including the right to reduce the number of Buyer Shares to be issued in
accordance with Article 1 hereof. Such right of offset shall not be considered
an exclusive remedy, it being agreed that Buyer shall also be entitled to
exercise any other remedies available to it at law or in equity, including,
without limitation, the indemnification rights set forth in this Article 5. In
the event of an offset by Buyer as a result of any account receivable of Seller
not being collected within 90 days in breach of the representation of Seller and
Shareholder in Section 2.1.4 hereof, upon any such offset, Buyer shall assign to
Seller the account receivable subject to offset, and Seller shall thereafter
have the right to take any reasonable action to collect such account receivable.
In the event of an offset by Buyer as a result of any inventory of Seller being
unsalable in the normal course of business in breach of the representations of
Seller and Shareholder in Sections 2.1.4 and 2.1.10 hereof, upon any such
offset, Buyer shall convey and transfer to Seller title to such inventory
subject to offset.
ARTICLE 6
MISCELLANEOUS
6.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties, covenants and agreements made by the parties hereto
shall survive indefinitely without limitation, notwithstanding any investigation
made by or on behalf of any of the parties hereto. All statements contained in
any certificate, schedule, exhibit or other instrument delivered pursuant to
this Agreement shall be deemed to have been representations and warranties by
the respective party
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or parties, as the case may be, and shall also survive without limitation
despite any investigation made by any party hereto or on its behalf.
6.2 NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given if served personally on the party entitled thereto to whom notice is to be
given, or if mailed to the party entitled thereto to whom notice is to be given,
by first-class mail, registered or certified, postage prepaid, addressed as
follows (or such other address as the party entitled thereto may have prior
thereto specified by notice given as contemplated in this Section):
If to Seller: Michael J. Houska
8220 Wilhite Drive
Wadsworth, Ohio 44281
With copy to: Gerald R. Leipply
2101 Front Street, Suite 101
Cuyahoga Falls, Ohio 44221
If to Buyer: Lasermedics, Inc.
120 Industrial Boulevard
Sugar Land, Texas 77478
Attn: Michael M. Barbour
With copy to: Porter & Hedges, L.L.P.
700 Louisiana, Suite 3500
Houston, Texas 77002
Attn: Robert G. Reedy
but if mailed or telefaxed, the same shall not be deemed effective unless and
until actually received by the party entitled thereto.
6.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one and the
same instrument.
6.4 AMENDMENTS AND WAIVERS. This Agreement may be amended, modified, or
superseded only by written instrument executed by each party hereto. Any waiver
of the terms, provisions, covenants, representations, warranties, or conditions
hereof shall be made only by a written instrument executed and delivered by an
authorized officer of such party. The failure of any party at any time or times
to require performance of any provision hereof shall in no manner affect the
right to enforce the same. No waiver by any party of any condition, or of the
breach of any term, provision, covenant, representation, or warranty contained
in this Agreement in one or more instances shall be deemed to be or construed as
a further or continuing waiver of any such condition
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or breach or a waiver of any other condition or the breach of any other term,
provision, covenant, representation, or warranty.
6.5 ENTIRE AGREEMENT; CONFLICTS. This Agreement (including the
schedules and exhibits hereto, all of which are by this reference fully
incorporated into this Agreement) and the documents and materials expressly
referred to in schedules or exhibits hereto sets forth the entire Agreement and
understanding of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreements, arrangements, and understandings
relating to the subject matter hereof. In the event of any conflict or
inconsistency between the provisions of this Agreement and the contents or
provisions of any schedule or exhibit hereto, the provisions of this Agreement
shall be deemed controlling.
6.6 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall be binding
on and shall inure to the benefit of and be enforceable by the parties hereto
and their respective successors, but this Agreement and the rights and
obligations hereunder shall not be assignable or delegable by any party, except
as otherwise provided in this Agreement.
6.7 APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio without regard to the laws
which would otherwise apply by application of Ohio's internal principles of
conflicts of law.
6.8 SEVERABILITY. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed this Agreement had
the terms, provisions, covenants and re strictions which may be hereafter
declared invalid, void, or unenforceable not initially been included herein.
6.9 HEADINGS AND CAPTIONS. The headings and captions contained in this
Agreement are solely for convenient reference and shall not be deemed to affect
the meaning or interpretation of any article, section, or paragraph hereof.
6.10 SUCCESSOR LAWS. Reference made herein to any law or statute shall
include reference to any future law amending or superseding such law or statute
and to any future laws applicable to the same subject matter.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties to this Agreement have duly executed
this Agreement on and as of the date first above written.
BUYER:
LASERMEDICS, INC.
By: /S/ MICHAEL M. BARBOUR
Michael M. Barbour, President
SELLER:
MJH MEDICAL EQUIPMENT, INC.
By: /S/ MICHAEL J. HOUSKA
Michael J. Houska, President
SHAREHOLDER:
/S/ MICHAEL J. HOUSKA
Michael J. Houska
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 12th day of November, 1996 between LASERMEDICS, INC., a Texas corporation
having its principal executive office at 120 Industrial Boulevard, Sugar Land,
Texas 77478 (hereinafter referred to as the "Company"), and Michael J. Houska
(hereinafter referred to as the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee and the Employee
desires to enter the Company's employ.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Employee hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the meanings prescribed below:
AFFILIATE is used in this Agreement to define a relationship to a
person or entity and means a person or entity who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such person or entity.
ANNUAL BONUS shall have the meaning assigned thereto in Section 4.3
hereof.
BASE SALARY shall have the meaning assigned thereto in Section 4.1
hereof.
BENEFICIAL OWNERSHIP shall have the meaning derived from the definition
of "beneficial owner" contained in Rule 13d-3 under the Exchange Act; PROVIDED,
HOWEVER, and without limitation, that any individual, corporation, partnership,
group, association or other person or entity that has the right to acquire any
Voting Stock at any time in the future, whether such right is (a) contingent or
absolute or (b) exercisable presently or at any time in the future, pursuant to
any agreement or understanding or upon the exercise or conversion of rights,
options or warrants, or otherwise, shall be the Beneficial Owner of such Voting
Stock.
BONUS BENCHMARK shall have the meaning assigned thereto in Section
4.2(b) hereof.
CAUSE shall have the meaning assigned thereto in Section 5.3 hereof.
COMMON STOCK means the Company's common stock, par value $.01 per
share.
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COMPANY means Lasermedics, Inc., a Texas corporation, the principal
executive office of which is located at 120 Industrial Boulevard, Sugar Land,
Texas 77478.
CONFIDENTIAL INFORMATION shall have the meaning assigned thereto in
Section 8.2 hereof.
DATE OF TERMINATION means the earliest to occur of (i) the date of the
Employee's death, (ii) the date on which the Employee terminates this Agreement
for any reason other than Good Reason or (iii) the date of receipt of the Notice
of Termination, or such later date as may be prescribed in the Notice of
Termination in accordance with Section 5.6 hereof.
DEFICIENCY shall have the meaning assigned thereto in Section 4.2(b)
hereof.
DISABILITY means an illness or other disability which prevents the
Employee from discharging his responsibilities under this Agreement for a period
of 180 consecutive calendar days, or an aggregate of 180 calendar days in any
calendar year, during the Employment Period, all as determined in good faith by
the Board of Directors of the Company.
EFFECTIVE DATE means the date of execution hereof.
EMPLOYEE means Michael J. Houska, an individual residing at 8220
Wilhite Drive, Wadsworth, Ohio 44281.
EMPLOYMENT PERIOD shall have the meaning assigned thereto in Section 3
hereof.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Securities and Exchange Commission
thereunder, all as in effect from time to time during the Employment Period.
GOOD REASON shall have the meaning assigned thereto in Section 5.5
hereof.
HOMECARE GROSS PROFIT CONTRIBUTION shall have the meaning assigned
thereto in Section 4.2(b) hereof.
MONTHLY SALES COMMISSION shall have the meaning assigned thereto in
Section 4.2(a) hereof.
NEXT MONTH'S EXCESS shall have the meaning assigned thereto in Section
4.2(b) hereof.
NOTICE OF TERMINATION shall have the meaning assigned thereto in
Section 5.6 hereof.
VACATION TIME shall have the meaning assigned thereto in Section 4.4
hereof.
VACATION PAY shall have the meaning assigned thereto in Section 4.4
hereof.
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VOTING STOCK means all outstanding shares of capital stock of a
corporation entitled to vote generally in an election of directors; PROVIDED,
HOWEVER, that if such corporation has shares of Voting Stock entitled to more or
less than one vote per share, each reference to a proportion of the issued and
outstanding shares of Voting Stock shall be deemed to refer to the proportion of
the aggregate votes entitled to be cast by the issued and outstanding shares of
Voting Stock.
WITHOUT CAUSE shall have the meaning assigned thereto in Section 5.4
hereof.
2. GENERAL DUTIES OF COMPANY AND EMPLOYEE.
2.1 The Company agrees to employ the Employee, and the Employee agrees
to accept employment by the Company and to serve the Company as Vice
President-Sales. The authority, duties and responsibilities of the Employee
shall include those duties of Vice President as specified in the Bylaws of the
Company as in effect on the date hereof, and such other or additional duties as
may from time to time be assigned to the Employee by the Board of Directors.
While employed hereunder, the Employee shall devote his full time and attention
during normal business hours to the affairs of the Company and use his best
efforts to perform faithfully and efficiently his duties and responsibilities.
The Employee may (i) serve on corporate, civic or charitable boards or
committees provided that (A) such boards or committees do not control or advise
business entities that compete with the Company and (B) all such services are
promptly disclosed in writing to the Board of Directors, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (iii)
manage personal investments, so long as such activities do not significantly
interfere with the performance of the Employee's duties and responsibilities.
2.2 The Employee agrees and acknowledges that he owes a fiduciary duty
of loyalty, fidelity and allegiance to act at all times in the best interests of
the Company and to do no act and to make no statement, oral or written, which
would injure Company's business, its interests or its reputation.
2.3 The Employee agrees to comply at all times with all applicable
policies, rules and regulations of the Company, including, without limitation,
the Company's Code of Ethics and the Company's policy regarding trading in the
Common Stock, as each is in effect from time to time during the Employment
Period.
3. TERM. Unless sooner terminated pursuant to other provisions hereof, the
Employee's period of employment under this Agreement shall be a period of two
years beginning on the Effective Date. The two-year period beginning on the
Effective Date (notwithstanding termination of this Agreement prior to the end
of such period pursuant to other provisions hereof) is referred to elsewhere
herein as the "Employment Period."
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4. COMPENSATION AND BENEFITS.
4.1 BASE SALARY. As compensation for services to the Company, the
Company shall pay to the Employee until the Date of Termination an annual base
salary of $120,000 (the "Base Salary"). The Base Salary shall be payable in
equal semi-monthly installments or in accordance with the Company's established
policy, subject only to such payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the
Company for insurance and other employee benefit plans.
4.2 MONTHLY SALES COMMISSION.
(a) In addition to the Base Salary, the Company shall pay to the
Employee until the Date of Termination a monthly sales commission of $6,700 (the
"Monthly Sales Commission") for each month in which the Monthly Sales Commission
is earned in accordance with Section 4.2(b) hereof.
(b) The Monthly Sales Commission shall be considered earned for a given
month if the Homecare Gross Profit Contribution (defined below) for that month
meets or exceeds the "Monthly Benchmark" for that month as specified in SCHEDULE
4.2(B) attached hereto. The Monthly Sales Commission shall also be considered
earned for a given month, notwithstanding the fact that the Homecare Gross
Profit Contribution for that month did not meet or exceed the Monthly Benchmark
for that month, if, but ONLY if, the Next Month's Excess (defined below) for
that month equals or exceeds the Deficiency (defined below) for that month. As
used in this Section 4.2(b), the following terms have the meanings prescribed
below:
HOMECARE GROSS PROFIT CONTRIBUTION for a given month means the total
sales (including sales of clinical equipment) made by the Company's "Homecare
Sales Group" during that month less (A) the cost of goods sold by the Company's
"Homecare Sales Group" during that month, (B) the sales and marketing expenses
incurred by the Company's "Homecare Sales Group" during that month, and (C) the
distribution costs incurred by the Company's "Homecare Sales Group" during that
month.
NEXT MONTH'S EXCESS for a given month means the amount, if any, by
which the Homecare Gross Profit Contribution for the month IMMEDIATELY following
that month exceeds the Monthly Benchmark for the month IMMEDIATELY following
that month.
DEFICIENCY for a given month means the amount by which the Monthly
Benchmark for that month exceeds the Homecare Gross Profit Contribution for that
month.
(c) The Monthly Sales Commission shall be payable on or before the last
day of the month immediately following the month in which the Monthly Sales
Commission is earned.
4.3 ANNUAL BONUS. In addition to the Base Salary and the Monthly Sales
Commission, the Employee may be awarded, for each fiscal year until the Date of
Termination, an annual bonus
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(either pursuant to a bonus or incentive plan or program of the Company or
otherwise) in an amount to be determined by the Board of Directors in its sole
discretion payable at a time to be determined by the Board of Directors in its
sole discretion (the "Annual Bonus").
4.4 VACATION. Until the Date of Termination, the Employee shall be
entitled to two weeks paid vacation during each one-year period commencing on
the Effective Date (the "Vacation Time") and each anniversary thereof. Any
Vacation Time not taken during the applicable one-year period will be forfeited.
All unused Vacation Time accrued through the Date of Termination and not taken
or previously forfeited at the Date of Termination shall be paid to the Employee
in accordance with Article 6 hereof, with such payment being referred to
elsewhere herein as the "Vacation Pay."
4.5 INCENTIVE, SAVINGS AND RETIREMENT PLANS. Until the Date of
Termination, the Employee shall be eligible to participate in and shall receive
all benefits under all incentive, savings and retirement plans (including 401(k)
plans) and programs currently maintained or hereinafter established by the
Company for the benefit of its employees.
4.6 WELFARE BENEFIT PLAN. Until the Date of Termination, the Employee
and/or the Employee's family, as the case may be, shall be eligible to
participate in and shall receive all benefits under each welfare benefit plan of
the Company currently maintained or hereinafter established by the Company for
the benefit of its employees. Such welfare benefit plans may include, without
limitation, medical, dental, disability, group life, accidental death and travel
accident insurance plans and programs.
4.7 REIMBURSEMENT OF EXPENSES. The Employee may from time to time until
the Date of Termination incur various business expenses customarily incurred by
persons holding positions of like responsibility, including, without limitation,
travel, entertainment and similar expenses incurred for the benefit of the
Company. Subject to the Company's policy regarding the reimbursement of such
expenses as in effect from time to time during the Employment Period, which does
not necessarily allow reimbursement of all such expenses, the Company shall
reimburse the Employee for such expenses from time to time, at the Employee's
request, and the Employee shall account to the Company for all such expenses.
5. TERMINATION.
5.1 DEATH. This Agreement shall terminate automatically upon the death
of the Employee.
5.2 DISABILITY. The Company may terminate this Agreement, upon written
notice to the Employee delivered in accordance with Sections 5.6 and 12.1
hereof, upon the Disability of the Employee.
5.3 CAUSE. The Company may terminate this Agreement, upon written
notice to the Employee delivered in accordance with Sections 5.6 and 12.1
hereof, for Cause. For purposes of this Agreement, "Cause" means (i) the
conviction of the Employee of a felony (which, through
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lapse of time or otherwise, is not subject to appeal), (ii) the Employee's
refusal, without proper legal cause, to perform his duties and responsibilities
as contemplated in this Agreement or otherwise follow the direction of the Board
of Directors or (iii) the Employee's engaging in activities which would (A)
constitute a breach of any term of this Agreement, the Company's Code of Ethics,
or the Company's policies regarding trading in the Common Stock or reimbursement
of business expenses, or (B) result in a material injury to the business,
condition (financial or otherwise), results of operations or prospects of the
Company or its Affiliates (as determined in good faith by the Board of Directors
of the Company).
5.4 WITHOUT CAUSE. The Company may terminate this Agreement Without
Cause, upon written notice to the Employee delivered in accordance with Sections
5.6 and 12.1 hereof. For purposes of this Agreement, the Employee will be deemed
to have been terminated "Without Cause" if the Employee is terminated by the
Company for any reason other than Cause, Disability of the Employee or death of
the Employee.
5.5 GOOD REASON. The Employee may terminate this Agreement for Good
Reason, upon written notice to the Company delivered in accordance with Sections
5.6 and 12.1 hereof. For purposes of this Agreement, "Good Reason" means (i) the
assignment to the Employee of any duties inconsistent in any material respect
with the Employee's duties or responsibilities as contemplated in this
Agreement, (ii) any other action by the Company which results in a material
diminishment in the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities, (iii) any
material breach by the Company of any of the provisions of this Agreement, (iv)
requiring the Employee to relocate permanently to any office or location other
than Akron, Ohio and its surrounding metropolitan area without his consent or
(v) any reduction, or attempted reduction, at any time during the Employment
Period, of the Base Salary.
5.6 NOTICE OF TERMINATION. Any termination of this Agreement by the
Company for Cause, Without Cause or as a result of the Disability of the
Employee, or by the Employee for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Employee's employment under the
provision so indicated and (iii) specifies the termination date, if such date is
other than the date of receipt of such notice (which termination date shall not
be more than 15 days after the giving of such notice).
6. OBLIGATIONS OF COMPANY UPON TERMINATION.
6.1 CAUSE; OTHER THAN GOOD REASON. If this Agreement shall be
terminated (i) by the Company for Cause or (ii) by the Employee for any reason
other than Good Reason:
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(a) the Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the aggregate of the
following amounts:
(1) the Vacation Pay, if any, owed to the Employee;
(2) if not theretofore paid, the Base Salary through
the Date of Termination; and
(3) in the case of compensation previously deferred
by the Employee, all amounts of such compensation previously
deferred and not yet paid by the Company; and
(b) the Company shall, promptly upon submission by the
Employee of supporting documentation, pay or reimburse to the Employee
any costs and expenses paid or incurred by the Employee prior to the
Date of Termination which would have been payable under Section 4.7
hereof if the Employee's employment had not terminated.
All other obligations of the Company and rights of the Employee hereunder shall
terminate effective as of the Effective Date.
6.2 DEATH.Subject to the provisions of this Section 6.2, if this
Agreement is terminated as a result of the Employee's death, the Company shall
pay to the Employee or his estate, in a lump sum in cash within 30 days of the
Date of Termination, that portion of the Base Salary owing in respect of the
balance of the Employment Period. The Company may purchase insurance to cover
all or any part of the obligation contemplated in the foregoing sentence, and
the Employee agrees to submit to a physical examination to facilitate the
procurement of such insurance. If the physical examination reveals that the
Employee is uninsurable, such death benefit referred to in this Section 6.2
shall not be provided, and the Employee's estate shall be entitled to receive
only (i) those payments to which the Employee would have been entitled had this
Agreement been terminated pursuant to Section 6.1 hereof and (ii) those death
benefits to which it is entitled under the Company's benefit plans.
6.3 GOOD REASON; WITHOUT CAUSE; DISABILITY. If this Agreement shall be
terminated (i) by the Company as a result of the Disability of the Employee or
Without Cause or (ii) by the Employee for Good Reason:
(a) the Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the aggregate of the
following amounts:
(1) the Vacation Pay, if any, owed to the Employee;
(2) if not theretofore paid, the Base Salary through
the Date of Termination; and
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(3) in the case of compensation previously deferred
by the Employee, all amounts of such compensation previously
deferred and not yet paid by the Company;
(b) the Company shall, promptly upon submission by the
Employee of supporting documentation, pay or reimburse to the Employee
any costs and expenses paid or incurred by the Employee prior to the
Date of Termination which would have been payable under Section 4.7
hereof if the Employee's employment had not terminated;
(c) for the remainder of the Employment Period, the Company
shall continue benefits to the Employee and/or the Employee's family at
least equal to those which would have been provided to them under
Section 4.6 hereof if the Employee's employment had not been
terminated; and
(d) the Company shall pay to the Employee, in equal
semi-monthly installments, the Base Salary for the remainder of the
Employment Period.
Whenever compensation is payable to the Employee hereunder during a period in
which he is partially or totally disabled, and such Disability would (except for
the provisions hereof) entitle the Employee to Disability income or salary
continuation payments from the Company according to the terms of any plan or
program presently maintained or hereafter established by the Company, the
Disability income or salary continuation paid to the Employee pursuant to any
such plan or program shall be considered a portion of the payment to be made to
the Employee pursuant to this Section 6.3 and shall not be in addition hereto.
If Disability income is payable directly to the Employee by an insurance company
under the terms of an insurance policy paid for by the Company, the amounts paid
to the Employee by such insurance company shall be considered a portion of the
payment to be made to the Employee pursuant to this Section 6.3 and shall not be
in addition hereto.
7. EMPLOYEE'S OBLIGATION TO AVOID CONFLICTS OF INTEREST.
7.1 Consistent with the Employee's fiduciary duties to the Company, the
Employee agrees that he shall not knowingly become involved in a conflict of
interest with the Company, or upon discovery thereof, allow such a conflict to
continue. The Employee further agrees to disclose to the Company, promptly after
discovery, any facts or circumstances which might involve a conflict of interest
with the Company.
7.2 The Company and the Employee recognize that it is impossible to
provide an exhaustive list of actions or interests which constitute a "conflict
of interest." Moreover, the Company and the Employee recognize that there are
many borderline situations. In some instances, full disclosure of facts by the
Employee to the Company is all that is necessary to enable the Company to
protect its interests. In others, if no improper motivation appears to exist and
the Company's interests have not suffered, prompt elimination of the outside
interest will
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suffice. In still others, it may be necessary for the Company to terminate the
employment relationship. The Company and the Employee agree that the Company's
determination as to whether or not a conflict of interest exists shall be
conclusive. The Company reserves the right to take such action as, in its
judgment, will end the conflict of interest.
7.3 In this connection, it is agreed that any direct or indirect
interest in, connection with or benefit from any outside activities,
particularly commercial activities, which interest might in any way adversely
affect the Company or its Affiliates, involves a possible conflict of interest.
Circumstances in which a conflict of interest on the part of the Employee would
or might arise, and which should be reported immediately to the Company,
include, but are not limited to, the following:
(a) Ownership of a material interest in any lender, supplier,
contractor, subcontractor, customer or other entity with which the
Company does business.
(b) Acting in any capacity, including director, officer,
partner, consultant, employee, distributor, agent or the like, for any
lender, supplier, contractor, subcontractor, customer or other entity
with which the Company does business.
(c) Acceptance, directly or indirectly, of payments, services
or loans from a lender, supplier, contractor, subcontractor, customer
or other entity with which the Company does business, including,
without limitation, gifts, trips, entertainment or other favors of more
than a nominal value, but excluding loans from publicly held insurance
companies and commercial or savings banks at market rates of interest.
(d) Use of information or facilities to which the Employee has
access in a manner which will be detrimental to the Company's
interests, such as use for the Employee's own benefit of know-how or
information developed through the Company's business activities.
(e) Disclosure or other misuse of information of any kind
obtained through the Employee's connection with the Company.
(f) Acquiring or trading in, directly or indirectly, other
properties or interests connected with the design or marketing of
products or services designed or marketed by the Company.
8. EMPLOYEE'S CONFIDENTIALITY OBLIGATION.
8.1 The Employee hereby acknowledges, understands and agrees that all
Confidential Information is the exclusive and confidential property of the
Company and its Affiliates which shall at all times be regarded, treated and
protected as such in accordance with this Section 8. The Employee acknowledges
that all such Confidential Information is in the nature of a trade secret.
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8.2 For purposes of this Agreement, "Confidential Information" means
information which is used in the business of the Company or its Affiliates and
(i) is proprietary to, about or created by the Company or its Affiliates, (ii)
gives the Company or its Affiliates some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company or its Affiliates, (iii) is
designated as Confidential Information by the Company or its Affiliates, is
known by the Employee to be considered confidential by the Company or its
Affiliates, or from all the relevant circumstances should reasonably be assumed
by the Employee to be confidential and proprietary to the Company or its
Affiliates, or (iv) is not generally known by non-Company personnel. Such
Confidential Information includes, without limitation, the following types of
information and other information of a similar nature (whether or not reduced to
writing or designated as confidential):
(a) Internal personnel and financial information of the
Company or its Affiliates, vendor information (including vendor
characteristics, services, prices, lists and agreements), purchasing
and internal cost information, internal service and operational
manuals, and the manner and methods of conducting the business of the
Company or its Affiliates;
(b) Marketing and development plans, price and cost data,
price and fee amounts, pricing and billing policies, quoting
procedures, marketing techniques, forecasts and forecast assumptions
and volumes, and future plans and potential strategies (including,
without limitation, all information relating to any acquisition
prospect and the identity of any key contact within the organization of
any acquisition prospect) of the Company or its Affiliates which have
been or are being discussed;
(c) Names of customers and their representatives, contracts
(including their contents and parties), customer services, and the
type, quantity, specifications and content of products and services
purchased, leased, licensed or received by customers of the Company or
its Affiliates; and
(d) Confidential and proprietary information provided to the
Company or its Affiliates by any actual or potential customer,
government agency or other third party (including businesses,
consultants and other entities and individuals).
8.3 As a consequence of the Employee's acquisition or anticipated
acquisition of Confidential Information, the Employee shall occupy a position of
trust and confidence with respect to the affairs and business of the Company and
its Affiliates. In view of the foregoing and of the consideration to be provided
to the Employee, the Employee agrees that it is reasonable and necessary that
the Employee make each of the following covenants:
(a) Until the Date of Termination and at all times thereafter,
the Employee shall not disclose Confidential Information to any person
or entity, either inside or outside of the Company, other than as
necessary in carrying out his duties and responsibilities as set
10
<PAGE>
forth in Section 2 hereof, without first obtaining the Company's prior
written consent (unless such disclosure is compelled pursuant to court
orders or subpoena, and at which time the Employee shall give notice of
such proceedings to the Company).
(b) Until the Date of Termination and at all times thereafter,
the Employee shall not use, copy or transfer Confidential Information
other than as necessary in carrying out his duties and responsibilities
as set forth in Section 2 hereof, without first obtaining the Company's
prior written consent.
(c) On the Date of Termination, the Employee shall promptly
deliver to the Company (or its designee) all written materials, records
and documents made by the Employee or which came into his possession on
or before the Date of Termination (even if prior to the date hereof)
concerning the business or affairs of the Company or its Affiliates,
including, without limitation, all materials containing Confidential
Information.
9. DISCLOSURE OF INFORMATION, IDEAS, CONCEPTS, IMPROVEMENTS, DISCOVERIES
AND INVENTIONS.
As part of the Employee's fiduciary duties to the Company, the Employee
agrees that during his employment by the Company and for a period of three years
following the Date of Termination, the Employee shall promptly disclose in
writing to the Company all information, ideas, concepts, improvements,
discoveries and inventions, whether patentable or not, and whether or not
reduced to practice, which are conceived, developed, made or acquired by the
Employee, either individually or jointly with others, and which relate to the
business, products or services of the Company or its Affiliates, irrespective of
whether the Employee used the Company's time or facilities and irrespective of
whether such information, idea, concept, improvement, discovery or invention was
conceived, developed, discovered or acquired by the Employee on the job, at
home, or elsewhere. This obligation extends to all types of information, ideas
and concepts, including information, ideas and concepts relating to new types of
services, corporate opportunities, acquisition prospects, the identity of key
representatives within acquisition prospect organizations, prospective names or
service marks for the Company's business activities, and the like.
10. OWNERSHIP OF INFORMATION, IDEAS, CONCEPTS, IMPROVEMENTS, DISCOVERIES
AND INVENTIONS, AND ALL ORIGINAL WORKS OF AUTHORSHIP.
10.1 All information, ideas, concepts, improvements, discoveries and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by the Employee or which are disclosed or made known to the Employee,
individually or in conjunction with others, during the Employee's employment by
the Company and which relate to the business, products or services of the
Company or its Affiliates (including, without limitation, all such information
relating to corporate opportunities, research, financial and sales data, pricing
and trading terms, evaluations, opinions, interpretations, acquisition
prospects, the identity of customers or their requirements, the identity of key
contacts within the customers' organizations or within the
11
<PAGE>
organization of acquisition prospects, marketing and merchandising techniques,
and prospective names and service marks) are and shall be the sole and exclusive
property of the Company. Furthermore, all drawings, memoranda, notes, records,
files, correspondence, manuals, models, specifications, computer programs, maps
and all other writings or materials of any type embodying any of such
information, ideas, concepts, improvements, discoveries and inventions are and
shall be the sole and exclusive property of the Company.
10.2 In particular, the Employee hereby specifically sells, assigns,
transfers and conveys to the Company all of his worldwide right, title and
interest in and to all such information, ideas, concepts, improvements,
discoveries or inventions, and any United States or foreign applications for
patents, inventor's certificates or other industrial rights which may be filed
in respect thereof, including divisions, continuations, continuations-in-part,
reissues and/or extensions thereof, and applications for registration of such
names and service marks. The Employee shall assist the Company and its nominee
at all times, until the Date of Termination and at all times thereafter, in the
protection of such information, ideas, concepts, improvements, discoveries or
inventions, both in the United States and all foreign countries, which
assistance shall include, but shall not be limited to, the execution of all
lawful oaths and all assignment documents requested by the Company or its
nominee in connection with the preparation, prosecution, issuance or enforcement
of any applications for United States or foreign letters patent, including
divisions, continuations, continuations-in-part, reissues and/or extensions
thereof, and any application for the registration of such names and service
marks.
10.3 In the event the Employee creates, during the Employee's
employment by the Company, any original work of authorship fixed in any tangible
medium of expression which is the subject matter of copyright (such as,
videotapes, written presentations on acquisitions, computer programs, drawings,
maps, architectural renditions, models, manuals, brochures or the like) relating
to the Company's business, products or services, whether such work is created
solely by the Employee or jointly with others, the Company shall be deemed the
author of such work if the work is prepared by the Employee within the scope of
his employment; or, if the work is not prepared by the Employee within the scope
of his employment but is specially ordered by the Company as a contribution to a
collective work, as a part of a motion picture or other audiovisual work, as a
translation, as a supplementary work, as a compilation or as an instructional
text, then the work shall be considered to be a work made for hire, and the
Company shall be the author of such work. If such work is neither prepared by
the Employee within the scope of his employment nor a work specially ordered and
deemed to be a work made for hire, then the Employee hereby agrees to sell,
transfer, assign and convey, and by these presents, does sell, transfer, assign
and convey, to the Company all of the Employee's worldwide right, title and
interest in and to such work and all rights of copyright therein. The Employee
agrees to assist the Company and its Affiliates, at all times, until the Date of
Termination and at all times thereafter, in the protection of the Company's
worldwide right, title and interest in and to such work and all rights of
copyright therein, which assistance shall include, but shall not be limited to,
the execution of all documents requested by the Company or its nominee and the
execution of all lawful oaths and applications for registration of copyright in
the United States and foreign countries.
12
<PAGE>
11. EMPLOYEE'S NON-COMPETITION OBLIGATION.
11.1 (a) Until the Date of Termination, the Employee shall not, acting
alone or in conjunction with others, directly or indirectly, in any of the
business territories in which the Company or any of its Affiliates is presently
or from time to time conducting business, invest or engage, directly or
indirectly, in any business which is competitive with that of the Company or
accept employment with or render services to such a competitor as a director,
officer, agent, employee or consultant, or take any action inconsistent with the
fiduciary relationship of an employee to his employer; provided, however, that
the beneficial ownership by the Employee of up to three percent of the Voting
Stock of any corporation subject to the periodic reporting requirements of the
Exchange Act shall not violate this Section 11.1(a).
(b) In addition to the other obligations agreed to by the
Employee in this Agreement, the Employee agrees that until the Date of
Termination, he shall not at any time, directly or indirectly, (i) induce,
entice or solicit any employee of the Company to leave his employment, (ii)
contact, communicate or solicit any customer or acquisition prospect of the
Company derived from any customer list, customer lead, mail, printed matter or
other information secured from the Company or its present or past employees or
(iii) in any other manner use any customer lists or customer leads, mail,
telephone numbers, printed material or other information of the Company relating
thereto.
11.2 (a) If this Agreement is terminated by the Employee for any reason
or by the Company for Cause or Disability of the Employee, then for the
remainder of the Employment Period, the Employee shall not, acting alone or in
conjunction with others, directly or indirectly, in any of the business
territories in which the Company or any of its Affiliates is presently or at the
Date of Termination conducting business, invest or engage, directly or
indirectly, in any business which is competitive with that of the Company as of
the Date of Termination or accept employment with or render services to such a
competitor as a director, officer, agent, employee or consultant, or take any
action inconsistent with the fiduciary relationship of an employee to his
employer; provided, however, that the beneficial ownership by the Employee of up
to three percent of the Voting Stock of any corporation subject to the periodic
reporting requirements of the Exchange Act shall not violate this Section
11.2(a).
(b) In addition to the other obligations agreed to by the
Employee in this Agreement, the Employee agrees that if this Agreement is
terminated by the Employee for any reason or by the Company for Cause or
Disability of the Employee, then for the remainder of the Employment Period, he
shall not at any time, directly or indirectly, (i) induce, entice or solicit any
employee of the Company to leave his employment, (ii) contact, communicate or
solicit any customer or acquisition prospect of the Company derived from any
customer list, customer lead, mail, printed matter or other information secured
from the Company or its present or past employees or (iii) in any other manner
use any customer lists or customer leads, mail, telephone numbers, printed
material or other information of the Company relating thereto.
13
<PAGE>
11.3 If this Agreement is terminated by the Company Without Cause, then
the Employee shall not be subject to any non-competition obligations hereunder.
11.4 The parties hereto acknowledge and agree that (i) the agreements
and covenants set forth in this Section 11 are being made for good and valuable
consideration, the receipt and sufficiency of which is acknowledged; (ii) the
covenants contained in this Section 11 are an important aspect of this
Agreement, and the Company would not have entered into this Agreement absent the
inclusion of this Section 11; and (iii) the restrictions imposed in this Section
11, including the geographic area and duration of the covenants made herein, are
reasonable and necessary to protect the Company. If the Employee breaches or
indicates an intention to breach any term or provision of this Section 11, the
parties hereto agree that the Company shall be entitled to the right of both
temporary and permanent injunctive relief and/or specific performance. The right
of the Company to such relief shall not be construed to prevent the Company from
pursuing, either consecutively or concurrently, any and all other legal or
equitable remedies available to it for such breach or threatened breach,
specifically including, without limitation, the recovery of monetary damages. If
any court determines that any provision of this Section 11, or any part thereof,
is unenforceable because of the duration or geographic scope of such provision,
the parties hereto agree that such court shall have the power to reduce the
duration or geographic scope of such provision, as the case may be, and the
parties hereto agree to request the court to exercise such power, and, in its
amended form, such provision shall then be enforceable and shall be enforced.
12. MISCELLANEOUS.
12.1 NOTICES. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall be
in writing and shall be deemed to have been given when delivered by hand or
mailed by registered or certified mail, return receipt requested, as follows
(provided that notice of change of address shall be deemed given only when
received):
If to the Company to:
Lasermedics, Inc.
120 Industrial Boulevard
Sugar Land, Texas 77478
If to the Employee to:
Michael J. Houska
8220 Wilhite Drive
Wadsworth, Ohio 44281
or to such other names or addresses as the Company or the Employee, as the case
may be, shall designate by notice to the other party hereto in the manner
specified in this Section 12.1.
14
<PAGE>
12.2 WAIVER OF BREACH. The waiver by any party hereto of a breach of
any provision of this Agreement shall neither operate nor be construed as a
waiver of any subsequent breach by any party.
12.3 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors, legal representatives and assigns, and
upon the Employee, his heirs, executors, administrators, representatives and
assigns; provided, however, the Employee agrees that his rights and obligations
hereunder are personal to him and may not be assigned without the express
written consent of the Company.
12.4 ENTIRE AGREEMENT; NO ORAL AMENDMENTS. This Agreement, together
with any exhibit attached hereto and any document, policy, rule or regulation
referred to herein, replaces and merges all previous agreements and discussions
relating to the same or similar subject matter between the Employee and the
Company and constitutes the entire agreement between the Employee and the
Company with respect to the subject matter of this Agreement. This Agreement may
not be modified in any respect by any verbal statement, representation or
agreement made by any employee, officer, or representative of the Company or by
any written agreement unless signed by an officer of the Company who is
expressly authorized by the Company to execute such document.
12.5 ENFORCEABILITY. If any provision of this Agreement or application
thereof to anyone or under any circumstances shall be determined to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application.
12.6 JURISDICTION; ARBITRATION. The laws of the State of Texas shall
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof. Any controversy
or claim arising out of or relating to this Agreement, or the breach thereof,
shall be settled by arbitration located in Houston, Texas administered by the
American Arbitration Association in accordance with its applicable arbitration
rules, and the judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof, which judgment shall be
binding upon the parties hereto.
12.7 INJUNCTIVE RELIEF. The Company and the Employee agree that a
breach of any term of this Agreement by the Employee would cause irreparable
damage to the Company and that, in the event of such breach, the Company shall
have, in addition to any and all remedies of law, the right to any injunction,
specific performance and other equitable relief to prevent or to redress the
violation of the Employee's duties or responsibilities hereunder.
15
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Agreement as of the date first written above.
LASERMEDICS, INC.
By: /S/ MICHAEL M. BARBOUR
President and Chief Executive Officer
EMPLOYEE:
/S/ MICHAEL J. HOUSKA
Michael J. Houska
16
<PAGE>
SCHEDULE 4.2(B)
MONTH MONTHLY BENCHMARK
- ----- -----------------
OCTOBER 1996 $120,000
NOVEMBER 1996 $120,000
DECEMBER 1996 $120,000
JANUARY 1997 $120,000
FEBRUARY 1997 $120,000
MARCH 1997 $130,000
APRIL 1997 $130,000
MAY 1997 $130,000
JUNE 1997 $130,000
JULY 1997 $130,000
AUGUST 1997 $130,000
SEPTEMBER 1997 $135,000
OCTOBER 1997 $135,000
NOVEMBER 1997 $135,000
DECEMBER 1997 $130,000
JANUARY 1998 $135,000
FEBRUARY 1998 $130,000
MARCH 1998 $140,000
APRIL 1998 $140,000
MAY 1998 $140,000
JUNE 1998 $150,000
JULY 1998 $150,000
AUGUST 1998 $150,000
SEPTEMBER 1998 $160,000
17
EXHIBIT 10.8
PLAN AND AGREEMENT OF MERGER
BETWEEN
LASERMEDICS, INC.,
LASERMEDICS ACQUISTION NO. 1, INC.,
HEALTH CAREER LEARNING SYSTEMS, INC.
AND ITS
SHAREHOLDERS
DATED AS OF NOVEMBER 27, 1996
<PAGE>
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement") is entered into as
of November 27, 1996 by and among Lasermedics, Inc., a Texas corporation
("Lasermedics"), Lasermedics Acquisition No. 1, Inc., a Michigan corporation and
a wholly-owned subsidiary of Lasermedics ("Acquisition Sub"), Health Career
Learning Systems, Inc., a Michigan corporation ("HCLS" or the "Surviving
Corporation"), Donna M. Konopka ("Donna"), Michael Konopka ("Michael") and
Karson L. Carpenter ("Karson"). Donna, Michael and Karson are referred to
individually herein as a "Shareholder" and collectively herein as the
"Shareholders." Acquistion Sub and HCLS are sometimes referred to collectively
herein as the "Merging Corporations."
WITNESSETH :
WHEREAS, Lasermedics is a corporation duly organized and validly
existing under the laws of the State of Texas, with its principal executive
offices at 120 Industrial Boulevard, Sugar Land, Texas 77478; and
WHEREAS, Acquistion Sub is a corporation duly organized and validly
existing under the laws of the State of Michigan, with its principal executive
offices at 120 Industrial Boulevard, Sugar Land, Texas 77478; and
WHEREAS, HCLS is a corporation duly organized and validly existing
under the laws of the State of Michigan, with its principal executive offices at
45150 Polaris Court, Suite B, Plymouth, Michigan 48170; and
WHEREAS, Lasermedics owns 1,000 shares of common stock, par value $.01
per share, of Acquistion Sub ("Acquisition Sub Common Stock"), which constitute
all of the issued and outstanding shares of capital stock of Acquistion Sub; and
WHEREAS, the Shareholders own 12,000 shares of common stock, par value
$1.00 per share, of HCLS ("HCLS Common Stock"), which constitute all of the
issued and outstanding shares of capital stock of HCLS; and
WHEREAS, (i) the board of directors of Lasermedics, (ii) Lasermedics
(in its capacity as Acquistion Sub's sole shareholder) and the board of
directors of Acquistion Sub and (iii) the Shareholders (in their capacity as all
of the shareholders of HCLS) and the board of directors of HCLS desire to merge
Acquistion Sub with and into HCLS in accordance with the provisions of Section
450.1701 ET SEQ. of the Michigan Business Corporation Act (the "MBCA") pursuant
to the terms and provisions of this Agreement, and have approved such merger
(the "Merger") and the other terms and provisions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and to prescribe the terms and
conditions of the Merger contemplated hereby, the mode of carrying the same into
effect, the manner and basis of converting the presently outstanding shares of
HCLS Common Stock into the right to receive the Merger Consideration
<PAGE>
described in Section 1.10.1 hereof, and such other details and provisions as are
deemed necessary or proper, the parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. SURVIVING CORPORATION. Acquistion Sub and HCLS shall be, upon the
Effective Date, merged into a single surviving corporation, which shall be HCLS,
which shall continue its corporate existence and remain a corporation governed
by and subject to the laws of the State of Michigan.
1.2. EFFECTIVE DATE. The Merger shall become effective upon the filing
of the Certificate of Merger with the Secretary of State of Michigan following
its execution in accordance with Section 450.1707 of the MBCA. This filing shall
be made concurrently on the date hereof or as soon as practicable thereafter.
With the date on which such filings are made being referred to elsewhere herein
as the "Effective Date."
1.3. NAME AND CONTINUED CORPORATE EXISTENCE OF THE SURVIVING
CORPORATION. On the Effective Date, the identity, existence, purposes, powers,
objects, franchises, rights, and immunities of HCLS, the surviving corporation
of the Merger, shall continue unaffected and unimpaired by the Merger, and the
corporate identity, existence, purposes, powers, objects, franchises, rights,
and immunities of Acquisition Sub shall be wholly merged into HCLS, the
surviving corporation, and HCLS shall be fully vested therewith. Accordingly, on
the Effective Date, the separate existence of Acquistion Sub, except insofar as
continued by statute, shall cease.
1.4. GOVERNING LAW AND ARTICLES OF INCORPORATION OF THE SURVIVING
CORPORATION. The laws of Michigan shall continue to govern the Surviving
Corporation. On the Effective Date, the Articles of Incorporation of HCLS shall
be the Articles of Incorporation of the Surviving Corporation until thereafter
amended in the manner provided by law.
1.5. BYLAWS OF THE SURVIVING CORPORATION. On the Effective Date, the
Bylaws of HCLS shall be the Bylaws of the Surviving Corporation until altered,
amended, or repealed, or until new bylaws shall be adopted in accordance with
the provisions of law, the Articles of Incorporation of HCLS, and the Bylaws of
HCLS.
1.6. DIRECTORS OF THE SURVIVING CORPORATION. On the Effective Date,
pursuant to Section 1-B of the Bylaws of HCLS, the number of directors
constituting the entire board of directors shall be fixed at 2. The names of the
persons who, on the Effective Date, shall become the members of the board of
directors of the Surviving Corporation, and who shall hold office until the
first annual meeting of shareholders of the Surviving Corporation next following
the Effective Date, are as follows:
NAME
-----------------------
Michael M. Barbour
-2-
<PAGE>
Dan D. Sudduth
1.7. OFFICERS OF THE SURVIVING CORPORATION.The names of the persons
who, on the Effective Date, shall constitute the officers of the Surviving
Corporation, and who shall hold office, subject to the Bylaws of the Surviving
Corporation, until the first meeting of directors following the next annual
meeting of shareholders thereof, are as follows:
NAME OFFICE
---------------------------- -----------------------------
Michael M. Barbour........................... President and Chief
Executive Officer
Chike Ogboenyiya............................. Secretary and Chief
Financial Officer
Dan D. Sudduth............................... Assistant Secretary
1.8. VACANCIES. If on or after the Effective Date, a vacancy shall for
any reason exist in the board of directors or in any of the offices of the
Surviving Corporation, such vacancy shall be filled in the manner provided in
the Articles of Incorporation and Bylaws of the Surviving Corporation.
1.9. CAPITAL STOCK OF THE SURVIVING CORPORATION. The authorized number
of shares of capital stock of the Surviving Corporation, and the par value,
designations, preferences, rights, and limitations thereof, and the express
terms thereof, shall be as set forth in the Articles of Incorporation of the
Surviving Corporation.
1.10. CONVERSION OF SECURITIES UPON MERGER.
1.10.1. CONVERSION OF HCLS COMMON STOCK. On the Effective
Date, the 12,000 shares of HCLS Common Stock issued and outstanding, on
the date hereof, all of which are held by the Shareholders (the "HCLS
Shares"), without any action on the part of the Shareholders, shall
automatically become and be converted into the right to receive the
following consideration from Lasermedics (collectively, the "Merger
Consideration"): (i) 82,107 shares of common stock, par value $.01 per
share, of Lasermedics ("Lasermedics Common Stock") to be issued to the
Shareholders on the Effective Date in accordance with the written
instructions executed by each of the Shareholders and delivered to
Lasermedics (the "Lasermedics Shares"); (ii) $100,000 to be paid to the
Shareholders on the Effective Date; and (iii) the Additional Shares (as
defined in Section 1.10.4 hereof), if any, to be issued to the
Shareholders in accordance with Section 1.10.4 hereof.
1.10.2. SURRENDER OF HCLS CERTIFICATES. The Shareholders have
surrendered (and Lasermedics acknowledges its receipt of) all the
certificates representing the HCLS Shares (the "HCLS Certificates"). On
the Effective Date, Lasermedics will cancel the HCLS Certificates, and
the Shareholders will become entitled to receive the Merger
Consideration.
-3-
<PAGE>
1.10.3. CONVERSION OF ACQUISTION SUB COMMON STOCK. On the
Effective Date, each share of Acquistion Sub Common Stock then issued
and outstanding, without any action on the part of Lasermedics, shall
automatically become and be converted into the right to receive one
fully paid and nonassessable share of the issued and outstanding HCLS
Common Stock from HCLS upon surrender and cancellation of the
certificate theretofore evidencing shares of Acquisition Sub Common
Stock.
1.10.4. STOCK ADJUSTMENT. If the Market Price on the
Anniversary Date (defined below) is less than $6.0896, then Lasermedics
shall, within on or before December 1, 1997, cause to be issued in the
name of and delivered to the Shareholders, as requested in writing,
that number of Lasermedics Shares (the "Additional Shares") equal to
the difference between (i) the number of Lasermedics Shares determined
by dividing $500,000 by the Market Price of the Lasermedics Common
Stock on the Anniversary Date and (ii) the number of Lasermedics Shares
issued on the Effective Date. The term "Market Price on the Anniversary
Date" means, the average of the closing per share price of Lasermedics
Common Stock on each of the 30 trading days immediately preceding the
one-year anniversary of the Effective Date (the "Anniversary Date") as
reported on (i) the principal securities exchange on which the
Lasermedics Common Stock is listed or admitted to trading, or (ii) if
not so listed or admitted to trading on any securities exchange, the
Nasdaq National Market or the Nasdaq SmallCap Market System, as
applicable, or (iii) if not listed on such system, on the
over-the-counter market by any NASD member firm selected by
Lasermedics; PROVIDED, HOWEVER, that the Market Price on the
Anniversary Date shall not be less than $4.50 or more than $7.50.
1.11. ACQUISITION SUB'S TRANSFER BOOKS CLOSED. Upon the Effective Date,
the stock transfer books of Acquisition Sub shall be deemed closed, and no
transfer of any shares of capital stock of Acquisition Sub shall thereafter be
made or consummated.
1.12. ASSETS AND LIABILITIES OF MERGING CORPORATIONS BECOME THOSE OF
THE SURVIVING CORPORATION. On the Effective Date, all rights, privileges,
powers, and franchises of each of the Merging Corporations, and all property,
real, personal, and mixed, and all debts due on whatever account, as well as
stock subscriptions and all other things in action of or belonging to any of the
Merging Corporations, shall be taken by and deemed to be transferred to and
shall be vested in the Surviving Corporation without further act or deed, and
all such rights, privileges, powers, and franchises, property, debts, or things
in action, and all and every other interest of each of the Merging Corporations
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the respective Merging Corporations, and the title to any real
property, whether vested by deed or otherwise, in either of the Merging
Corporations, shall not revert or be in any way impaired by reason of the
Merger; PROVIDED HOWEVER, that all rights of creditors and all liens upon any
properties of each of the Merging Corporations shall be preserved unimpaired,
and all debts, liabilities and duties of the Merging Corporations shall
thenceforth attach to the Surviving Corporation and may be enforced against and
by it to the same extent as if such debts, liabilities and duties had been
incurred or contracted by it. Any action or proceeding pending by or against
either of the Merging
-4-
<PAGE>
Corporations may be prosecuted to judgment as if the Merger had not taken place,
or the Surviving Corporation may be substituted in place of either of the
Merging Corporations.
1.13. CONVEYANCES TO THE SURVIVING CORPORATION. The Merging
Corporations hereby agree, respectively, that from time to time, as and when
requested by the Surviving Corporation, or by its successors and assigns, they
will execute and deliver or cause to be executed and delivered, all such deeds,
conveyances, assignments, and other instruments, and will take or cause to be
taken such further or other action as the Surviving Corporation, its successors
or assigns, may deem necessary or desirable to vest or perfect in or confirm to
the Surviving Corporation, its successors and assigns, title to and possession
of all the property, rights, privileges, powers, immunities, franchises, and
interests referred to in this Section 1.13 and otherwise carry out the intent
and purposes of this Agreement.
1.14. ACCOUNTING TREATMENT. The assets and liabilities of the Merging
Corporations shall be taken up on the books of the Surviving Corporation in
accordance with generally accepted accounting principles, and the capital
surplus and retained earnings accounts of the Surviving Corporation shall be
determined, in accordance with generally accepted accounting principles, by the
board of directors of the Surviving Corporation. Nothing herein shall prevent
the board of directors of the Surviving Corporation from making any future
changes in its accounts in accordance with law.
1.15. FEDERAL INCOME TAX TREATMENT. The Merger is intended to qualify
as a reverse triangular merger transaction described in ss. 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDERS
2.1. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each of the
Shareholders jointly and severally represents and warrants to Lasermedics as
follows:
2.1.1. ORGANIZATION AND STANDING. HCLS is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Michigan, has full requisite corporate power and authority to
carry on its business as it is currently conducted, and to own and
operate the properties currently owned and operated by it, and is duly
qualified or licensed to do business and is in good standing as a
foreign corporation authorized to do business in all jurisdictions in
which the character of the properties owned or the nature of the
business conducted by it would make such qualification or licensing
necessary, except where the failure to be so qualified or licensed
would not have a material adverse effect on its financial condition,
properties or business.
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2.1.2. AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER
OBLIGATIONS. The execution and delivery of this Agreement has been
authorized by the board of directors and all of the holders of capital
stock of HCLS, the consummation of the transactions contemplated hereby
has been duly and validly authorized by all necessary corporate action
on the part of HCLS, and this Agreement is a valid and binding
obligation of HCLS and each of the Shareholders enforceable against
HCLS and each of the Shareholders (subject to normal equitable
principles) in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting the rights of creditors generally. The
execution, delivery and performance of this Agreement and the
consummation of the Merger contemplated by this Agreement will not
conflict with or result in a violation or breach of any term or
provision of, nor constitute a default under (i) the Certificate of
Incorporation or Bylaws of HCLS or (ii) any obligation, indenture,
mortgage, deed of trust, lease, contract or other agreement to which
HCLS or any of the Shareholders is a party or by which HCLS or any of
the Shareholders or their respective properties are bound.
2.1.3. CAPITALIZATION. The authorized capitalization of HCLS
consists of 50,000 shares of HCLS Common Stock, of which, as of the
date hereof, 12,000 shares were issued and outstanding and held
beneficially and of record by the Shareholders. On the date hereof,
HCLS does not have any outstanding options, warrants, calls or
commitments of any character relating to any of its authorized but
unissued shares of capital stock. All issued and outstanding shares of
HCLS Common Stock are validly issued, fully paid and non-assessable and
are not subject to preemptive rights. None of the outstanding shares of
HCLS Common Stock is subject to any voting trust, voting agreement or
other agreement or understanding with respect to the voting thereof,
nor is any proxy in existence with respect thereto.
2.1.4. OWNERSHIP OF HCLS SHARES. The Shareholders hold good
and valid title to all of the HCLS Shares, free and clear of all
Encumbrances (as defined in Section 2.1.8.1 hereof). There are no
claims pending or, to the knowledge of any of the Shareholders,
threatened, against HCLS or any of the Shareholders that concern or
affect title to the HCLS Shares, or that seek to compel the issuance of
capital stock or other securities of HCLS.
2.1.5. NO SUBSIDIARIES. There is no corporation, partnership,
joint venture, business trust or other legal entity in which HCLS,
either directly or indirectly through one or more intermediaries, owns
or holds beneficial or record ownership of at least a majority of the
outstanding voting securities.
2.1.6. FINANCIAL STATEMENTS. HCLS has delivered to Lasermedics
and Acquistion Sub copies of HCLS's unaudited balance sheet (the "6/30
Balance Sheet") and related statements of income (collectively, the
"6/30 Financial Statements"), as at and for the six months ended June
30, 1996 (the "Balance Sheet Date"). The 6/30 Financial Statements are
complete in all material respects. The 6/30 Financial Statements
present fairly the financial condition of HCLS as at the dates and for
the periods indicated. The 6/30 Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on
a consistent basis. The accounts receivable reflected in the 6/30
Balance Sheet,
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or which have been thereafter acquired by HCLS, have been collected or
are collectible at the aggregate recorded amounts thereof less
applicable reserves, which reserves are adequate. The inventories of
HCLS reflected in the 6/30 Balance Sheet, or which have thereafter been
acquired by it, consist of items of a quality usable and salable in the
normal course of HCLS's business, and the values at which inventories
are carried are at the lower of cost or market.
2.1.7. LIABILITIES. Except as disclosed on SCHEDULE 2.1.7
hereto, HCLS does not have any liabilities or obligations, either
accrued, absolute or contingent, nor does any of the Shareholders have
any knowledge of any potential liabilities or obligations, which would
materially adversely affect the value and conduct of the business of
HCLS, other than those (i) reflected or reserved against in the 6/30
Balance Sheet or (ii) incurred in the ordinary course of business since
the Balance Sheet Date.
2.1.8. ADDITIONAL HCLS INFORMATION. Attached as SCHEDULE 2.1.8
hereto are true, complete and correct lists of the following items:
2.1.8.1. REAL ESTATE. All real property and
structures thereon owned, leased or subject to a contract of
purchase and sale, or lease commitment, by HCLS, with a
description of the nature and amount of any Encumbrances
(defined below) thereon. The term "Encumbrances" means all
liens, security interests, pledges, mortgages, deed of trust,
claims, rights of first refusal, options, charges,
restrictions or conditions to transfer or assignment,
liabilities, obligations, privileges, equities, easements,
rights-of-way, limitations, reservations, restrictions and
other encumbrances of any kind or nature;
2.1.8.2. MACHINERY AND EQUIPMENT. All machinery,
transportation equipment, tools, equipment, furnishings, and
fixtures owned, leased or subject to a contract of purchase
and sale, or lease commitment, by HCLS with a description of
the nature and amount of any Encumbrances thereon;
2.1.8.3. INVENTORY. All inventory items or groups of
inventory items owned by HCLS, excluding raw materials and
work in process, which raw materials and work in process are
valued on the 6/30 Balance Sheet, together with the amount of
any Encumbrances thereon;
2.1.8.4. RECEIVABLES. All accounts and notes
receivable of HCLS, together with (i) aging schedules by
invoice date and due date, (ii) the amounts provided for as an
allowance for bad debts, (iii) the identity and location of
any asset in which HCLS holds a security interest to secure
payment of the underlying indebtedness, and (iv) a description
of the nature and amount of any Encumbrances on such accounts
and notes receivable;
2.1.8.5. PAYABLES. All accounts and notes payable of
HCLS, together with an appropriate aging schedule;
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2.1.8.6. INSURANCE. All insurance policies or bonds
currently maintained by HCLS, including title insurance
policies, with respect to HCLS, including those covering
HCLS's properties, rigs, machinery, equipment, fixtures,
employees and operations, as well as a listing of any
premiums, audit adjustments or retroactive adjustments due or
pending on such policies or any predecessor policies;
2.1.8.7. CONTRACTS. All contracts, including leases
under which HCLS is lessor or lessee, which are to be
performed in whole or in part after the date hereof;
2.1.8.8. EMPLOYEE COMPENSATION PLANS. All bonus,
incentive compensation, deferred compensation, profit-sharing,
retirement, pension, welfare, group insurance, death benefit,
or other fringe benefit plans, arrangements or trust
agreements of HCLS, together with copies of the most recent
reports with respect to such plans, arrangements, or trust
agreements filed with any governmental agency and all Internal
Revenue Service determination letters that have been received
with respect to such plans (collectively, "Employee Plans");
2.1.8.9. CERTAIN SALARIES. The names and salary rates
of all present employees of HCLS, and, to the extent existing
on the date of this Agreement, all arrangements with respect
to any bonuses to be paid to them from and after the date of
this Agreement;
2.1.8.10. BANK ACCOUNTS. The name of each bank in
which HCLS has an account and the names of all persons
authorized to draw thereon;
2.1.8.11. EMPLOYEE AGREEMENTS. Any collective
bargaining agreements of HCLS with any labor union or other
representative of employees, including amendments,
supplements, and written or oral understandings, and all
employment and consulting and severance agreements of HCLS;
2.1.8.12. INTELLECTUAL PROPERTY. All patents,
trademarks, copyrights and other intellectual property rights
owned, licensed, or used by HCLS;
2.1.8.13. TRADE NAMES. All trade names, assumed names
and fictitious names used or held by HCLS, whether and where
such names are registered and where used;
2.1.8.14. PROMISSORY NOTES. All long-term and
short-term promissory notes, installment contracts, loan
agreements, credit agreements, and any other agreements of
HCLS relating thereto or with respect to collateral securing
the same;
2.1.8.15. GUARANTIES. All indebtedness, liabilities
and commitments of others and as to which HCLS is a guarantor,
endorser, co-maker, surety, or accommodation maker, or is
contingently liable therefor and all letters of credit,
whether stand-by or documentary, issued by any third party;
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2.1.8.16. RESERVES AND ACCRUALS. All accounting
reserves and accruals maintained in the 6/30 Balance Sheet;
2.1.8.17. LEASES. All leases to which HCLS is a
party; and
2.1.8.18. ENVIRONMENT. All environmental permits,
approvals, certifications, licenses, registrations, orders and
decrees applicable to current operations conducted by HCLS and
all environmental audits, assessments, investigations and
reviews conducted by HCLS within the last five years on any
property owned or used by HCLS.
2.1.9. NO DEFAULTS. Except as is specified in SCHEDULE 2.1.9
hereto, HCLS is not a party to, or bound by, any contract or
arrangement of any kind to be performed after the Effective Date, nor
is HCLS in default in any obligation or covenant on its part to be
performed under any obligation, lease, contract, order, plan or other
arrangement.
2.1.10. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set
forth in SCHEDULE 2.1.10 hereto, other than as a result of the
transactions contemplated by this Agreement, since the Balance Sheet
Date, there has not been:
2.1.10.1. FINANCIAL CHANGE. Any material adverse
change in the financial condition, backlog, operations,
assets, liabilities or business of HCLS;
2.1.10.2. PROPERTY DAMAGE. Any material damage,
destruction, or loss to the business or properties of HCLS
(whether or not covered by insurance);
2.1.10.3. DIVIDENDS. Any declaration, setting aside,
or payment of any dividend or other distribution in respect
of the HCLS Common Stock, or any direct or indirect
redemption, purchase or any other acquisition by HCLS of any
such stock;
2.1.10.4. CAPITALIZATION CHANGE. Any change in the
capital stock or in the number of shares or classes of HCLS's
authorized or outstanding capital stock as described in
Section 2.1.3 hereof;
2.1.10.5. LABOR DISPUTES. Any labor dispute; or
2.1.10.6. OTHER MATERIAL CHANGES. Any other event or
condition known to any of the Shareholders particularly
pertaining to and adversely affecting the operations, assets
or business of HCLS which would constitute a material adverse
change.
2.1.11. TAXES. All federal, state and local income, value
added, sales, use, franchise, gross revenue, turnover, excise, payroll,
property, employment, customs, duties and any and all other tax
returns, reports, and estimates have been filed with appropriate
governmental agencies, domestic and foreign, by HCLS for each period
for which any such returns, reports,
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or estimates were due (taking into account any extensions of time to
file before the date hereof); all taxes shown by such returns to be
payable and any other taxes due and payable have been paid other than
those being contested in good faith by HCLS; and the tax provision
reflected in the 6/30 Balance Sheet is (and the tax provision reflected
in the Final Balance Sheet will be) adequate, in accordance with
generally accepted accounting principles, to cover liabilities of HCLS
at the date thereof for all taxes, including any assessed interest,
assessed penalties and additions to taxes of any character whatsoever
applicable to HCLS or its assets or business. No waiver of any statute
of limitations executed by HCLS with respect to any income or other tax
is in effect for any period. The income tax returns of HCLS have never
been examined by the Internal Revenue Service or the taxing authorities
of any other jurisdiction. There are no tax liens on any assets of HCLS
except for taxes not yet currently due.
2.1.12. INTELLECTUAL PROPERTY. HCLS owns or possesses licenses
to use all patents, patent applications, trademarks and service marks
(including registrations and applications therefor), trade names,
copyrights and written know-how, trade secrets and all other similar
proprietary data and the goodwill associated therewith (collectively,
the "Intellectual Property") that are either material to the business
of HCLS or that are necessary for the rendering of any services
rendered by HCLS and the use or sale of any equipment or products used
or sold by HCLS, including all such Intellectual Property listed in
SCHEDULE 2.1.8 hereto. The Intellectual Property is owned or licensed
by HCLS free and clear of any Encumbrance. HCLS has not granted to any
other person any license to use any Intellectual Property. HCLS has not
received any notice of infringement, misappropriation, or conflict
with, the intellectual property rights of others in connection with the
use by HCLS of the Intellectual Property or otherwise in connection
with HCLS's operation of its business.
2.1.13. TITLE TO AND CONDITION OF ASSETS. HCLS has good,
indefeasible and marketable title to all its properties, interests in
properties and assets, real and personal, reflected in the 6/30 Balance
Sheet or in SCHEDULE 2.1.8 hereto, free and clear of any Encumbrance of
any nature whatsoever, except (i) Encumbrances reflected in the 6/30
Balance Sheet or in SCHEDULE 2.1.8 hereto, (ii) liens for current taxes
not yet due and payable, and (iii) such imperfections of title,
easements and Encumbrances, if any, as are not substantial in
character, amount, or extent and do not and will not materially detract
from the value, or interfere with the present use, of the property
subject thereto or affected thereby, or otherwise materially impair
business operations. All leases pursuant to which HCLS leases (whether
as lessee or lessor) any substantial amount of real or personal
property are in good standing, valid, and effective; and there is not,
under any such leases, any existing default or event of default or
event which with notice or lapse of time, or both, would constitute a
default by HCLS and in respect to which HCLS has not taken adequate
steps to prevent a default from occurring. The buildings and premises
of HCLS that are used in its business are in good operating condition
and repair, subject only to ordinary wear and tear. All major items of
equipment of HCLS are in good operating condition and in a state of
reasonable maintenance and repair, ordinary wear and tear excepted, and
are free from any known defects except as may be repaired by routine
maintenance and such minor defects as to not substantially interfere
with the continued use thereof in the conduct of normal
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operations. To the best of each Shareholder's knowledge, all such
assets conform to all applicable laws governing their use. No notice of
any violation of any law, statute, ordinance, or regulation relating to
any such assets has been received by HCLS or any of the Shareholders,
except such as have been fully complied with.
2.1.14. CONTRACTS. All contracts, leases, plans or other
arrangements to which HCLS is a party, by which it is bound or to which
it or its assets are subject are in full force and effect, and
constitute valid and binding obligations of HCLS. HCLS is not, and to
the knowledge of any of the Shareholders, no other party to any such
contract, lease, plan or other arrangement is, in default thereunder,
and no event has occurred which (with or without notice, lapse of time,
or the happening of any other event) would constitute a default
thereunder. No contract has been entered into on terms which could
reasonably be expected to have an adverse effect on HCLS. None of the
Shareholders have received any information which would cause any of the
Shareholders to conclude that any customer of HCLS will (or is likely
to) cease doing business with HCLS as a result of the consummation of
the transactions contemplated hereby.
2.1.15. LICENSES AND PERMITS. HCLS possesses all permits,
authorizations, certificates, approvals, registrations, variances,
waivers, exemptions, rights-of-way, franchises, ordinances, licenses
and other rights of every kind and character (collectively, "Permits")
necessary under law or otherwise for HCLS to conduct its business as
now being conducted and to construct, own, operate, maintain and use
its assets in the manner in which they are now being constructed,
operated, maintained and used. Each of such Permits and HCLS's rights
with respect thereto (1) is valid and subsisting, in full force and
effect, and enforceable by HCLS subject to administrative powers of
regulatory agencies having jurisdiction, and (2) following consummation
of the transactions contemplated hereby, will continue to be valid and
subsisting in full force and effect, and subject to any requisite
governmental consents, enforceable by HCLS or Lasermedics without any
consent or approval of any governmental body or third party; or, in
lieu of such existing Permits, replacement or substitute Permits, will
be available to or obtainable by HCLS or Lasermedics at little or no
cost in the ordinary course without any interruption of the conduct of
the business following the Effective Date, assuming timely application
therefor and reasonable diligence in pursuit thereof by HCLS or
Lasermedics. HCLS is in compliance in all material respects with the
terms of such Permits. None of such Permits have been, or to the
knowledge of any of the Shareholders, are threatened to be, revoked,
canceled, suspended or modified.
2.1.16. LITIGATION. There is no suit, action, or legal,
administrative, arbitration, or other proceeding or governmental
investigation pending to which HCLS is a party or, to the knowledge of
any of the Shareholders, might become a party or which particularly
affects HCLS, nor is any change in the zoning or building ordinances
directly affecting the real property or leasehold interests of HCLS,
pending or, to the knowledge of any of the Shareholders, threatened.
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2.1.17. ENVIRONMENTAL COMPLIANCE.
2.1.17.1. ENVIRONMENTAL CONDITIONS. There are no
environmental conditions or circumstances, including, without
limitation, the presence or release of any hazardous
substance, on any property presently or previously owned by
HCLS, or on any property to which hazardous substances or
waste generated by HCLS's operations or use of its assets were
disposed of, which would result in a material adverse change
in the business or business prospects of HCLS;
2.1.17.2. PERMITS, ETC. HCLS has in full force and
effect all environmental permits, licenses, approvals and
other authorizations required to conduct its operations, other
than those that are not material to the business or operations
of HCLS, and is operating in compliance thereunder;
2.1.17.3. COMPLIANCE. HCLS's operations and use of
its assets do not violate in any material respect any
applicable federal, state or local law, statute, ordinance,
rule, regulation, order or notice requirement pertaining to
(a) the condition or protection of air, groundwater, surface
water, soil, or other environmental media, (b) the
environment, including natural resources or any activity
which affects the environment, or (c) the regulation of any
pollutants, contaminants, waste, substances (whether or not
hazardous or toxic), including, without limitation, the
Comprehensive Environmental Response Compensation and
Liability Act (42 U.S.C. ss. 9601 ET SEQ.), the Hazardous
Materials Transportation Act (49 U.S.C. ss. 1801 ET SEQ.),
the Resource Conservation and Recovery Act (42 U.S.C. ss.
1609 ET SEQ.), thE Clean Water Act (33 U.S.C. 1251 ET SEQ.),
the Clean Air Act (42 U.S.C. ss. 7401 ET SEQ.), the Toxic
Substances Control Act (17 U.S.C. ss. 2601 ET SEQ.), the
FederaL Insecticide Fungicide and Rodenticide Act (7 U.S.C.
ss. 136 ET SEQ.), the Safe Drinking Water Act (42 U.S.C. ss.
201 and ss. 300f ET SEQ.), the Rivers and Harbors Act (33
U.S.C. ss. 401 ET SEQ.), the Oil Pollution Act (33 U.S.C. ss.
2701 ET SEQ.) and analogous federal, interstate, state and
local requirements, as any of the foregoing may have been
amended or supplemented from time to time (collectively, the
"Applicable Environmental Laws");
2.1.17.4. PAST COMPLIANCE. None of the operations or
assets of HCLS has ever been conducted or used in such a
manner as to constitute violation of any of the Applicable
Environmental Laws, other than violations that in the
aggregate are not material to the business or operations of
HCLS;
2.1.17.5. ENVIRONMENTAL CLAIMS. No notice has been
served on HCLS or any of the Shareholders from any entity,
governmental agency or individual regarding any existing,
pending or threatened investigation, inquiry, enforcement
action or litigation related to alleged violations under any
Applicable Environmental Laws, or regarding any claims for
remedial obligations, response costs or contribution under any
Applicable Environmental Laws;
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2.1.17.6. RENEWALS. None of the Shareholders know of
any reason the Surviving Corporation would not be able to
renew any of the permits, licenses, or other authorizations
required pursuant to any of the Applicable Environmental Laws
to operate and use any of HCLS's assets for their current
purposes and uses; and
2.1.17.7. ASBESTOS AND PCBS. No material amounts of
friable asbestos currently exist on any property owned or
operated by HCLS, nor do polychlorinated biphenyls exist in
concentrations of 50 parts per million or more in electrical
equipment owned or being used by HCLS in its operations or on
its properties.
2.1.18. COMPLIANCE WITH OTHER LAWS. HCLS is not in violation
of or in default with respect to, or in alleged violation of or alleged
default with respect to, the Occupational Safety and Health Act (29
U.S.C. ss.ss.651 ET SEQ.) as amended, or any other applicable law or
any applicable rule, regulation, or any writ or decree of any court or
any governmental commission, board, bureau, agency, or instrumentality,
or delinquent with respect to any report required to be filed with any
governmental commission, board, bureau, agency or instrumentality.
2.1.19. LABOR ISSUES. HCLS has not engaged in any unfair labor
practices which could reasonably be expected to result in a material
adverse effect on its operations or assets. HCLS does not have any
dispute with any of its existing or former employees. There are no
labor disputes or, to the knowledge of any of the Shareholders, any
disputes threatened by current or former employees of HCLS.
2.1.20. TERMINATED EMPLOYEES. HCLS has terminated those
employees listed on SCHEDULE 2.1.20 hereto effective prior to the date
hereof (the "Terminated Employees") and has paid the Terminated
Employees all wages and other compensation owed them through the date
of termination.
2.1.21. COMPLIANCE WITH ERISA. Each benefit plan set forth in
SCHEDULE 2.1.21 hereto (collectively the "Benefit Plans") complies
currently, and has complied in the past, in form and operation, with
the applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the Code and other applicable laws.
All contributions required to be made to each Benefit Plan under the
terms of such Benefit Plans, ERISA or other applicable laws have been
timely made.
2.1.21.1. PROHIBITED TRANSACTIONS. HCLS has not
engaged in any transaction in connection with which it could
be subject (either directly or indirectly) to a material
liability for either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code.
2.1.21.2. PLAN TERMINATION; MATERIAL LIABILITIES.
There has been no termination of an "employee pension benefit
plan" as defined in ERISA which is subject to Title IV of
ERISA (a "Statutory Plan") or trust created under any
Statutory Plan that would give rise to a material liability
to the Pension Benefit Guaranty
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Corporation ("PBGC") on the part of HCLS. All Statutory Plans
intended to be tax-qualified under Section 401(a) or 403(a) of
the Code have complied in the past, both in form and
operation, with every provision of the Code, regulation
promulgated pursuant thereto, and every ruling, notice or
announcement issued by the Internal Revenue Service necessary
to maintain the qualified status of such Statutory Plans. No
material liability to the PBGC has been or is expected to be
incurred with respect to any Statutory Plan. The PBGC has not
instituted proceedings to terminate any Statutory Plan. There
exists no condition or set of circumstances which presents a
material risk or termination or partial termination of any
Statutory Plan by the PBGC.
2.1.21.3. ACCUMULATED FUNDING DEFICIENCY. Full
payment has been made of all amounts which are required under
the terms of each Statutory Plan, ERISA or other applicable
laws to have been paid as contributions to such Statutory
Plan, and no accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or
not waived, exists with respect to any Statutory Plan.
2.1.21.4. RELATIONSHIP OF BENEFITS TO PENSION PLAN
ASSETS. The current value of all accrued benefits, both vested
and unvested, under all Statutory Plans does not exceed the
current value of the assets of such Statutory Plans allocable
to such accrued benefits. For purposes of the representation
in this Section 2.1.21.4, the term "current value" has the
meaning specified in Section 4062(b)(1)(A) of ERISA, the term
"accrued benefit" has the meaning specified in Section 3 of
ERISA and "current value" is based upon the same actuarial
assumptions used by HCLS.
2.1.21.5. EXECUTION OF AGREEMENTS. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby will not involve any
transaction which is subject to the prohibitions of Section
406 or ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Code.
2.1.21.6. FIDUCIARY LIABILITY. There have been no
acts, failures to act, omissions or transactions involving a
Statutory Plan or the assets thereof which could result in
imposition on HCLS (whether direct or indirect) of damages or
liability in actions brought under Section 502 or Sections 404
through 409 of ERISA.
2.1.21.7. PENDING CLAIMS. There are no claims,
pending or overtly threatened, involving any of the Benefit
Plans by any current or former employee (or beneficiary
thereof) of HCLS which allege any violation of ERISA or the
terms of the Benefit Plans, nor is there any reasonable basis
to anticipate any claims involving such Benefit Plans which
would likely be successfully maintained against HCLS.
2.1.21.8. MULTIEMPLOYER PLANS. HCLS neither
contributes nor has any obligation to contribute to any plan
which is a "multiemployer plan" as such term is defined in
Section 3(37) or 4001(a)(3) of ERISA.
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2.1.21.9. NO REPORTABLE EVENT. There has been no
"reportable event" (within the meaning of Section 4043(b) of
ERISA with respect to a Statutory Plan) or any "prohibited
transaction" (as such term is defined in Section 406 of ERISA
and Section 4975(c) of the Code) with respect to any of the
Employee Plans. All reporting and disclosure requirements
under Title I of ERISA have been met.
2.1.22. INVESTIGATIONS; LITIGATION. No investigation or review
by any governmental entity with respect to HCLS or any of the
transactions contemplated by this Agreement is pending or, to the best
of each Shareholder's knowledge, threatened, nor has any governmental
entity indicated to HCLS an intention to conduct the same, and there is
no action, suit or proceeding pending or, to the best of each
Shareholder's knowledge, threatened against or affecting HCLS at law or
in equity, or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, that either individually or in the aggregate, does or
is likely to result in any material adverse change in the financial
condition, properties or business of HCLS.
2.1.23. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither HCLS
nor any officer, employee or agent of HCLS, nor any other person acting
on its behalf, has, directly or indirectly, within the past five years,
given or agreed to give any gift or similar benefit to any customer,
supplier, government employee or other person who is or may be in a
position to help or hinder the business of HCLS (or to assist HCLS in
connection with any actual or proposed transaction) which (i) might
subject HCLS to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (ii) if not given in the past,
might have had a material adverse effect on the assets, business or
operations of HCLS as reflected in the 6/30 Financial Statements, or
(iii) if not continued in the future, might materially adversely effect
the assets, business operations or prospects of HCLS or which might
subject HCLS to suit or penalty in a private or governmental litigation
or proceeding.
2.1.24. UNTRUE STATEMENTS. HCLS and each of the Shareholders
have made available to Lasermedics true, complete and correct copies of
all contracts, documents concerning all litigation and administrative
proceedings, licenses, permits, insurance policies, lists of suppliers
and customers, and records relating principally to HCLS's assets and
business, and such information covers all commitments and liabilities
of HCLS relating principally to its business or the assets. This
Agreement and the agreements and instruments to be entered into in
connection herewith do not include any untrue statement of a material
fact or omit to state any material fact necessary to make the
statements made herein and therein not misleading in any material
respect.
2.1.25. INVESTMENT REPRESENTATIONS. Each of the Shareholders
acknowledges, represents and agrees that:
(a) the Lasermedics Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or
registered or qualified under any applicable state securities laws;
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(b) the Lasermedics Shares are being issued to such
Shareholder in reliance upon exemptions from such registration or
qualification requirements, and the availability of such exemptions
depends in part upon such Shareholder's bona fide investment intent
with respect to the Lasermedics Shares;
(c) such Shareholder's acquisition of the Lasermedics Shares
is solely for his own account for investment, and such Shareholder is
not acquiring the Lasermedics Shares for the account of any other
person or with a view toward resale, assignment, fractionalization, or
distribution thereof;
(d) such Shareholder shall not offer for sale, sell, transfer,
pledge, hypothecate or otherwise dispose of any of the Lasermedics
Shares except in accordance with the registration requirements of the
Securities Act and applicable state securities laws or upon delivery to
Lasermedics of an opinion of legal counsel reasonably satisfactory to
Lasermedics that an exemption from registration is available;
(e) such Shareholder has such knowledge and experience in
financial and business matters that they are capable of evaluating the
merits and risks of an investment in the Lasermedics Shares, and to
make an informed investment decision;
(f) such Shareholder has received a copy of (i) Lasermedics's
annual report on Form 10-K for the year ended December 31, 1995 as
filed with the Securities and Exchange Commission (the "SEC") and (ii)
Lasermedics's quarterly reports on Form 10-Q for the three months ended
March 31, 1996, June 30, 1996 and September 30, 1996 as filed with the
SEC. Such Shareholder has had the opportunity to ask questions of, and
receive answers from Lasermedics's officers and directors concerning
the Shareholder's acquisition of the Lasermedics Shares and to obtain
such other information concerning Lasermedics and the Lasermedics
Shares, to the extent Lasermedics's officers and directors possessed
the same or could acquire it without unreasonable effort or expense, as
the Shareholder deemed necessary in connection with making an informed
investment decision;
(g) since the Lasermedics Shares have not been registered
under the Securities Act or applicable state securities laws, the
Shareholder must bear the economic risk of holding the Lasermedics
Shares for an indefinite period of time, and are capable of bearing
such risk; and
(h) in addition to any other legends required by law or the
other agreements entered into in connection herewith, each certificate
evidencing the Lasermedics Shares will bear a conspicuous restrictive
legend substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED
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EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE
ACT AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS
CORPORATION OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE
CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
2.1.26. CONSENTS AND APPROVALS. No consent, approval or
authorization of, or filing or registration with, any governmental or
regulatory authority, or any other person or entity other than HCLS and
the Shareholders, is required to be made or obtained by HCLS or any of
the Shareholders in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
2.1.27. FINDER'S FEE. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on
by HCLS and the Shareholders and their counsel directly with
Lasermedics and Acquistion Sub and their counsel, without the
intervention of any other person in such manner as to give rise to any
valid claim against any of the parties hereto for a brokerage
commission, finder's fee or any similar payments.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
LASERMEDICS AND ACQUISTION SUB
3.1. REPRESENTATIONS AND WARRANTIES OF LASERMEDICS. Lasermedics
represents and warrants to each of the Shareholders as follows:
3.1.1. ORGANIZATION AND STANDING. Lasermedics is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Texas, has full requisite corporate power and authority to
carry on its business as it is currently conducted, and to own and
operate the properties currently owned and operated by it, and is duly
qualified or licensed to do business and is in good standing as a
foreign corporation authorized to do business in all jurisdictions in
which the character of the properties owned or the nature of the
business conducted by it would make such qualification or licensing
necessary.
3.1.2. AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER
OBLIGATIONS. The consummation of the transactions contemplated hereby
has been duly and validly authorized by all necessary corporate action
on the part of Lasermedics, and this Agreement is a valid and binding
obligation of Lasermedics enforceable (subject to normal equitable
principles) in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting the rights of creditors generally. The
execution, delivery and performance of this Agreement and the
consummation of the Merger contemplated by this Agreement will not
result in the breach of any term or provision of or constitute a
default under any obligation, indenture, mortgage,
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deed of trust, lease, contract or other agreement to which Lasermedics
or any of its subsidiaries is a party.
3.1.3. FINDER'S FEE. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on
by Lasermedics and its counsel directly with HCLS and the Shareholders
and their counsel, without the intervention by any other person as the
result of any act of Lasermedics in such a manner as to give rise to
any valid claim against any of the parties hereto for any brokerage
commission, finder's fee or any similar payments.
3.2. REPRESENTATIONS AND WARRANTIES OF ACQUISTION SUB. Acquistion Sub
represents and warrants to each of the Shareholders as follows:
3.2.1. ORGANIZATION AND STANDING. Acquistion Sub is a
corporation duly organized, validly existing, and in good standing
under the laws of Michigan, has full requisite corporate power and
authority to carry on its business as it is currently conducted, and to
own and operate the properties currently owned and operated by it, and
is duly qualified or licensed to do business and is in good standing as
a foreign corporation authorized to do business in all jurisdictions in
which the character of the properties owned or the nature of the
business conducted by it would make such qualification or licensing
necessary.
3.2.2. AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER
OBLIGATIONS. The execution and delivery of this Agreement has been
authorized by the board of directors and all of the holders of capital
stock of Acquistion Sub, the consummation of the transactions
contemplated hereby has been duly and validly authorized by all
necessary corporate action on the part of Acquistion Sub, and this
Agreement is a valid and binding obligation of Acquistion Sub
enforceable against Acquistion Sub (subject to normal equitable
principles) in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting the rights of creditors generally.
3.2.3. FINDER'S FEE. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on
by Acquistion Sub and its counsel and HCLS and the Shareholders and
their counsel, without the intervention of any other person as the
result of any act of Acquistion Sub in such a manner as to give rise to
any valid claim against any of the parties hereto for any brokerage
commission, finder's fee or any similar payments.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1. NONCOMPETITION. Except as otherwise consented to or approved in
writing by Acquistion Sub and Lasermedics, each of the Shareholders agrees that
for a period of 60 months following the Effective Date, such Shareholder will
not, directly or indirectly, acting alone or as a
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member of a partnership or as an officer, director, employee, consultant,
representative, holder of, or investor in as much as 5% of any security of any
class of any corporation or other business entity (i) engage in competition with
the business or businesses conducted by HCLS or Lasermedics at the Effective
Date, or in any manufacturing, publishing or distribution business the products
of which are provided and marketed by HCLS or Lasermedics at the Effective Date
in any state of the United States, or any foreign country in which HCLS or
Lasermedics transacts business on the Effective Date; (ii) request any present
customers or suppliers of HCLS to curtail or cancel their business with HCLS or
Lasermedics; (iii) disclose to any person, firm or corporation any trade,
technical or technological secrets of HCLS or Lasermedics or any details of
their organization or business affairs or (iv) induce or actively attempt to
influence any employee of HCLS or Lasermedics to terminate his employment. Each
of the Shareholders agrees that if either the length of time or geographical
area set forth in this Section is deemed too restrictive in any court
proceeding, the court may reduce such restrictions to those which it deems
reasonable under the circumstances. The obligations expressed in this Section
4.1 are in addition to any other obligations that the Shareholders may have
under the laws of the State of Michigan requiring an employee of a business or a
shareholder who sells his stock in a corporation (including a disposition in a
merger) to limit his activities so that the goodwill and business relations of
his employer and of the corporation whose stock he has sold (and any successor
corporation) will not be materially impaired. Each of the Shareholders further
agrees and acknowledges that Acquistion Sub and Lasermedics do not have any
adequate remedy at law for the breach or threatened breach by such Shareholder
of this covenant, and agree that Lasermedics or the Surviving Corporation may,
in addition to the other remedies which may be available to it hereunder, file a
suit in equity to enjoin such Shareholder from such breach or threatened breach.
If any provisions of this Section 4.1 are held to be invalid or against public
policy, the remaining provisions shall not be affected thereby. Each of the
Shareholders acknowledges that the covenants set forth in this Section 4.1 are
being executed and delivered by such Shareholder in consideration of the
covenants of Acquistion Sub and Lasermedics contained in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged.
4.2. FURTHER ASSURANCES. From time to time, as and when requested by
any party hereto, any other party hereto shall execute and deliver, or cause to
be executed and delivered, such documents and instruments and shall take, or
cause to be taken, such further or other actions as may be reasonably necessary
to effectuate the transactions contemplated hereby.
ARTICLE 5
INDEMNIFICATION
5.1. INDEMNIFICATION BY SHAREHOLDERS. In addition to any other remedies
available to Lasermedics under this Agreement, or at law or in equity, each of
the Shareholders shall jointly and severally indemnify, defend and hold harmless
Lasermedics and the Surviving Corporation, and their respective officers,
directors, employees, agents and stockholders, against and with respect to any
and all claims, costs, damages, losses, expenses, obligations, liabilities,
recoveries, suits, causes of action and deficiencies, including interest,
penalties and reasonable attorneys' fees and expenses (collectively, the
"Damages") that such indemnitees shall incur or suffer, which arise, result from
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or relate to (i) any breach of, or failure by any of the Shareholders to
perform, his respective representations, warranties, covenants or agreements in
this Agreement or in any schedule, certifi cate, exhibit or other instrument
furnished or delivered to Lasermedics by HCLS or any of the Shareholders under
this Agreement or (ii) HCLS's prior employment relationship with any Terminated
Employee.
5.2. INDEMNIFICATION BY LASERMEDICS. In addition to any other remedies
available to the Shareholders under this Agreement, or at law or in equity,
Lasermedics shall indemnify, defend and hold harmless each of the Shareholders
and his employees and agents against and with respect to any and all Damages
that such indemnitees shall incur or suffer, which arise, result from or relate
to (i) any breach of, or failure by Acquistion Sub or Lasermedics to perform,
any of its representations, warranties, covenants or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or delivered to HCLS or any of the Shareholders by or on behalf of Lasermedics
or Acquistion Sub under this Agreement or (ii) any of the personal guarantees of
the Shareholders with respect to loans from Comerica Bank to HCLS.
5.3. INDEMNIFICATION PROCEDURE. In the event that any party hereto
discovers or otherwise becomes aware of an indemnification claim arising under
Section 5.1 or Section 5.2 of this Agreement, such indemnified party shall give
written notice to the indemnifying party, specifying such claim, and may
thereafter exercise any remedies available to such party under this Agreement;
PROVIDED, HOWEVER, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of any obligations
hereunder, to the extent the indemnifying party is not materially prejudiced
thereby. Further, promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Article 5, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party, give written notice to the latter of the commencement of
such action; PROVIDED, HOWEVER, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of any
obligations hereunder, to the extent the indemnifying party is not materially
prejudiced thereby. In case any such action is brought against an indemnified
party, the indemnifying party shall be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified, to the extent that it may wish, with counsel reasonably satisfactory
to such indemnified party, and after such notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof unless the indemnifying party has failed to assume the defense
of such claim and to employ counsel reasonably satisfactory to such indemnified
person. An indemnifying party who elects not to assume the defense of a claim
shall not be liable for the fees and expenses of more than one counsel in any
single jurisdiction for all parties indemnified by such indemnifying party with
respect to such claim or with respect to claims separate but similar or related
in the same jurisdiction arising out of the same general allegations.
Notwithstanding any of the foregoing to the contrary, the indemnified party will
be entitled to select its own counsel and assume the defense of any action
brought against it if the indemnifying party fails to select counsel reasonably
satisfactory to the indemnified party, the expenses of such defense to be paid
by the indemnifying party. No indemnifying party shall consent to entry of any
judgment or enter into any settlement with respect
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to a claim without the consent of the indemnified party, which consent shall not
be unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim. No
indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
indemnifying party, without the consent of such indemnifying party, which
consent shall not be unreasonably withheld.
5.4. OFFSET. The parties hereto agree that if the Surviving Corporation
or Lasermedics shall incur any Damages for which it is entitled to
indemnification by the Shareholders pursuant to the terms of this Agreement,
Lasermedics shall have the right to offset any payments due or to be due under
the terms of this Agreement or any other agreement executed in connection
herewith, by the amount of the Damages, including the right to reduce the number
of Additional Shares to be issued to the Shareholders pursuant to Section 1.10.4
hereof. Such right of offset shall not be considered an exclusive remedy, it
being agreed that Lasermedics shall also be entitled to exercise any other
remedies available to it at law or in equity, including, without limitation, the
indemnification rights set forth in this Article 5. In the event of an offset by
Lasermedics as a result of any account receivable of HCLS not being collected in
breach of the representation of the Shareholders in Section 2.1.6 hereof, upon
any such offset, Lasermedics shall assign to the Shareholders the account
receivable subject to offset, and the Shareholders shall thereafter have the
right to take any reasonable action to collect such account receivable. In the
event of an offset by Lasermedics as a result of any inventory of HCLS being
unsalable in the normal course of business in breach of the representations of
the Shareholders in Section 2.1.6 hereof, upon any such offset, Lasermedics
shall convey and transfer to the Shareholders title to such inventory subject to
offset.
ARTICLE 6
MISCELLANEOUS
6.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
All representations, warranties, covenants and agreements made by the parties
hereto shall survive indefinitely without limitation, notwithstanding any
investigation made by or on behalf of any of the parties hereto. All statements
contained in any certificate, schedule, exhibit or other instrument delivered
pursuant to this Agreement shall be deemed to have been representations and
warranties by the respective party or parties, as the case may be, and shall
also survive without limitation despite any investigation made by any party
hereto or on its behalf.
6.2. ENTIRETY. This Agreement embodies the entire agreement among the
parties with respect to the subject matter hereof, and all prior agreements
between the parties with respect thereto are hereby superseded in their
entirety.
6.3. COUNTERPARTS. Any number of counterparts of this Agreement may be
executed and each such counterpart shall be deemed to be an original instrument,
but all such counterparts together shall constitute but one instrument.
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6.4. NOTICES AND WAIVERS. Any notice or waiver to be given to any party
hereto shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
IF TO LASERMEDICS OR THE SURVIVING CORPORATION
Addressed to: With a copy to:
Lasermedics, Inc. Porter & Hedges, L.L.P.
120 Industrial Boulevard 700 Louisiana, 35th Floor
Sugar Land, Texas 77478 Houston, Texas 77210-4744
Attn: Michael M. Barbour Attention: Robert G. Reedy
Facsimile: (713) 276-7074 Facsimile: (713) 228-1331
IF TO ANY OF THE SHAREHOLDERS
Addressed to: With a copy to:
Karson L. Carpenter Adams, Howe, Perrotta & Williams, P.C.
3855 Tubbs Road 100 Maple Park Boulevard, Suite 124
Ann Arbor, Michigan 48103 St. Clair Shores, Michigan 48081
Facsimile: (810) 474-4600 Attention: Brian V. Howe
Facsimile: (810) 777-5706
Michael Konopka
9270 Shannon Drive
Brighton, Michigan 48116
Facsimile: (313) 231-2253
Donna M. Konopka
9270 Shannon Drive
Brighton, Michigan 48116
Facsimile: (313) 231-2253
Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, with return receipt requested, shall be deemed
to be received on the third business day after so mailed, and if delivered by
courier or facsimile to such address, upon delivery during normal business hours
on any business day.
6.5. CAPTIONS. The captions contained in this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any article, section, or paragraph hereof.
6.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the successors and assigns
of the parties hereto.
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6.7. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
6.8. APPLICABLE LAW. This Agreement shall be governed by and construed
and enforced in accordance with the applicable laws of the State of Michigan.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Shareholders have executed this Agreement and
the other parties hereto have caused this Agreement to be signed in their
respective corporate names by their respective duly authorized representatives,
all as of the day and year first above written.
LASERMEDICS, INC.
By: /S/ MICHAEL M. BARBOUR
Michael M. Barbour
President and Chief Executive Officer
LASERMEDICS ACQUISTION NO. 1, INC.
By: /S/ MICHAEL M. BARBOUR
Michael M. Barbour
President and Chief Executive Officer
HEALTH CAREER LEARNING SYSTEMS, INC.
By: /S/ KARSON L. CARPENTER
Karson L. Carpenter
Chairman
SHAREHOLDERS:
/S/ KARSON CARPENTER
Karson Carpenter
/S/ DONNA M. KONOPKA
Donna M. Konopka
/S/ MICHAEL KONOPKA
Michael Konopka
EXHIBIT 10.9
STOCK PURCHASE AGREEMENT
By and Between
LASERMEDICS, INC.
and
PAULA L. BUHR
Dated January 24, 1997
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is entered into on this 24th day of
January, 1997 by and between Paula L. Buhr (the "Seller"), and Lasermedics,
Inc., a Texas corporation ("Buyer").
W I T N E S S E T H
WHEREAS, Texas T.E.N.S., Inc., a Texas corporation ("TENS"), is
principally engaged in the business of distributing orthopedic physical therapy
and electronic medical equipment (the "Business");
WHEREAS, Seller owns all of the issued and outstanding capital stock of
TENS; and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller all of the issued and outstanding capital stock of TENS on the terms
and conditions herein set forth.
NOW, THEREFORE, for and in consideration of the premises, and the
mutual and dependent promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 CERTAIN DEFINITIONS. As used in this Agreement, each
parenthetically capitalized term in the introduction, recitals and other
Sections of this Agreement has the meaning so ascribed to it, and other
capitalized terms have the meaning given them in Section 6.1.
1.2 PURCHASE AND SALE OF TENS STOCK. Subject to the terms and
conditions of this Agreement, at the Closing Seller agrees to sell and convey to
Buyer, free and clear of all Encumbrances, and Buyer agrees to purchase and
accept from Seller all shares of TENS Stock owned beneficially or of record by
Seller. The purchase price for such shares of TENS Stock shall be $850,000
payable by Buyer by payment of $450,000 in cash and a promissory note in the
principal amount of $400,000 and having the terms and conditions as set forth in
the form of note attached hereto as Exhibit A (the "Note").
1.3 CLOSING. Consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of counsel to Buyer,
Porter & Hedges, L.L.P., at 9:00 a.m. on the date hereof. The date upon which
the Closing occurs is referred to herein as the "Closing Date."
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1.4 CLOSING DELIVERIES. At the Closing, (a) Seller shall deliver to
Buyer duly and validly issued certificate(s) representing all shares of TENS
Stock owned beneficially or of record by her, each such certificate to be duly
endorsed in blank and in good form for transfer, or accompanied by stock powers
duly executed in blank sufficient and in good form to properly transfer such
shares to Buyer, (b) Seller and Buyer shall have delivered to one another all
other documents, instruments and agreements as required under this Agreement,
and (c) Buyer shall deliver to Seller the cash purchase price and the Note for
the TENS Stock payable at Closing as provided in Section 1.2.
1.5 RESIGNATIONS; EMPLOYMENT AGREEMENT. At the Closing, each of the
officers and directors of TENS will resign, and the Buyer will enter into an
Employment Agreement with Paula L. Buhr in the form attached hereto as Exhibit B
(the "Employment Agreement").
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
As material inducements to the execution, delivery and performance of
this Agreement by Buyer, Seller represents and warrants to Buyer that the
following representations and warranties are true and correct as of the Closing
Date except as otherwise described in the attached Exception Schedule attached
hereto. The Exception Schedule shall identify each exception by the section
number(s) of this Article 2 to which it relates.
2.1 ORGANIZATION. TENS is a corporation duly organized, validly
existing, and in good standing under the laws of Texas. TENS has all necessary
statutory and corporate power and authority to own, operate, and lease its
properties and to carry on its business as now owned or leased and operated by
it. TENS neither is nor is required to be qualified to do business under the
laws of any jurisdiction. TENS does not own, directly or indirectly, any
interest or investment (whether debt or equity) in any other Person. True,
correct and complete copies of TENS' articles of incorporation and bylaws, as
each may have been amended, are attached to the Exception Schedule.
2.2 AUTHORITY AND CONSENT. Seller has the absolute and unrestricted
right, power, legal capacity, and authority to enter into, and perform her
obligations under this Agreement, and no approval or consent of any Person is
necessary in connection therewith. This Agreement, together with all other
agreements, documents and instruments executed in connection herewith,
constitute valid and legally-binding obligations of Seller, and are enforceable
against Seller in accordance with their terms.
2.3 NO VIOLATIONS OR CONFLICTS. Neither the execution and delivery of
this Agreement by Seller nor the consummation of the transactions contemplated
hereby will: (a) violate or conflict with any provision of TENS' articles of
incorporation or bylaws, as amended to date; (b) violate or conflict with any
provision of any Laws applicable to Seller, TENS, or their respective business
or assets; (c) result in a breach of, or constitute a default (or with notice or
lapse of time or both result
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in a breach of or constitute a default) under or otherwise give any Person the
right to terminate or accelerate payment under or performance of any note, bond,
loan agreement, contract, lease, license, franchise, permit, trust agreement or
declaration of trust, or other agreement or instrument to which Seller or TENS
is a party or to which their respective assets are subject; or (d) result in, or
acquire the creation or imposition of any Encumbrance of any nature upon or with
respect to any of the assets of Seller or TENS.
2.4 CAPITALIZATION. The authorized capital stock of TENS consists
solely of 3,000 shares of common stock, no par value, of which 1,000 shares are
issued and outstanding, and none of which are held as treasury shares. All
issued and outstanding shares of TENS Stock are validly issued, fully paid and
non-assessable, and are owned beneficially and of record by Seller as set forth
on the Exception Schedule. No shares of TENS Stock have been issued in violation
of TENS' articles of incorporation or bylaws, and the preemptive or other rights
of any shareholder or former shareholder of TENS, or of any other Person, or any
Laws. Neither Seller nor TENS have any liability to any former owner of any
TENS' securities by reason of any failure by them to comply with any Laws, TENS'
articles of incorporation or bylaws, or any agreements. There are no outstanding
subscriptions, options, rights, warrants, calls, preemptive rights, convertible
securities, or other agreements or commitments of any kind obligating TENS to
sell, convey, issue, transfer from treasury, or otherwise dispose of, any
additional shares of its capital stock of any class, or any other equity or debt
security. Since December 31, 1996, TENS has not declared, set aside, paid or
made, or agreed, arranged or committed to declare, set aside, pay or make any
dividend or other distribution in respect of its capital stock, and has not
directly or indirectly redeemed, purchased or otherwise acquired its capital
stock.
2.5 TITLE TO STOCK. Paula L. Buhr owns 1,000 shares of the common stock
of TENS, which constitutes all of the issued and outstanding TENS Stock. Seller
holds good, valid and marketable title to all shares of TENS Stock so owned by
her, free and clear of all Encumbrances. Seller possesses full authority and
legal right to sell, transfer and assign to Buyer the entire legal and
beneficial ownership of the TENS Stock owned by Seller, free and clear of all
Encumbrances. Upon transfer to Buyer by Seller of her TENS Stock, Buyer will own
the entire legal and beneficial interest in such TENS Stock free and clear of
all Encumbrances and subject to no legal, equitable, transfer or other
restrictions of any kind, except transfer restrictions imposed by operation of
applicable securities Laws, and any Encumbrances imposed or created by Buyer.
There are no Claims pending or, to TENS' or Seller's knowledge, threatened
against TENS or Seller that concern or affect title to any of TENS' capital
stock, or that seek to compel the issuance of capital stock or other securities
of TENS. Seller acquired her TENS Stock in transactions that fully complied with
the provisions of all applicable Laws.
2.6 FINANCIAL INFORMATION. Seller has delivered to Buyer unaudited
financial statements of TENS, consisting of a balance sheet as of December 31,
1996, and an income statement for the fiscal year ended December 31, 1996, true
and correct copies of which will be attached to the Exception Schedule (such
financial statements referenced above are herein collectively referred to as the
"Financial Information"). Except for customary year-end audit adjustments to
unaudited
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statements, the Financial Information (a) is in accordance with TENS' books and
records, (b) fairly presents and is a true and complete statement of the
financial position of TENS as of and for the periods indicated, and (c) does not
include or omit any material asset or liability other than real estate owned by
the Company which will be acquired by Seller prior to the Closing (whether
fixed, accrued, contingent or other) the inclusion or omission of which renders
such financial statements misleading or incomplete. Since December 31, 1996,
TENS has not changed any accounting method or practice, or experienced any
material adverse change in its financial condition, operations, assets,
liabilities (fixed, accrued, contingent, or other), revenues, expenses, or
business prospects, or experienced any event or condition that is likely to
result in such a material adverse change in its business or assets.
2.7 TAXES. TENS has timely filed all federal, state, county, local and
other excise, franchise, property, severance, payroll, income, capital stock,
sales and use, fuel and other tax returns for all fiscal years ended on or
before December 31, 1995, and for any periods thereafter for which returns are
due, and all such returns are true and correct in all material respects. TENS
has not filed an extension for any tax return otherwise due. TENS has timely
paid all taxes which are shown on such returns to be due or have been assessed
against it and all taxes, penalties and interest which any Governmental
Authority has proposed or asserted to be owing (except for those being contested
in good faith as set forth on the Exception Schedule). TENS has made all
withholding payments of tax required to be made under all tax Laws. Provisions
and accruals for income taxes, payroll taxes payable, ad valorem property taxes,
sales taxes, fuel taxes and all other taxes and governmental charges required to
be paid by TENS as of December 31, 1996 have been set forth in the Financial
Information and conform in all material respects with federal income tax
principles and are adequate to cover TENS' liability for all periods before the
Closing Date. There is no pending audit of TENS, and TENS has not received any
oral or written notice of any proposed audit, by any Governmental Authority. All
tax liabilities to which the properties of TENS may have been subjected have
been discharged, except for taxes assessed but not yet payable. There are no tax
Claims presently being asserted against TENS, and to the knowledge of TENS and
the Seller there is no basis for any such Claim. TENS has not granted any
extension to any taxing authority of the limitation period during which any tax
liability may be asserted thereby. Neither TENS nor Seller has received notice
or have knowledge of any proposal for increasing the assessed value of any of
TENS' properties for tax purposes, or of any pending proceedings or public
improvements which would result in the levy of any special tax or assessment
against any of TENS' properties.
2.8 LIABILITIES. TENS has no liabilities or obligations, whether
absolute, accrued, contingent or otherwise, and neither TENS nor Seller has any
knowledge of any potential liabilities or obligations of TENS except (a) as
reflected or reserved against in TENS' unaudited December 31, 1996 balance sheet
referred in Section 2.6 above, (b) obligations to perform services or deliver
merchandise in the ordinary course of business that are not delinquent, and (c)
liabilities accrued or to be accrued through the Closing Date and set forth on
the Exception Schedule. Without limiting the generality of the foregoing, TENS
has no liability as a guarantor, endorser, co-maker, surety, accommodation maker
or in any other capacity for any indebtedness, liability, obligation or
commitment of any other Person.
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2.9 DEFAULTS. TENS is not in default under, or in breach or violation
of, and to the knowledge of TENS and Seller no reason exists and no event has
occurred which, with notice or lapse of time or action by a third party, will
result in a default under, breach or violation of, or conflict with: (a) TENS'
articles of incorporation or bylaws, as amended to date; (b) any lease, license,
permit, Encumbrance, trust agreement or declaration of trust, or other agreement
or instrument to which TENS is a party, or to which any of its assets is
subject; or (c) any Laws applicable to TENS or its business or assets,
including, without limitation, Business Laws, Environmental Laws and Laws
respecting labor, employment and employment practices, except as to the matters
set forth in subparagraphs (b) and (c), for any such defaults, breaches,
violations or conflicts which individually or in the aggregate would not
constitute a material adverse effect. TENS has all permits, certificates,
licenses, approvals and other authorizations required in connection with the
operation of its business.
2.10 LITIGATION. There is no lawsuit, action, arbitration, mediation,
administrative proceeding, investigation by a Governmental Authority, or other
legal proceeding pending or, to the knowledge of TENS or Seller, threatened
against Seller or TENS or affecting their respective assets or financial
condition, and to the knowledge of TENS and the Seller, no facts are in
existence on which an action, lawsuit or other legal or administrative
proceeding might be brought. Neither Seller nor TENS is subject to any court
order, writ, injunction, court decree, settlement agreement, or judgment that
contain or order any ongoing obligations (whether prohibitory or mandatory in
nature) on the part of any of them.
2.11 ADDITIONAL INFORMATION. Attached to the Exception Schedule are
true, complete and correct lists and summaries of the following items,
including, without limitation, a description of all Encumbrances to which any
such item is subject, and Seller has delivered to Buyer true, complete and
correct copies of any documents, instruments or agreements referred to below or
in such lists and summaries, or underlying any item described therein:
(a) REAL PROPERTY [SCHEDULE 2.11(A)]. A legal description of
all real property owned or leased by TENS or for which it has an option
to purchase, which schedule includes, with respect to each property,
(i) the use to which such property is put, and (ii) whether such
property is owned or leased and, if leased, the name of the lessor and
a copy of any agreement pursuant to which the property is leased;
(b) INVENTORY, EQUIPMENT, MACHINERY AND FURNITURE [SCHEDULE
2.11(B)]. All of TENS' inventory, equipment, machinery, office
equipment and furniture, indicating such item's location and whether
such item is owned or leased, and if leased, the name of the lessor and
copy of the lease and payment status;
(c) INTELLECTUAL PROPERTY [SCHEDULE 2.11(C)]. All patents,
trademarks, service marks, copyrights and other intellectual property
rights, and applications therefor or registrations thereof, wherever
issued or pending; all trade names, assumed or fictitious names, logos,
labels and other trade rights, whether or not registered, where
registered and
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where used; all inventions, discoveries, improvements, processes,
formulae, trade secrets, ideas and other knowhow, whether patentable or
not; all shop rights; and all other agreements (including agreements
with TENS' employees) relating in whole or in part to any of the
foregoing, and with respect to each of the foregoing, owned, licensed
or used by TENS;
(d) LICENSES AND PERMITS [SCHEDULE 2.11(D)]. All licenses,
permits, franchises, and similar rights relating to TENS' business;
(e) CONTRACTS [SCHEDULE 2.11(E)]. Each contract, agreement or
commitment to which TENS is a party, by which it is bound or to which
it or its properties are subject, which involves at least $10,000;
(f) RECEIVABLES [SCHEDULE 2.11(F)]. All accounts, notes and
contracts receivables of TENS in a 30, 60, 90 and over 90 day aged
receivables format and separately listing all amounts receivable from
Seller or any Affiliate of Seller;
(g) PAYABLES [SCHEDULE 2.11(G)]. All accounts and notes
payable by TENS in a 30, 60, 90 and over 90 day aged payables format
and separately listing all amounts payable to Seller or any Affiliate
of Seller;
(h) INDEBTEDNESS [SCHEDULE 2.11(H)]. All indebtedness owed by
TENS or to which any of its assets are subject, summarizing for each
item of indebtedness and material terms thereof and specifying all
assets collateralizing such indebtedness;
(i) INSURANCE [SCHEDULE 2.11(I)]. All insurance policies or
bonds carried by TENS or for its benefit of its employees, including,
without limitation, property, title, casualty, liability, workers
compensation and auto policies, as well as a listing of any premiums,
audit adjustments or retroactive adjustments due or pending or such
policies or any predecessor policies;
(j) PERSONNEL [SCHEDULE 2.11(J)]. The name, current salary or
wage rate, last raise date and amount, current bonus arrangements, last
bonus date and amount, and any other compensation arrangements
(excluding employee insurance and benefit plans described in SCHEDULE
2.11(K)) of each director, officer and employee of TENS, together with
a description of any licenses held by such person that are germane to
TENS' business; the name and address of any other Person who is
authorized to bind TENS contractually, including, without limitation,
independent drivers or independent contractors, and all written or oral
arrangements of TENS with any employee, agent, consultant or
independent contractor, specifically identifying any arrangement which
cannot be terminated on notice of 14 or fewer days without liability to
TENS or that entitles the beneficiary thereof to receive any
compensation continuation or severance payment or retain any position
with TENS;
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(k) EMPLOYEE PLANS [SCHEDULE 2.11(K)]. All bonus, incentive
compensation, deferred compensation, profit-sharing, retirement,
pension, welfare, group insurance, death benefit, or other fringe
benefit plans, arrangements or trust agreements of TENS, together with
copies of the most recent reports with respect to such plans,
arrangements, or trust agreements filed with any Governmental
Authority; and
(l) BANK ACCOUNTS [SCHEDULE 2.11(L)]. The name, address and
contact person of each bank or other financial institution in which
TENS has an account or safe deposit box, the account number, account
name and type of account, the names of all persons authorized to draw
thereon or have access thereto, and the names of all persons, if any,
holding powers of attorney to act for TENS; and
2.12 TITLE TO AND QUIET POSSESSION OF ASSETS. TENS has good and
marketable title to all of its respective assets and interests in assets,
whether real, personal, mixed, tangible or intangible, that are reflected in its
balance sheet as of December 31, 1996, or that have been acquired since December
31, 1996, except for inventory items sold or consumed in the ordinary course of
business after December 31, 1996. All such assets are free and clear of all
Encumbrances except as set forth in the Exception Schedule. At the Closing Date,
TENS will have full, free and exclusive use and quiet enjoyment of its assets,
and all rights pertaining thereto except for Encumbrances disclosed in the
Exception Schedule. There are no Persons other than TENS in possession of any
portion of the assets owed or leased by TENS. To the knowledge of TENS and
Seller, there are no condemnations or other taking planned or proposed by any
Government Authority or private party which will affect the assets owned or used
by TENS. To the knowledge of TENS and Seller, the continued use by TENS of its
assets in the same manner previously used by it will not violate or infringe
upon the rights of others. Without limiting the generality of the foregoing, to
the knowledge of TENS and the Seller, TENS has the exclusive right, title and
interest in and to any trademarks, service marks, trade names, and copyrights
currently used, and to the knowledge of TENS and the Seller, the continued use
of any logo, trade name, license, or other intangible by TENS does not and will
not violate or infringe upon the rights of any third party.
2.13 CONDITION OF ASSETS. (a) TENS' premises, office equipment,
machinery, vehicles, furnishings and fixtures are in operating condition and
repair consistent with TENS' normal practices subject only to ordinary wear and
tear. There are no outstanding requirements or recommendations by TENS' insurers
requiring or recommending any repairs or work be done with respect to TENS'
assets or properties.
(b) TENS' accounts receivable are evidenced by valid and
enforceable written invoices, contracts or other agreements. All
amounts paid or collected under such contracts or agreements which are
required by applicable Laws, including the Business Laws, to be
deposited in trust or deposit accounts have been so deposited on a
timely basis in accordance with such Laws. All such trust and deposit
accounts have been established, funded and maintained in accordance
with all applicable Laws, including the Business Laws. Except as set
forth in the Exception Schedule, TENS' accounts receivable are fully
collectible without
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resort to legal proceedings or collection agencies, and are not subject
to any refunds or other adjustments, or any defenses, rights of set
off, assignments, Encumbrances, or conditions enforceable by third
parties, except to the extent reserved against in the Financial
Information.
(c) TENS' inventories consist of items held for sale of a
quality and quantity usable in the ordinary course of business, and
have a current cost basis of $175,000 in the aggregate.
(d) All contracts, leases, plans or other arrangements to
which TENS is a party, by which it is bound or to which it or its
assets are subject are in good standing, in full force and effect,
comply in all material respects with applicable Laws, and constitute
valid and binding obligations of the respective parties thereto. To the
knowledge of TENS and the Seller, no party (other than TENS) to any
such contract, lease, plan or other arrangement is in default
thereunder, and no event has occurred which (with or without notice,
lapse of time, or the happening of any other event) would constitute a
default thereunder.
(e) All accounting records, tax records, operating and legal
records, and all other records pertaining to TENS and its business,
properties and affairs, are located at the business office of TENS at
the Business. No such records are stored by or in the possession of
Seller or her Affiliates. TENS' corporate record books (including stock
records) are complete, accurate and up to date with all necessary
signatures; set forth all meetings and actions taken by TENS'
shareholders and directors, and all transactions involving the TENS'
capital stock; and contain all canceled stock certificates.
2.14 HAZARDOUS SUBSTANCES. To the knowledge of TENS and Seller, during
TENS' ownership, lease or use of property owned, leased or used by it (the
"PROPERTY"), (a) the Property is not being and has not been used by TENS for the
storage, treatment, generation, transportation, processing, handling, burial or
disposal of any Hazardous Substance in material violation of any Laws, (b) no
release of a Hazardous Substance has occurred by TENS on or about the property
in quantities which individually or in the aggregate would require reporting to
any Governmental Authority; (c) no underground storage tanks are or have been
located on the Property; (d) there are not and have not been any Hazardous
Substances resulting from TENS' ownership, lease or use of the Property in
concentrations which exceed amounts permitted by applicable Laws on the
Property; (e) all environmental permits and authorizations necessary to the
continued use of the Property by TENS and the operation of the facilities
located thereon by TENS have been obtained, are being complied with, and all
fees and assessments in association therewith have been timely paid; (f) the
Property is not being and has not been used by TENS as a site for burial of
sanitary waste or other non-hazardous waste; (g) the off-site transportation,
storage, treatment, recycling or disposal of Hazardous Substances and
non-hazardous substances existing on, generated or removed from the Property by
TENS have been and are in compliance with applicable Laws; and (h) there are no
capital improvements requiring any expenditures by TENS in order to comply with
any current or proposed Environmental Laws. To the knowledge of TENS or Seller
(without investigation), each
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of (a) through (g) of the immediately preceding sentence is true with respect to
the Property prior to its ownership or lease by TENS, and with respect to
properties adjacent to the Property.
2.15 OPERATION OF BUSINESS. TENS and the Business are in compliance in
all material respects with all Business Laws applicable to TENS or the Business.
2.16 NO ERISA PLANS, LABOR ISSUES OR AFFILIATE PAYMENTS. TENS does not
currently sponsor, maintain or contribute to, and has not at any time sponsored,
maintained or contributed to any employee benefit plan which is or was subject
to any of the provisions of the Employee Retirement Income Security Act of 1974
in which any of its employees are or were participants (whether or not on an
active or frozen basis). TENS has no collective bargaining agreements with any
labor union or other representative of employees. TENS has not engaged in any
unfair labor practices which could have a Material Adverse Effect. TENS has no
pending or to the knowledge of TENS or Seller, threatened, dispute with any of
its existing or former employees. There are not labor disputes pending, or to
the knowledge of TENS or Seller, threatened by TENS' current or former
employees. Since December 31, 1996, TENS has not made any payments to any of its
Affiliates, and has not granted or agreed to grant any bonus to any current
employee, any general increase in the rates of salaries or compensation of its
employees or any specific increase to any current employee, except in accordance
with regularly scheduled periodic bonuses and increases identified on Schedule
2.11(k), and has not provided for any new pension, retirement or other employee
benefits to any of its current employees or any increases in any existing
benefits.
2.17 BROKERS. Neither Seller nor TENS or any of their respective
Affiliates have employed any broker, agent or finder, or incurred by any
liability for any brokerage fees, agent's fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement.
2.18 UNTRUE STATEMENTS. This Agreement and all schedules, documents and
information furnished by Seller or any of her respective representatives to
Buyer and its representatives pursuant hereto or in connection with the
transactions contemplated by this Agreement do not include any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements made herein and therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
As material inducements for the execution, delivery and performance of
this Agreement by Seller, Buyer hereby represents and warrants to Seller that as
of the date hereof and the Closing Date:
3.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of Texas, and has all the necessary
powers to own its business as now owned and operated by it.
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3.2 AUTHORITY. Buyer has the absolute and unrestricted right, power,
legal capacity, and authority to enter into and perform its obligations and
under this Agreement. This Agreement, together with all other agreements,
documents, certificates and instruments executed by Buyer in connection
herewith, constitute valid and legally-binding obligations of Buyer, and are
enforceable against Buyer in accordance with their terms.
3.3 BROKERS. Neither Buyer nor any of its Affiliates have employed any
broker, agent, or finder, or incurred any liability for any brokerage fees,
agent's fees, commissions or finder's fees in connection with the transactions
contemplated herein.
3.4 FINANCIAL INFORMATION. Buyer has delivered to Seller the unaudited
balance sheet of Buyer as of September 30, 1996 and the related statements of
operations of Buyer for the nine-month period ending September 30, 1996, and the
audited balance sheet of Buyer as of December 31, 1995, and related statements
of operation for the fiscal year ended December 31, 1995. To Buyer's knowledge,
the data contained in such financial statements is true and accurate in all
material respects and was prepared in all material respects in accordance with
GAAP (except in the case of unaudited financial statements for the omission of
footnotes and year-end audit adjustments).
3.5 ABSENCE OF CERTAIN CHANGES; SOLVENCY.
Since September 30, 1996, (i) there has been no material adverse change
in the consolidated net worth of the Buyer, (ii) there has been no physical
damage, destruction or loss suffered by Buyer that would, after taking into
account any insurance recoveries payable in respect thereof, have a material
adverse effect on the Buyer, and (iii) no event has occurred and no condition
exists which, individually or in the aggregate, would have a material adverse
effect on this Agreement, the Buyer, or the transactions contemplated by this
Agreement.
(a) Buyer is solvent and, immediately after giving effect to
the consummation of the transactions contemplated by this Agreement, will be
solvent.
3.6 LITIGATION; ORDERS. There are no lawsuits, actions, administrative
or arbitration or other proceedings or governmental investigations pending or,
to Buyer's knowledge, threatened by or against Buyer to the extent reasonably
expected to affect or impact the ability of Buyer to consummate the Agreement.
There are no judgments or outstanding orders, injunctions, decrees, stipulations
or awards (whether rendered by a court or administrative agency, or by
arbitration) against Buyer to the extent reasonably expected to affect Buyer or
impact the ability of Buyer to consummate this Agreement.
3.7 PUBLIC FILINGS. There are no registrations, fillings, applications,
notices, consents, approvals, orders, qualifications and waivers required to be
made, filed, given or obtained by Buyer or any of its Affiliates with, to or
from any Person in connection with the execution, delivery, performance and
consummation of this Agreement, except for those that become applicable solely
as a result of the specific regulatory status of Buyer of its Affiliates.
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3.8 ACCURACY OF REPRESENTATIONS AND WARRANTIES; SCHEDULES AND EXHIBITS.
(a) No representation, warranty or other statement made by or
on behalf of Buyer in this Agreement or any other document executed or to be
executed in connection therewith contains any untrue statement of a material
fact or omits to state any material fact necessary to make the statements herein
or therein taken as a whole not misleading in light of the circumstances under
which they were made.
(b) Disclosure of any fact or item by Buyer in any Schedule
hereto referenced by a particular paragraph or section in this Agreement shall,
should the existence of the fact or item or its contents be relevant to any
other paragraph or section, be deemed to be disclosed with respect to that other
paragraph or section whether or not an explicit cross-reference appears,
ARTICLE 4
INDEMNIFICATION
4.1 INDEMNIFICATION OF BUYER. Seller shall indemnify, defend and hold
harmless Buyer and its Affiliates against and in respect of any and all Claims
that such indemnified persons shall incur or suffer, which (i) arise, result
from or relate to any breach of, or failure by Seller to perform, any of her
representations, warranties, covenants or agreements in or under this Agreement,
or (ii) arise, result from or relate to the operation of TENS before the Closing
Date.
4.2 INDEMNIFICATION OF SELLER. Buyer shall indemnify, defend and hold
harmless Seller against and in respect of any and all Claims that Seller shall
incur or suffer, which (i) arise, result from or relate to any breach of, or
failure by Buyer to perform, any of its representations, warranties, covenants
or agreements in or under this Agreement, or (ii) arise, result from or relate
to the operation of TENS by Buyer after the Closing Date.
4.3 INDEMNIFICATION PROCEDURE.
(a) Promptly upon the receipt of notice of any third-party
Claim, judicial or otherwise, with respect to any matter as to which
indemnification may be claimed under this Article 4, the indemnified party shall
give written notice thereof to the indemnifying party together with such
information respecting such matter as the indemnifying party together with such
information respecting such matter as the indemnified party shall then have;
PROVIDED HOWEVER, that the failure of the indemnified party to give notice as
provided herein shall not relieve the indemnifying party of any obligations, to
the extent the indemnifying party is not materially prejudiced thereby. If
indemnification is sought with respect to a third-party (I.E., one who is not a
party to this Agreement) Claim asserted or brought against an indemnified party,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party. After such notice from the indemnifying party to such
indemnified party of its election to so
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assume the defense of such a third-party Claim, the indemnifying party shall not
be liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof, other than
reasonable and necessary costs of investigation, unless the indemnifying party
has failed to assume and diligently prosecute the defense of such third-party
Claim and to employ counsel reasonably satisfactory to such indemnified person.
An indemnifying party who elects not to assume the defense of a third-party
Claim shall not be liable for the fees and expenses of more than one counsel in
any single jurisdiction for all parties indemnified by such indemnifying party
with respect to such Claim or with respect to Claims separate but similar or
related in the same jurisdiction arising out of the same general allegations.
Notwithstanding any of the foregoing to the contrary, the indemnified party will
be entitled to select its own counsel and assume the defense of any action
brought against it if the indemnifying party fails to select counsel reasonably
satisfactory to the indemnified party or if counsel fails to diligently
prosecute, the expenses of such defense to be paid by the indemnifying party. No
indemnifying party shall consent to entry of any judgment or enter into any
settlement with respect to a claim without the consent of the indemnified party,
which consent shall not be unreasonably withheld. No indemnified party shall
consent to entry of any judgment or enter into any settlement of any such action
the defense of which has been assumed by an indemnifying party without the
consent of such indemnifying party, which consent shall not be unreasonably
withheld.
(b) If any party becomes aware of a fact, circumstance, claim,
situation, demand or other matter (other than a third party Claim) for which it
or any other indemnified party has been indemnified under this Article 4 and
which has resulted or could result in a Claim being owed to the indemnified
party by the indemnifying party, the indemnified party shall give prompt written
notice to the indemnifying party of the Claim, stating the nature and basis of
the Claim and the amount claimed thereunder, together with supporting
information to the Claim, if any. If the indemnifying party does not notify the
indemnified party within 10 days from the date such Claim notice is given that
it disputes the Claim, the amount of the Claim shall conclusively be deemed to
be a liability of the indemnifying party hereunder.
(c) If an indemnified party and an indemnifying party cannot
reach agreement with respect to the validity and amount of any Claim within 20
days after notice thereof is first given, the validity and amount thereof, as
the case may be, shall be finally settled pursuant to the dispute resolution
procedure set forth in Section 6.10 below.
(d) Payments of all amounts owing hereunder with respect to
any Claim shall be made immediately after (i) the settlement between the parties
of the third party Claim, or (ii) if the final resolution of the dispute
pursuant to Section 6.10.
4.4 INDEMNIFICATION THRESHOLD. Notwithstanding any provision to the
contrary contained in this Agreement, neither Buyer nor Seller shall make any
Claim against the other party for any breach of representation, warranty,
covenant or agreement under this Agreement until the dollar amount of all loss
to such other party for such breaches suffered after the Closing, shall exceed
in the aggregate the amount of $25,000, and, if such amount is exceeded, Buyer
or Seller, as the case
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may be, shall be required to pay the entire amount of such aggregate loss to the
other party for all such breaches; PROVIDED, HOWEVER, that a party's obligation
and liability for any and all breaches of the representations, warranties,
covenants and agreements set forth in this Agreement shall not exceed in the
aggregate an amount equal to the purchase price set forth in Section 1.2.
4.5 OFFSET. If Buyer is entitled to indemnification pursuant to this
Article 4 (including the uncollectability of any accounts receivable of TENS as
of the Closing Date to the extent provided in Section 2.11(f) and the Exception
Schedule), Buyer at its option shall be entitled to offset the amount of any
such Claims against any payments otherwise due to Seller under this Agreement
including any payments due under the Note. In addition, on or before March 31,
1998, Buyer's independent auditor will determine the gross profit of TENS for
the twelve months ended December 31, 1997 ("1997 Gross Profit"). If the 1997
Gross Profit is less than $850,000, then the principal amount of the Note shall
be reduced by the same percentage amount of such shortfall by reducing the
payments due under the Note in the inverse order of their maturity. By way of
example, if 1997 Gross Profit decreases 10% below $850,000, the Note's principal
amount will decrease by 10% of the original principal amount from $400,000 to
$360,000.
The Company will determine the amount, if any, by which the Smith
Collections for the twelve month period ended January 31, 1998 are less than
$135,000, and shall send a notice to Seller as to the amount of any such
deficiency (the "Collections Deficiency"). For every $100 of the Collections
Deficiency, Seller will immediately reimburse the Company for the sum of $63.00
up to an aggregate reimbursement of $25,000 by, at her option, cash payment
and/or a reduction of the payments due to her under the Note.
The rightful exercise of the right of offset hereunder shall not
constitute a breach or default of any provision requiring payment of sums so
offset, or relieve the party against whom such right of offset is exercised from
performing its obligations thereunder.
ARTICLE 5
NON-COMPETITION AGREEMENT
As used in this Article 5, any reference to "Buyer" shall mean and
include its Affiliates.
5.1 COVENANTS NOT TO COMPETE OR INTERFERE. For a period beginning on
the Closing Date and ending two years after the termination of the Employment
Agreement, neither the Seller nor any of her Affiliates shall:
(a) directly or indirectly, engage or invest in, finance, own,
manage, operate, control or participate in the ownership, management,
operation or control of, be employed by, associated or in any manner
connected with, render services or advice to, or assist (whether or not
for compensation), any Competing Business (as defined below); PROVIDED
HOWEVER, that this Section 5.1(a) shall not preclude Seller or her
Affiliates from investing in
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up to an aggregate 1% of the securities of any enterprise engaged in a
Competing Business (but without otherwise participating in the
activities of such enterprise) if such securities are listed on any
United States national or regional securities exchange or have been
registered under Section 12(g) of the Securities Exchange Act of 1934,
provided that Seller and her Affiliates combined do not purchase or
hold (directly or indirectly) an aggregate equity interest of more than
5% in any such enterprise.
(b) directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
her own benefit or for the benefit of any other Person, solicit, divert
or take away from TENS or Buyer any Persons who, at any time, were or
are customers or clients of TENS or Buyer.
(c) directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer, employee,
employer, advisor (whether paid or unpaid), stockholder, partner or in
any other individual or representative capacity whatsoever, either for
their own benefit or for the benefit of any other Person, either (i)
hire, attempt to hire, contact or solicit with respect to hiring any
employee of TENS or Buyer, (ii) induce or otherwise counsel, advise or
encourage any employee of TENS or Buyer to leave the employment of TENS
or Buyer, or (iii) induce any distributor, vendor, supplier,
representative or agent of or to TENS or Buyer to terminate or modify
its relationship with TENS or Buyer.
(d) for himself or on behalf of any other Person (whether as
an individual, agent, servant, employee, employer, officer, director,
shareholder, investor, principal, consultant or in any other capacity)
use or disclose to any Person any of the following relating in any way
to TENS, Buyer or their respective businesses: trade secrets;
proprietary information; "know-how;" marketing, distribution and
advertising plans and techniques; the existence or terms of contracts
or potential contracts with, or other information identifying or
relating to past, existing or prospective customers, distributors or
vendors; cost data, pricing policies, and financial and accounting
information; PROVIDED, HOWEVER, that after reasonable measures have
been taken to maintain confidentiality and after giving reasonable
notice to Buyer specifying the information involved and the manner and
extent of the proposed disclosure thereof any disclosure of such
information may be made to the extent required by applicable Laws or
judicial or regulatory process.
"Competing Business" means any Person who distributes orthopedic physical
therapy and electronic medical equipment in the geographic area in which TENS
conducts operations from time to time during the effectiveness of the covenant
set forth in this Article 5.
Notwithstanding the foregoing provisions of this Section 5.1, in the
event that Seller accelerates the Note in accordance with the terms thereof due
to a default thereunder by Buyer, the
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provisions of this Section 5.1 shall terminate on the date of such acceleration
and be of no further force and effect; PROVIDED, that upon the cure by Buyer of
the default (whether by payment in full of the Note or otherwise), the
provisions of this Section 5.1 shall again be in full force and effect.
5.2 NECESSITY AND REASONABLENESS. Seller hereby specifically
acknowledges, agrees and represents to Buyer as a material inducement for Buyer
to enter into this Agreement (all references to Buyer shall mean and include its
Affiliates):
(a) the covenants and agreements of Seller in this Article 5
are necessary and essential to the protection of the business which will be
conducted by TENS and Buyer after the Closing Date, and to enable Buyer to
realize and derive all of the benefits, rights and expectations associated with
this Agreement;
(b) Buyer will suffer great loss and irreparable harm if
Seller directly or indirectly enters into a Competing Business;
(c) the temporal and other restrictions contained in this
Article 5 are in all respects reasonable and necessary to protect the business
goodwill, trade secrets, prospects and other business interests of Buyer in
respect of TENS;
(d) the enforcement of this Agreement in general, and of this
Article 5 in particular, will not work an undue or unfair hardship on Seller or
otherwise be oppressive to her, it being specifically acknowledged and agreed by
Seller that she has other business interests and opportunities which will
provide her adequate means of support if the provisions of this Article 5 are
enforced;
(e) the enforcement of this Agreement in general, and of this
Article 5 in particular, will neither deprive the public of needed goods or
services nor otherwise be injurious to the public; and
(f) good, independent and valuable consideration exists for
the agreement of Seller to be bound by the covenants and agreements contained in
this Article 5.
5.3 ENFORCEMENT. Because of the unique nature of TENS' assets and
business, the business to be conducted and further developed by Buyer therewith,
and the confidential and proprietary information relating thereto, Seller
acknowledges, understands and agrees that Buyer will suffer immediate and
irreparable harm if Seller or her Affiliates fail to comply with any of their
respective obligations under this Article 5 and that monetary damages will be
inadequate to compensate Buyer for such breach. Accordingly, Seller agrees that
Buyer shall, in addition to any other remedies available to it at law or in
equity, be entitled to temporary, preliminary, and permanent injunctive relief
and specific performance to enforce the terms of this Article 5 without the
necessity of proving inadequacy of legal remedies or irreparable harm, or
posting bond. This Section 5.3 does not, and shall not be construed to
constitute a waiver of the parties' rights and
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obligations under Section 6.10 with respect to arbitration of disputes other
than those relating to the enforcement of the confidentiality, non-competition
and non-interference covenants of this Article 5.
ARTICLE 6
MISCELLANEOUS
6.1 CERTAIN DEFINITIONS. As used in this Agreement, each of the
following terms has the meaning ascribed to it in this Section 6.1:
(a) "AFFILIATE" when used to indicate a relationship with any
Person, means: (i) any corporation or organization of which such Person is an
officer, director or partner or is directly or indirectly the beneficial owner
of at least 10% of the outstanding shares of any class of equity securities or
financial interest therein; (ii) any trust or other estate in which such Person
has a beneficial interest or as to which such Person serves as trustee or in any
similar fiduciary capacity; or (iii) any Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, or is acting as agent on behalf of, or as an officer or
director of, such Person. As used in the definition of Affiliate, the term
"control" (including the terms "controlling," "controlled by" or "under common
control with") means the possession, direct or indirect, of the power to direct,
cause the direction of or influence the management and policies of a Person,
whether through the ownership of voting securities, by contract, through the
holding of a position as a director or officer of such Person, or otherwise.
(b) "AGREEMENT" means and includes this Agreement and the
schedules and exhibits hereto.
(c) "BUSINESS LAWS" means all Laws relating to the
establishing, owning, operating, managing, maintaining, improving or conducting
the Business.
(d) "CLAIMS" mean any claims, demands, actions, costs,
damages, losses, expenses, obligations, liabilities, recoveries, judgments,
settlements, suits, proceedings, or causes of action, including interest,
penalties (including civil and criminal penalties) and attorneys' fees.
(e) "ENCUMBRANCE" means and includes (i) any security
interest, mortgage, deed of trust, pledge, lien (including unpaid debts for
which a lien arising under Laws may be asserted if such debts remain unpaid),
encumbrance, charge, defect, option, right of first refusal, preferential
purchase right, proxy or voting trust or agreement, preemptive right, adverse
Claim, equity, power of attorney, equitable interest or servitude, other right
or interest of any other Person, or restriction of any kind, including but not
limited to, any restriction or servitude on the use, transfer, receipt of
income, or other exercise of any attributes of ownership, and (ii) any Uniform
Commercial Code financing statement or other public filing, notice, or record
that by its terms purports to evidence or notify interested parties of any of
the matters referred to in clause (i) that has not been terminated or released
by another proper public filing, notice, or record.
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(f) "ENVIRONMENTAL LAWS" mean all Laws relating to protection
of the environment, including, without limitation, land use, zoning, health,
chemical use, safety and sanitation Laws, and Laws governing the on or off-site
use, storage, treatment, recycling, generation, transportation, processing,
handling, production or disposal of Hazardous Substances or sanitary
(non-hazardous) substances or waste, including, without limitation, garbage,
refuse or other similar substances.
(g) "GROSS PROFIT" means gross billings of TENS less cost of
goods sold, all as determined in accordance with generally accepted accounting
principles consistently applied in accordance with prior practice..
(h) "GOVERNMENTAL AUTHORITY" means any federal, state, county,
municipal, or other local governmental body, legislature, agency, commission,
board, department, court or other authority, or any subdivision thereof, or
private body exercising any regulatory, judicial or taxing authority, and
includes, without limitation, the Federal Trade Commission, the Food and Drug
Administration, the Environmental Protection Agency, the Occupational Safety and
Health Administration, and the Internal Revenue Service.
(i) "HAZARDOUS SUBSTANCE" means, without limitation, (i) any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulations, polychlorinated biphenyls, benzene, petroleum and petroleum
products, methane, or (ii) hazardous materials, hazardous wastes, biomedical
wastes, hazardous or toxic substances or related materials defined as such in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Sections 9601 ET SEQ.), the Resource Conservation
and Recovery Act, as amended (42 U.S.C. Sections 6901 ET SEQ.), or any other
Environmental Laws.
(j) "LAWS" mean any statute, law, code, ordinance, rule,
regulation, policy, guideline interpretation, order, permit, license,
certificate, writ, judgment, injunction, decree, determination, award or other
decision or directive of, or promulgated, issued or declared by any Governmental
Authority.
(k) "PERSON" means an individual, corporation, limited
liability company, partnership, limited partnership, joint venture, joint stock
company, firm, company, syndicate, trust, estate, association, Governmental
Authority, business, organization or any other incorporated or unincorporated
entity.
(l) "SMITH COLLECTIONS" shall mean the actual amounts
collected by Buyer or TENS from sales made by Mike Smith ("SMITH") as an
employee of Buyer.
(m) "TENS STOCK" means the capital stock of Texas TENS, Inc.,
a Texas corporation, authorized by its articles of incorporation, as amended.
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6.2 FURTHER ASSURANCES. From time to time, as and when requested by any
party hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby, including, without limitation,
the transfer to Buyer of the entire legal and beneficial ownership of the TENS
Stock, free and clear of all Encumbrances.
6.3 PUBLIC ANNOUNCEMENTS. Except as mutually agreed, neither Buyer,
Seller nor any of their respective Affiliates or agents shall issue any press
release or public announcement regarding the execution of this Agreement or the
transactions contemplated thereby.
6.4 EXPENSES. Except as otherwise explicitly provided in this
Agreement, Seller and Buyer shall bear their own respective legal and accounting
fees, and other costs and expenses with respect to the negotiation, execution
and delivery of this Agreement, and consummation of the transactions
contemplated hereby. None of such expenses of Seller will be paid by TENS.
6.5 NOTICES AND WAIVERS. Any notice, instruction, authorization,
request, demand or waiver hereunder shall be in writing, and shall be delivered
either by personal delivery, by telegram, telex, telecopy or similar facsimile
means, by certified or registered mail, return receipt requested, or by courier
or delivery service, addressed to the parties hereto at the address indicated
beneath their respective signatures on the execution pages of this Agreement, or
at such other address and number as a party shall have previously designated by
written notice given to the other parties in the manner hereinabove set forth.
Notices shall be deemed given when received, if sent by facsimile means
(confirmation of such receipt by confirmed facsimile transmission being deemed
receipt of communications sent by facsimile means); and when delivered and
receipted for (or upon the date of attempted delivery where delivery is
refused), if hand-delivered, sent by express courier or delivery service, or
sent by certified or registered mail, return receipt requested.
6.6 SURVIVAL. All representations and warranties contained in this
Agreement shall survive the Closing regardless of any investigation made by a
party hereto.
6.7 KNOWLEDGE, GENDER AND CERTAIN REFERENCES. Unless otherwise provided
for herein, a representation or statement made herein to the knowledge of TENS
or Seller shall mean the actual knowledge of Seller. Unless otherwise specified,
all references herein to days, weeks, months or years shall be to calendar days,
weeks, months or years. Whenever the context requires, the gender of all words
used herein shall include the masculine, feminine and neuter. References to
Articles or Sections shall be to Articles or Sections of this Agreement unless
otherwise specified. The headings and captions used in this Agreement are solely
for convenient reference and shall not affect the meaning or interpretation of
any article, section or paragraph herein, or this Agreement. The terms "hereof,"
"herein" or "hereunder" shall refer to this Agreement as a whole and not to any
particular article, section or paragraph. The terms "including" or "include" are
used herein in an illustrative sense and not to limit a more general statement.
When computing time periods described
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by a number of days before or after a stated date or event, the stated date or
date on which the specified event occurs shall not be counted and the last day
of the period shall be counted.
6.8 SUCCESSOR AND ASSIGNS. This Agreement shall bind, inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns, and if an individual, by his executors,
administrators, and beneficiaries of his estate by will or the laws of descent
and distribution. This Agreement and the rights and obligations hereunder shall
not be assignable or delegable by any party; provided, however, that Buyer shall
be entitled to assign its rights and delegate its duties hereunder to any
corporate Affiliate, but any such assignment shall not have the effect of
terminating Buyer's duties or obligations as provided herein.
6.9 APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas and of the United States
applicable in Texas, excluding, however, (i) any provision of such laws that
would render invalid any provision of this Agreement, and (ii) any rule of
conflict-of-laws that would direct or refer the resolution of any issue to the
laws of any other jurisdiction. Each party hereto hereby acknowledges and agrees
that it has consulted legal counsel in connection with the negotiation of this
Agreement and that it has bargaining power equal to that of the other parties
hereto in connection with the negotiation and execution of this Agreement.
Accordingly, the parties hereto agree that the rule that an agreement shall be
construed against the draftsman shall have no application in the construction or
interpretation of this Agreement.
6.10 DISPUTE RESOLUTION; SEVERABILITY; JUDICIAL MODIFICATION. Except as
otherwise contemplated by Section 5.3 (enforcement of non-compete), any dispute
or controversy between the parties hereto arising from or relating to this
Agreement or the construction, validity, interpretation, meaning, performance,
non-performance, enforcement, operation or breach of this Agreement shall be
submitted to mediation, and if such mediation is unsuccessful then to mandatory,
final and binding arbitration. Any mediation or arbitration under this Agreement
shall take place pursuant to the following procedures:
(a) If a dispute or controversy arises either party will
request that Judicial Arbitration and Mediation Service ("JAMS") (or
similar mediation service of a similar national scope if JAMS no longer
then exists) appoint an independent mediator, who shall serve as
mediator for all purposes hereof. Each party shall pay an equal
proportion of the cost of the mediator's services, in advance upon
request by the mediator or any party.
(b) Within ten (10) days after appointment of the mediator,
the mediator shall schedule a meeting among the parties and the
mediator for the purpose of mediating the dispute. If the parties do
not resolve the dispute within thirty (30) days after appointment of
the mediator, the dispute shall be resolved in arbitration.
(c) Within fifteen (15) days after the mediation, the parties
shall each name and appoint their own arbitrator. If either party fails
to name and appoint an arbitrator timely, then an arbitrator shall be
appointed for that party by the Senior United States District Judge
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for the United States District Court in Houston, Texas. The two
arbitrators so appointed shall appoint a third arbitrator within
fifteen (15) days, and if they cannot agree, the appointment of the
third arbitrator will he made by the Senior United States District
Judge for the United States District Court in Houston, Texas.
(d) Each party shall bear its own arbitration fees, costs and
expenses. The arbitration hearing shall be held in Houston, Texas
within fifteen (15) days of the appointment of the third arbitrator at
a location designated by a majority of the arbitrators within ten (10)
days of the appointment of the third arbitrator. The Commercial
Arbitration Rules of the American Arbitration Association, as
supplemented hereby, shall apply to the arbitration. The substantive
laws of the State of Texas (excluding conflict of laws provisions)
shall also apply to the arbitration.
(e) The arbitration hearing shall be concluded within ten (10)
days unless otherwise ordered by a majority of the arbitrators, and the
award thereon shall be made within fifteen (15) days after the closing
of submission of evidence. An award rendered by a majority of the
arbitrators shall be final and binding on all parties to the proceeding
and non-appealable, and judgment on the award may be entered by any
party in a court of competent jurisdiction.
(f) The parties stipulate that the provisions of this Section
6.10 shall be a complete defense to any suit, action or proceeding
instituted in any federal, state or local court or before any
administrative tribunal with respect to any controversy or dispute
arising out of this Agreement between the parties, and the parties
waive any right to have the award of the arbitrators appealed. The
arbitration provisions of this Agreement shall, with respect to such
controversy or dispute, survive the termination or expiration of this
Agreement. Should any party institute judicial proceedings seeking to
avoid the mediation or arbitration provisions of this Agreement, or
should any party in judicial proceedings successfully contest an
arbitration award rendered under this Section 6.10, the other parties
shall be entitled to recover reasonable attorney's fees, costs and
expenses associated with the judicial proceedings, with the amount of
attorney's fees, costs and expenses to be determined by the court. If a
party fails to comply with the terms of an arbitration award made under
this Agreement, the other parties shall be entitled to recover
reasonable attorney's fees, costs and expenses incurred in seeking
judicial confirmation of the award, with the amount of attorney's fees,
costs and expenses to be determined by the court. Failure to comply
with the terms of an arbitration award shall include without limitation
the failure to pay the full amount due under an arbitration award
within the time specified in the arbitration award.
(g) In determining any award under this Section 6.10, the
arbitrators may award amounts for special damages, consequential
damages, incidental damages, lost profits, damages for lost business
opportunity punitive damages or exemplary damages.
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Neither any party hereto nor the arbitrators may disclose the existence or
results of any arbitration hereunder without the prior written consent of the
other parties; nor may any party hereto disclose to any party any confidential
information disclosed by any other party hereto in the course of an arbitration
hereunder without the prior written consent of such other party.
6.11 SEVERABILITY; JUDICIAL MODIFICATION. If any term, provision,
covenant, or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions shall remain in full force and effect and
shall in no way be affected, impaired or invalidated. It is hereby stipulated
and declared to be the intention of the parties that they would have executed
this Agreement had the terms, provisions, covenants and restrictions which may
be hereafter declared invalid, void, or unenforceable not initially been
included herein. If a court of competent jurisdiction determines that the length
of time or any other restriction, or portion thereof, set forth in Article 5 is
overly restrictive and unenforceable, the court may reduce or modify such
restrictions to those which it deems reasonable and enforceable under the
circumstances, and the parties agree to request the court to exercise such
power, and, as so reduced or modified, the parties hereto agree that the
restrictions of Article 5 shall remain in full force and effect, shall be
enforceable and shall be enforced.
6.12 AMENDMENT AND ENTIRETY. This Agreement, the Employment Agreement,
and the Note, and the exhibits thereto, may be amended, modified, or superseded
only by written instrument executed by all parties hereto. This Agreement sets
forth the entire agreement and understanding of the parties with respect to the
transactions contemplated hereby and supersedes all prior agreements,
arrangements, and understandings relating to the subject matter hereof. In the
event of any conflict or inconsistency between the provisions of this Agreement
and the contents or provisions of any schedule or exhibit hereto, the provisions
of this Agreement shall control. Except as expressly permitted by this
Agreement, the contents of schedules and exhibits hereto shall not be deemed to
negate or modify any representation, warranty, covenant or agreement contained
in this Agreement. Without limiting the generality of the preceding sentence,
any representation, warranty, covenant or other agreement contained in any
document, instrument or agreement delivered pursuant hereto or entered into in
connection herewith is made in addition to, and not in lieu of, any
representation, warranty, covenant or other agreement contained herein.
6.13 RIGHTS OF PARTIES. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any Persons other than the parties hereto and their respective
successors and assigns, nor shall any provision give any third Persons any right
of subrogation or action over against any party to this Agreement. Without
limiting the generality of the foregoing, it is expressly understood that this
Agreement does not create any third party beneficiary rights.
6.14 TIME OF ESSENCE. Time is of the essence in the performance of this
Agreement.
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6.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all which together
shall constitute one and the same instrument.
6.16 ACCESS TO RECORDS. Buyer agrees to give Seller access to the
business records of TENS during normal business hours upon receipt of a request
stating an appropriate business purpose and the date on which review will be
conducted. Seller will be responsible for any fees and expenses (including
reproduction expenses), and will enter into a confidentiality agreement, at the
request of Buyer, as to any information of TENS reviewed by Seller.
IN WITNESS WHEREOF, this Stock Purchase Agreement is executed and
delivered on and as of the day first above written.
LASERMEDICS, INC.
By: /S/ MICHAEL M. BARBOUR
Michael M. Barbour
President and Chief Executive Officer
Address: 120 Industrial Boulevard
Sugar Land, Texas 77478
Telecopy No.: 713/276-7046
SELLER:
/S/ PAULA L. BUHR
Paula L. Buhr
Address: 3633 Allen Parkway, Suite 200
Houston, Texas 77019
Telecopy No.: 713/942-8367
22
EXHIBIT 10.10
ASSET PURCHASE AGREEMENT
Dated January 24, 1997
By and Among
LASERMEDICS, INC.,
T. R. GATTI,
MARY JANE GATTI,
WILLIAM J. GATTI
and
GATTI MEDICAL SUPPLY, INC.
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT dated as of January 24, 1997 (this
"Agreement"), is by and among LASERMEDICS, INC., a Texas corporation ("Buyer"),
MARY JANE GATTI and WILLIAM J. GATTI (each a "Shareholder" and collectively, the
"Shareholders"), T. R. GATTI ("T.R.") and GATTI MEDICAL SUPPLY, INC., a
Pennsylvania corporation ("Seller").
WITNESSETH :
WHEREAS, Seller is engaged in the business of selling or distributing
certain rehabilitation related medical equipment and associated materials to
chiropractors, physical therapy clinics, athletic trainers, hospital, school and
university physical therapy departments, and athletic teams (the "Business"), as
well as selling other medical equipment and materials not involving the Business
("Seller's Other Business");
WHEREAS, Seller desires to sell all of its interest in the Business,
including without limitation the inventory and other assets related to the
Business, and Buyer desires to acquire the Business, including such inventory
and related assets, and to assume no liabilities; and
WHEREAS, T.R., Vice President of Sales for the Seller, desires to enter
into a covenant not to compete with Buyer in exchange for 1,000 shares of
Buyer's common stock, and Buyer desires to issue such shares in exchange for
said covenant.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements, and subject to the terms
and conditions herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 PURCHASE AND SALE OF ASSETS. Upon satisfaction of, and compliance
with, all the terms, conditions, agreements, representations and warranties
contained in this Agreement, Seller will sell, convey, transfer, assign and
deliver to Buyer all of the Seller's interest in the Business and the assets of
the Business, including without limitation (i) the rehabilitation related
inventory (the "Inventory"), (ii) all Product Information (as listed, summarized
or contained in SCHEDULE 2.18) relating to the Business, (iii) Sellers' list of
the Business' Customers (attached hereto as SCHEDULE 2.13) and their
relationship, whether or not contractual in nature, and goodwill with Seller,
and (iv) certain other related assets of Seller used or useful in the operation
of the Business which are existing on the date hereof (the Inventory, Product
Information, list of Customers and all other such assets (tangible or
intangible) being sold hereunder are referred to collectively herein as the
"Assets") all as described on SCHEDULE 1.1 attached hereto, free and clear of
all Encumbrances (defined below).
<PAGE>
1.2 CONSIDERATION FOR ASSETS; NO ASSUMPTION OF LIABILITIES. As
consideration for the sale of the Assets to Buyer and for the other covenants
and agreements of Seller, T.R. and the Shareholders (the "Seller Parties")
contained herein, Buyer agrees to issue, in accordance with Section 1.3 below,
(a) to Seller an aggregate of 100,234 shares, and (b) to T.R. 1,000 shares (all
of the shares to be issued pursuant to (a) and (b) are referred to herein as the
"Buyer Shares") of Buyer's common stock, par value $.01 per share (the "Common
Stock"), such shares being subject to the terms, conditions and restrictions set
forth herein. Buyer shall assume no liabilities of Seller and Seller shall pay
or discharge in full and be responsible for all of its liabilities of any type
(contingent, known, unknown or otherwise), including, without limitation, (i)
any sales taxes which are payable as a result of the consummation of the
transactions contemplated hereby, and (ii) all obligations and liabilities owed
by Seller to the Employees (as defined in Section 2.17 hereof) (collectively,
the "Seller Liabilities").
1.3 TERMS, CONDITIONS AND RESTRICTIONS ON THE BUYER SHARES. At the
Closing, Buyer will deliver (a) to Seller 50,117 Buyer Shares, and (b) to T.R.
1,000 Buyer Shares. On March 31, 1998, Seller will be entitled to receive, and
Buyer will issue to Seller, 33,411 Buyer Shares if and only if during the 12
full calendar months beginning February 1, 1997 and ending January 31, 1998 the
Gross Sales (as defined below) are at least $1,900,000; provided that an
additional 16,706 Buyer Shares will be issued by Buyer to Seller if such Gross
Sales for such period are equal to or greater than $2,280,000. The Buyer Shares
to be issued, if any, on March 31, 1998 are herein referred to as the "Earn-Out
Shares." Buyer will deliver notice to Seller reflecting the actual issuance of
the Earn-Out Shares, if required by this Section 1.3, on or before March 31,
1998, and on that date, Seller will be deemed to be the owner of the Earn-Out
Shares required to be issued, if any, under this Section 1.3. The Buyer Shares,
including the Earn-Out Shares will all be subject to the restrictions set forth
in Section 2.15, 3.3 hereof, and will be "restricted securities" as that term is
defined under the Securities Act of 1933, as amended (the "Securities Act"), and
the certificates representing the Buyer Shares will bear a legend setting forth
the restrictions all as set forth in Section 2.15, 3.3 hereof. Seller will have
no rights as a stockholder of Buyer relating to the issuance of the Earn-Out
Shares until their issuance in accordance with this Section 1.3. "Gross Sales"
for any period shall mean gross sales as calculated by Buyer's independent
certified public accountants in accordance with GAAP (as defined below), and
shall include (i) all sales attributable to the Business, (ii) all sales made by
the Employees as listed on SCHEDULE 2.17 hereto, and (iii) all sales to the
Customers as listed on SCHEDULE 2.13 hereto.
1.4 INSTRUMENTS OF TRANSFER. At the Closing, Seller shall deliver to
Buyer all such instruments of transfer as shall be requested by Buyer to vest in
Buyer good and marketable title to the Assets, including bills of sale, all in
form satisfactory to Buyer.
1.5 EMPLOYEES; WAGES, SEVERANCE AND OTHER OBLIGATIONS; EMPLOYEE BENEFIT
PLANS. Except as set forth herein, the Buyer does not assume any obligation or
liability for, and the Seller shall be liable and shall timely pay, any and all
wages, severance benefits, accrued vacations, unpaid sick and holiday pay, and
other obligations of any kind whatsoever, of the Seller to its respective
employees, including, without limitation, obligations and liabilities under the
employee benefit plans, which accrue through the Closing Date and Seller and
Shareholders shall hold Buyer harmless from and indemnify Buyer against any and
all such liabilities to employees. Buyer is not hereby
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adopting or assuming any employee benefit plan of Seller, or any other plan,
program, obligation or arrangement of Seller (an "Arrangement") that provides
for employee benefits or perquisites and the Buyer shall have no liability
whatsoever under any such employee benefit plan to the Seller or to the
employees of the Seller whether or not any of such employees become employees of
Buyer. Further, the Buyer is not obligated to replace any of the Seller's
employee benefit plans or any Arrangement or provide the employees of the Seller
who become employees of Buyer with any such similar plans or Arrangements. Buyer
Agrees to grant John Poslajko ("Poslajko") commission terms similar to those
contained in that certain Employment agreement by and between Seller and
Poslajko dated April 10, 1996; provided, however, that Poslajko's commission
from the Buyer will be based on gross sales, rather than gross profit, and the
percentages will be adjusted accordingly as agreed to between Buyer and
Poslajko.
1.6 EXCLUSION OF SELLER'S OTHER BUSINESS. This Agreement specifically
does not include any assets used in Seller's Other Business or not included in
SCHEDULE 1.1. Seller will continue in the Seller's Other Business for an
indefinite period of time.
1.7 FURTHER ASSURANCES. After the Closing, the Seller Parties shall
from time to time at the Buyer's request and without further consideration,
execute and deliver such instruments of transfer, conveyance, and assignment as
the Buyer may require to more effectively transfer, convey and assign to invest
in the Buyer, and to put the Buyer in actual possession and control of, each of
the Assets. In addition, after the Closing, the Seller Parties will use their
best efforts to obtain any consents of third parties not obtained as of the
Closing with respect to the Assets.
1.8 THE CLOSING. The sale and purchase of the Assets (the "Closing")
shall take place at the offices of Porter & Hedges, L.L.P., in Houston, Texas at
9:00 a.m. on the date hereof (the "Closing Date") or at such other time and
place as mutually agreed upon in writing by the parties hereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
SELLER AND SHAREHOLDERS
Seller and Shareholders hereby jointly and severally represent and
warrant to Buyer as follows:
2.1 ORGANIZATION AND STANDING; CAPACITY. Seller is a corporation duly
organized and validly existing under the laws of the State of Pennsylvania and
has full requisite corporate power and authority to carry on its business as
currently conducted, and to own and operate the properties owned and operated by
it. Seller is duly qualified or licensed to do business and is in good standing
as a foreign corporation authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business conducted by
it would make such qualification or licensing necessary, except where the
failure to so qualify or be licensed would not have a material adverse effect on
the Business or the Assets. Shareholders are residents of the State of
Pennsylvania, with full legal capacity to make, enter into and execute this
Agreement.
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2.2 AGREEMENT AUTHORIZED AND ENFORCEABLE; NON-INTERFERENCE. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate or shareholder action on the part of Seller, and this
Agreement is a valid and binding obligation of Seller and Shareholders,
enforceable against each of them in accordance with its terms, except as may be
limited by applicable bankruptcy laws, insolvency laws and other similar laws
affecting the rights of creditors generally. The execution and delivery of this
Agreement by Seller and Shareholders and the consummation of the transactions
contemplated hereby will not conflict with or result in a violation or breach of
any term or provision of (i) the articles of incorporation, bylaws or other
organizational documents of Seller, (ii) any indenture, mortgage, deed of trust,
credit agreement or other contract or agreement of any nature whatsoever to
which Seller or Shareholders are a party or by which their properties are bound,
or (iii) any provision of any law, rule, regulation, order, permit, certificate,
writ, judgment, injunction, decree, determination, award or other decision of
any court, arbitrator or other governmental authority to which Seller or
Shareholders or their properties are subject.
2.3 SUBSIDIARIES. Seller has no subsidiary corporations or any interest
in any other organization, incorporated or unincorporated, partnership or any
other entity of any type.
2.4 REVENUE STATEMENT. Seller has delivered to Buyer copies of Seller's
unaudited statement of revenues (the "Revenue Statement"), for Seller's fiscal
year ended December 31, 1996 (the "Statement Date"). The Revenue Statement, a
copy of which is attached hereto as SCHEDULE 2.4, is true, correct and complete
in all material respects and present fairly and fully the revenues from the
operation of the Business for the respective period indicated, and has been
prepared in accordance with generally accepted accounting principles as
promulgated by the American Institute of Certified Public Accountants ("GAAP")
applied on a consistent basis, except as noted therein. The Revenue Statement
includes all adjustments which are necessary for a fair presentation of Seller's
revenue for that period.
2.5 ABSENCE OF CERTAIN CHANGES AND EVENTS. Other than as a result of
the transactions contemplated by this Agreement, since the Statement Date, there
has not been:
2.5.1 FINANCIAL CHANGE. Any adverse change in the Assets, the
Business or the financial condition, operations, liabilities or
prospects of Seller;
2.5.2 PROPERTY DAMAGE. Any damage, destruction, or loss to the
Assets or the Business (whether or not covered by insurance);
2.5.3 WAIVER. Any waiver or release of a material right of or
claim held by Seller;
2.5.4 CHANGE IN ASSETS. Any acquisition, disposition,
transfer, Encumbrance, mortgage, pledge or other Encumbrance of any of
the Assets other than in the ordinary course of business; or
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2.5.5 OTHER CHANGES. Any other event or condition known to
Seller or Shareholders that particularly pertains to and has or might
have an adverse material effect on the Assets, the operations of the
Business or the financial condition or prospects of Seller.
2.6 TAXES. Proper and accurate federal, state and local income, sales,
use, franchise, gross revenue, turnover, excise, payroll, property, employment,
customs duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by
Seller for each period for which any returns, reports, or estimates were due.
All taxes shown by such returns to be payable have been paid. All sales taxes
have been properly collected and accounted for through the date hereof by
Seller, and Seller has made all required deposits of such taxes with all taxing
authorities. No waiver of any statute of limitations executed by Seller with
respect to federal or state income or any other tax is in effect for any period.
No deficiencies for any taxes have been proposed, asserted or assessed against
Seller, and no requests or waivers of the time to assess any such tax are
pending. Except for the audit of the 1994 Federal Income Tax Return (the "1994
Audit") by the Internal Revenue Service (the "IRS"), the federal income tax
returns of Seller have never been audited by the IRS. Except for the 1994 Audit,
no audit of any federal or state or other tax return of Seller is presently in
process nor has an appointment for or notice of any such audit been requested or
given by any taxing authority.
2.7 TITLE TO ASSETS. Seller has and will convey to Buyer good and
marketable title to the Assets, free and clear of any Encumbrance (defined
below) except as set forth in SCHEDULE 2.7 attached hereto. Seller and
Shareholders are engaged in the Business only through the Seller. The Assets
constitute all of the assets used or held for use in connection with the
Business in which the Seller or its Affiliates (as defined below) have any
right, title or interest. Except for ordinary wear and tear, the Assets which
are tangible assets are (i) structurally sound with no material defects, (ii) in
good operating condition and repair, (iii) adequate for the uses to which they
are being put and (iv) are not in need of maintenance or repairs except for
ordinary, routine maintenance and repairs. Neither Shareholders nor their
Affiliates (as defined below) have any interest in any of the Assets or the
Business other than through the ownership by shareholder of all of the
outstanding capital stock of Seller. The term "Encumbrance" shall mean all
restrictions or conditions to transfer or assignment, mortgages, deeds of trust,
liens, security interests, pledges, claims, rights of first refusal, options,
charges, liabilities, obligations, privileges, equities, easements,
rights-of-way, limitations, reservations, restrictions and other encumbrances of
any kind or nature.
2.8 INVENTORY AND RELATED ASSETS. SCHEDULE 1.1 attached hereto
constitutes an accurate list of all of the Assets which are owned by or used by
Seller in connection with the ownership and operation of the Business as of the
date hereof prepared by Seller. Except as disclosed on SCHEDULE 2.7 attached
hereto, none of the Assets are (i) held under any lease, security agreement,
conditional sales contract, or other title retention or security arrangement, or
(ii) located other than in the possession of Seller (except for certain items
which are currently on demonstration with Customers and clearly marked as such
on SCHEDULE 1.1). To Seller's and Shareholders' knowledge, all items of raw
materials, work in process and finished goods included in the Inventory, consist
of items of a quality and quantity useable and saleable in the ordinary course
of business by Seller, except for obsolete and slow moving items and items below
standard quality. No items included in
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the Assets have been pledged as collateral or are held by Seller on consignment
from others. As of the date hereof, the market value of the Inventory listed on
SCHEDULE 1.1 is approximately $180,000.
2.9 LITIGATION. There is no suit, action, or legal, administrative,
arbitration, or other proceeding or governmental investigation pending or, to
the knowledge of Seller or Shareholders, threatened to which Seller is a party
or, to the knowledge of Seller or Shareholders, might become a party or which
particularly affects Seller, the Assets or the Business.
2.10 ENVIRONMENTAL MATTERS. None of the current or past operations of
the Business or the Assets is being or has been conducted or used in such a
manner as to constitute a violation of any Applicable Environmental Laws
(defined below). Neither Seller nor Shareholders have received any notice
(whether formal or informal, written or oral) from any entity, governmental
agency or individual regarding any existing, pending or threatened investigation
or inquiry related to violations of any Applicable Environmental Laws or
regarding any claims for remedial obligations or contribution for removal costs
or damages under any Applicable Environmental Laws. There are no writs,
injunction decrees, orders or judgments outstanding, or lawsuits, claims,
proceedings or investigations pending or, to Seller or Shareholders' knowledge,
threatened relating to the ownership, use, maintenance or operation of the
Assets or the conduct of the Business, nor, to Seller or Shareholders'
knowledge, is there any basis for any of the foregoing. Buyer is not required to
obtain any permits, licenses or similar authorizations pursuant to any
Applicable Environmental Laws in effect as of the date hereof to operate and use
any of the Assets for their current or proposed purposes and uses or to
otherwise conduct the Business. To Seller or Shareholders' knowledge, the Assets
include all environmental and pollution control equipment necessary for
compliance with all Applicable Environmental Laws. No Hazardous Materials
(defined below) have been or are currently being used by Seller in its
operations. No Hazardous Materials are or have ever been situated on or under
Seller's properties, whether owned or leased, or incorporated into any of the
Assets. To Seller or Shareholders' knowledge, there are no, and there have never
been any, underground storage tanks (as defined under Applicable Environmental
Laws) located under Seller's properties, whether owned or leased. The term
"Applicable Environmental Laws" means any applicable federal, state or local
law, statute, ordinance, rule, regulation, order or notice requirement
pertaining to human health, the environment, or to the storage, treatment,
discharge, release or disposal of hazardous wastes or hazardous substances,
including, without limitation (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. ss.ss. 9601 ET SEQ.), as
amended from time to time, including, without limitation, as amended pursuant to
the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), and
regulations promulgated thereunder, (ii) the Resources Conservation and Recovery
Act of 1976 (42 U.S.C. ss.ss. 6901 ET SEQ.), as amended from time to time
("RCRA"), and regulations promulgated thereunder, (iii) the Federal Water
Pollution Control Act (U.S.C.A. ss. 9601 ET SEQ.), as amended, and regulations
promulgated thereunder, and (iv) any applicable state laws or regulations
relating to the environment. The term "Hazardous Materials" means (x) asbestos,
polychlorinated biphenyls, urea formaldehyde, lead based paint, radon gas,
petroleum, oil, solid waste, pollutants and contaminants, and (y) any chemicals,
materials, wastes or substances that are defined, regulated, determined or
identified as toxic or hazardous in any Applicable Environmental Laws,
including, but not limited to, substances defined as "hazardous substances,"
"hazardous materials," or "hazardous waste" in CERCLA, RCRA, the Hazardous
Materials Transportation Act (49 U.S.C. ss. 1801, ET SEQ.), or comparable state
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and local statutes or in the regulations adopted and publications promulgated
pursuant to said statutes.
2.11 COMPLIANCE WITH OTHER LAWS. Seller is in compliance in all
material respects with all applicable laws, rules, regulations, and any writs or
decrees of any court or any governmental commission, board, bureau, agency, or
instrumentality, and Seller is not delinquent with respect to any report
required to be filed with any governmental commission, board, bureau, agency or
instrumentality.
2.12 NECESSARY CONSENTS. Seller and Shareholders have obtained and
delivered to Buyer all consents to assignment or waivers thereof required to be
obtained from any governmental authority or from any other third party in order
to validly transfer the Assets hereunder, including without limitation, the
transfer of the Inventory.
2.13 CUSTOMERS. SCHEDULE 2.13 attached hereto constitutes a complete
and accurate list of the names, addresses, telephone numbers and contact persons
of substantially all Customers of the Business. Neither Seller nor Shareholders
have any information, nor are they aware of any facts, indicating that any of
these customers intend to cease being customers of the Business as conducted by
Buyer on and after the date hereof.
2.14 INSURANCE POLICIES. Seller has maintained and now maintains (i)
insurance on all the Assets and the Business of a type customarily insured,
covering property damage and loss of income by fire or other casualty, and (ii)
insurance protection against all liabilities, claims and risks against which it
is customary to insure.
2.15 INVESTMENT REPRESENTATIONS. Each of Seller and Shareholders
acknowledges, represents and agrees that:
2.15.1 the Buyer Shares to be issued in accordance with
Article 1 hereof have not been and will not be registered under the
Securities Act, or registered or qualified under any applicable state
securities laws, and will be "restricted securities" as that term is
defined under Rule 144 promulgated under the Securities Act;
2.15.2 the Buyer Shares to be issued in accordance with
Article 1 hereof will be issued in reliance upon exemptions from such
registration or qualification requirements, and the availability of
such exemptions depends in part upon Seller and Shareholders' bona fide
investment intent with respect to the Buyer Shares;
2.15.3 Seller and Shareholders' acquisition of the Buyer
Shares will be solely for their own account for investment, and they
are not acquiring the Buyer Shares for the account of any other person
or with a view toward resale, assignment, fractionalization, or
distribution thereof;
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2.15.4 Seller and Shareholders shall not offer for sale, sell,
transfer, pledge, hypothecate or otherwise dispose of any of the Buyer
Shares except in accordance with the restrictions set forth herein and
the requirements of Rule 144 promulgated under the Securities Act, or
pursuant to a valid registration statement under the Securities Act;
2.15.5 each of Seller and Shareholders has such knowledge and
experience in financial and business matters that he, she or it is
capable of evaluating the merits and risks of an investment in the
Buyer Shares, and to make an informed investment decision;
2.15.6 Seller and Shareholders have received from Buyer its
Form 10-K for its fiscal year ended December 31, 1995, Form 10-Q for
September 30, 1996, Proxy Statement relating to Buyer's 1996 Annual
Meeting and related materials regarding the Buyer; they have had the
opportunity to ask questions of, and receive answers from Buyer's
officers and directors concerning the acquisition of the Buyer Shares
and to obtain such other information concerning Buyer and the Buyer
Shares, to the extent they possessed the same or could acquire it
without unreasonable effort or expense, as they deemed necessary in
connection with making an informed investment decision;
2.15.7 since the Buyer Shares have not been registered under
the Securities Act or applicable state securities laws and as a result
of the restrictions imposed by Section 1.3 hereof, Seller and
Shareholders must bear the economic risk of holding the Buyer Shares
for an indefinite period of time, and each is capable of bearing such
risk; and
2.15.8 each certificate evidencing the Buyer Shares will bear
a conspicuous restrictive legend substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED
EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE
ACT AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS
CORPORATION OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE
CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
2.16 SOLVENCY. Seller will, and Shareholders will cause Seller to, pay
all of the Seller Liabilities as they come due. Seller is not now insolvent, nor
will Seller be rendered insolvent by the occurrence of the transactions
contemplated by this Agreement. The term "insolvent" means, for any person or
entity, that the sum of the present fair saleable value of its assets does not
and/or will not exceed its debts and other probable liabilities, and the term
"debts" includes any legal liability, whether matured or unmatured, liquidated
or unliquidated, absolute, fixed or contingent, disputed or undisputed or
secured or unsecured.
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2.17 EMPLOYEES. SCHEDULE 2.17 attached hereto designates a list of all
employees and all sales representatives of Seller (whether or not employed by
the Seller) engaged in the Business as of the date hereof (the "Employees") and
their current salary or wage rate.
2.18 PRODUCT INFORMATION. SCHEDULE 2.18 attached hereto contains a copy
or summary of all documents, diagrams or other information (whether written or
otherwise recorded) necessary for the operation of the Business of the Seller
("Product Information") and pertaining to the Inventory. Copies of all such
Product Information summarized on SCHEDULE 2.18 have been provided to Buyer at
or prior to the Closing.
2.19 UNTRUE STATEMENTS. This Agreement, and the schedules hereto, do
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made herein and therein not
misleading. Copies of all documents furnished to Buyer in connection with this
Agreement or pursuant hereto are or will be true and complete in all material
respects. There are no facts, the existence of which could or will materially
adversely affect the Assets or Buyer's future conduct of the Business.
2.20 FINDER'S FEE. No person, organization or entity representing
Seller or Shareholders is due any finder's fee, or similar consideration, as a
result of this Agreement or the transactions contemplated hereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
T.R. GATTI
T.R. hereby represents and warrants to Buyer as follows:
3.1 CAPACITY. T.R. is a resident of the State of Pennsylvania, with
full legal capacity to make, enter into and execute this Agreement.
3.2 AGREEMENT ENFORCEABLE; NON-INTERFERENCE. Upon execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby, this Agreement will be a valid and binding obligation of T.R.,
enforceable against him in accordance with its terms, except as may be limited
by applicable bankruptcy laws, insolvency laws and other similar laws affecting
the rights of creditors generally. The execution and delivery of this Agreement
by T.R. and the consummation of the transactions contemplated hereby will not
conflict with or result in a violation or breach of any term or provision of (i)
any indenture, mortgage, deed of trust, credit agreement or other contract or
agreement of any nature whatsoever to which T.R. is a party or by which his
properties are bound, or (ii) any provision of any law, rule, regulation, order,
permit, certificate, writ, judgment, injunction, decree, determination, award or
other decision of any court, arbitrator or other governmental authority to which
T.R. or his properties are subject.
3.3 INVESTMENT REPRESENTATIONS. T.R. acknowledges, represents and
agrees that:
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3.3.1 the Buyer Shares to be issued in accordance with Article
1 hereof have not been and will not be registered under the Securities
Act, or registered or qualified under any applicable state securities
laws, and will be "restricted securities" as that term is defined under
Rule 144 promulgated under the Securities Act;
3.3.2 the Buyer Shares to be issued in accordance with Article
1 hereof will be issued in reliance upon exemptions from such
registration or qualification requirements, and the availability of
such exemptions depends in part upon T.R.'s bona fide investment intent
with respect to the Buyer Shares;
3.3.3 T.R.'s acquisition of the Buyer Shares will be solely
for his own account for investment, and he is not acquiring the Buyer
Shares for the account of any other person or with a view toward
resale, assignment, fractionalization, or distribution thereof;
3.3.4 T.R. shall not offer for sale, sell, transfer, pledge,
hypothecate or otherwise dispose of any of the Buyer Shares except in
accordance with the restrictions set forth herein and the requirements
of Rule 144 promulgated under the Securities Act, or pursuant to a
valid registration statement under the Securities Act;
3.3.5 T.R. has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks
of an investment in the Buyer Shares, and to make an informed
investment decision;
3.3.6 T.R. has received from Buyer its Form 10-K for its
fiscal year ended December 31, 1995, Form 10-Q for September 30, 1996,
Proxy Statement relating to Buyer's 1996 Annual Meeting and related
materials regarding the Buyer; he has had the opportunity to ask
questions of, and receive answers from Buyer's officers and directors
concerning the acquisition of the Buyer Shares and to obtain such other
information concerning Buyer and the Buyer Shares, to the extent they
possessed the same or could acquire it without unreasonable effort or
expense, as he deemed necessary in connection with making an informed
investment decision;
3.3.7 since the Buyer Shares have not been registered under
the Securities Act or applicable state securities laws and as a result
of the restrictions imposed by Section 1.3 hereof, T.R. must bear the
economic risk of holding the Buyer Shares for an indefinite period of
time, and he is capable of bearing such risk; and
3.3.8 the certificate evidencing the Buyer Shares will bear a
conspicuous restrictive legend substantially as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS, AND THEY CANNOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE HYPOTHECATED
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EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE
ACT AND SUCH OTHER STATE LAWS OR UPON DELIVERY TO THIS
CORPORATION OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO THE
CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
3.4 FINDER'S FEE. No person, organization or entity representing T.R.
is due any finder's fee, or similar consideration, as a result of this Agreement
or the transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Seller Parties as follows:
4.1 ORGANIZATION AND STANDING. Buyer is a corporation duly organized
and validly existing under the laws of the State of Texas and has full requisite
corporate power and authority to carry on its business as currently conducted,
and to own and operate the properties owned and operated by it. Buyer is duly
qualified or licensed to do business and is in good standing as a foreign
corporation authorized to do business in all jurisdictions in which the
character of the properties owned or the nature of the business conducted by it
would make such qualification or licensing necessary, except where the failure
to so qualify or be licensed would not have a material adverse effect on Buyer.
4.2 AGREEMENT AUTHORIZED AND ENFORCEABLE; NON-INTERFERENCE. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby has been duly and validly authorized by all
necessary corporate or shareholder action on the part of Buyer, and this
Agreement is a valid and binding obligation of Buyer, enforceable against it in
accordance with its terms, except as may be limited by applicable bankruptcy
laws, insolvency laws and other similar laws affecting the rights of creditors
generally. The execution and delivery of this Agreement by Buyer and the
consummation of the transactions contemplated hereby will not conflict with or
result in a violation or breach of any term or provision of (i) the articles of
incorporation, bylaws or other organizational documents of Buyer, (ii) any
indenture, mortgage, deed of trust, credit agreement or other contract or
agreement of any nature whatsoever to which Buyer is a party or by which its
properties are bound, or (iii) any provision of any law, rule, regulation,
order, permit, certificate, writ, judgment, injunction, decree, determination,
award or other decision of any court, arbitrator or other governmental authority
to which Buyer or its properties are subject.
4.3 APPROVALS. Except for compliance with the Securities Act and the
securities or blue sky laws of various states, no filing or registration with,
or authorization, consent or approval of a governmental entity or any other
third party is necessary for the completion by Buyer of the transactions
contemplated hereby.
4.4 SEC DOCUMENTS. Buyer has made all filings with the United States
Securities and Exchange Commission (the "SEC") that it has been required to make
under the Securities Act, and
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the Securities Exchange Act of 1934, as amended (the "Exchange Act") (all such
filings, as amended, are referred to herein as the "SEC Documents"). Each of the
SEC Documents has complied with the Securities Act and the Exchange Act in all
material respects. As of their respective dates, and except as amended, the SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Buyer has delivered to the Seller Parties a correct and complete
copy of each SEC Document (together with all exhibits and schedules thereto), as
amended to date, filed since December 31, 1995. The financial statements of
Buyer included in the SEC Documents (including the related notes and schedules
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q) and fairly present (subject, in the case of the unaudited statements, to
normal recurring audit adjustments) the financial position of Buyer at the dates
thereof and the results of operations, cash flows and changes in stockholder's
equity for the periods then ended. Since September 30, 1996, there has not been
any material adverse change in the financial condition of Buyer.
4.5 ISSUANCE OF BUYER SHARES. Upon issuance of the Buyer Shares in
accordance with the terms of this Agreement, the Buyer Shares will be validly
issued, fully paid and nonassessable shares of Common Stock, free of preemptive
or preferential purchase rights.
4.6 FINDER'S FEE. No person, organization or entity representing Buyer
is due any finder's fee, or similar consideration, as a result of this Agreement
or the transactions contemplated hereby.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 COVENANTS NOT TO COMPETE. For the two-year period beginning on the
date of Closing (the "Non-Compete Term"), each of the Seller Parties shall not
(and shall cause their Affiliates (defined below) not to) directly or
indirectly, for itself or himself or on behalf of any other person, corporation,
firm, partnership, association or any other entity (whether as an individual,
agent, servant, employee, employer, officer, director, shareholder, investor,
lender, financier, principal, consultant or in any other capacity) (i) engage or
participate in any Competing Business (defined below) anywhere within the
Restricted Territory (defined below); (ii) induce any customers of Buyer or its
Affiliates to patronize any Competing Business; (iii) canvass, solicit or accept
any Competing Business from any customer of Buyer or its Affiliates unless
directed to do so by Buyer; (iv) request or advise any customers of Buyer or its
Affiliates to withdraw, curtail or cancel such customer's business with respect
to any Competing Business; or (v) disclose to any other person, firm or
corporation engaged in any Competing Business the names or addresses of any of
the customers of Buyer or its Affiliates. The term "Competing Business" means
the business of
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selling or distributing certain rehabilitation related medical equipment and
associated materials to chiropractors, physical therapy clinics, athletic
trainers, hospital, school and university physical therapy departments, and
athletic teams. The term "Restricted Territory" means the geographic areas where
Buyer conducts the Business during the Non-Compete Term. The term "Affiliate"
shall have the meaning ascribed thereto in Rule 144 under the Securities Act.
The parties hereto acknowledge and agree that (i) the agreements and covenants
set forth in this Section 5.1 are being made for good and valuable
consideration, the receipt and sufficiency of which is acknowledged; (ii) the
covenants contained in this Section 5.1 are an important aspect of this
Agreement, and Buyer would not have entered into this Agreement absent the
inclusion of this Section 5.1; and (iii) the restrictions imposed in this
Section 5.1, including the geographic area and duration of the covenants made
herein, are reasonable and necessary to protect Buyer. If Seller, T.R.,
Shareholders or their Affiliates breach or indicate an intention to breach any
term or provision of this Section 5.1, the parties hereto agree that Buyer shall
be entitled to the right of both temporary and permanent injunctive relief
and/or specific performance. The right of Buyer to such relief shall not be
construed to prevent Buyer from pursuing, either consecutively or concurrently,
any and all other legal or equitable remedies available to it for such breach or
threatened breach, specifically including, without limitation, the recovery of
monetary damages. If any court determines that any provision of this Section
5.1, or any part thereof, is unenforceable because of the duration or geographic
scope of such provision, the parties hereto agree that such court shall have the
power to reduce the duration or geographic scope of such provision, as the case
may be, and the parties hereto agree to request the court to exercise such
power, and, in its amended form, such provision shall then be enforceable and
shall be enforced.
5.2 REFERRALS; NON-SOLICITATION BY THE SELLER PARTIES. During the
Non-Compete Term, each of the Seller Parties shall (and shall cause their
Affiliates to) immediately submit or refer to Buyer all inquiries or bid
requests received by them from any customers regarding any Competing Business to
be conducted in the Restricted Territory. During the Non-Compete Term, each of
the Seller Parties shall not (and shall cause its, his or their Affiliates not
to) directly or indirectly, induce or attempt to influence any employee of Buyer
or any of its Affiliates to terminate his/her employment or to hire any such
employee, whether or not so induced or influenced.
5.3 NON-SOLICITATION BY BUYER. During the Non-Compete Term, Buyer shall
not (and shall cause its Affiliates not to) directly or indirectly, induce or
attempt to influence any employee of Seller or any of its Affiliates to
terminate his/her employment or to hire any such employee, whether or not so
induced or influenced.
5.4 HIRING EMPLOYEES. Effective as of the date hereof, all of the
Employees shall be terminated by Seller. Buyer may, but shall be under no
obligation to, hire any or all of the Employees. Buyer shall have no liability
or obligation with respect to any employee benefits of any Employee except those
benefits that accrue pursuant to such Employee's employment with Buyer on or
after the date hereof. However, Buyer agrees that time spent as an employee of
Seller will count towards any requirement of Buyer for the vesting of vacation
benefits for any of the Employees who become employees of Buyer. Seller shall
cooperate with Buyer in connection with any offer of employment from Buyer to
the Employees, and shall use its best efforts to cause the acceptance of any and
all such reasonable offers. All Employees hired by Buyer shall be at-will
employees of Buyer and shall sign non-compete agreements reasonably acceptable
to Buyer.
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5.5 RELATIONS WITH CUSTOMERS AND SUPPLIERS. For the Non-Compete Term,
each of the Seller Parties agrees to use its, his or their best efforts to
assist Buyer in maintaining the goodwill and business relationships of the
suppliers and Customers of Seller prior to the date hereof.
5.6 ALLOCATION OF PURCHASE PRICE. The parties hereto agree to allocate
the purchase price paid by Buyer for the Assets hereunder in a manner mutually
agreeable to all parties hereto, such mutual agreement to be reached by
negotiations among the parties to be held in good faith at all times. The
parties hereto shall report this transaction for federal income tax purposes in
accordance with the allocation so agreed upon. The parties hereto for themselves
and for their respective successors and assigns covenant and agree that they
will file coordinating Form 8594's in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, with their respective income tax
returns for the taxable year that includes the date hereof.
5.7 FURTHER ASSURANCES. On and after the date hereof, each of the
parties hereto shall take all appropriate action and execute all documents of
any kind which may be reasonably necessary or desirable to carry out the
transactions contemplated hereby. Each of the Seller Parties, as appropriate, at
any time on or after the date hereof, will execute, acknowledge and deliver any
further bills of sale, assignments and other assurances, documents and
instruments of transfer, reasonably requested by Buyer, and will take any other
action consistent with the terms of this Agreement that may be reasonably be
requested by Buyer, for the purpose of assigning and confirming to Buyer, all of
the Assets.
ARTICLE 6
INDEMNIFICATION
6.1 INDEMNIFICATION BY SELLER AND SHAREHOLDERS. In addition to any
other remedies available to Buyer under this Agreement, or at law or in equity,
each of the Seller and the Shareholders shall jointly and severally indemnify,
defend and hold harmless Buyer, and its officers, directors, employees, agents
and shareholders, against and with respect to any and all claims, demands,
actions, costs, damages, losses, expenses, obligations, liabilities, recoveries,
judgments, settlements, suits, proceedings, or causes of action, including
interest, penalties (including civil and criminal penalties) and attorneys' fees
(collectively, any "Claims") that such indemnitees shall incur or suffer, which
arise, result from or relate to (i) the failure of Seller or Shareholders to pay
or discharge any of the Seller's Liabilities, (ii) any breach of, or failure by
any of Seller or Shareholders to perform, any of their respective
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished to Buyer by Seller
or Shareholders under this Agreement, or (iii) the 1994 Audit.
6.2 INDEMNIFICATION BY T.R. In addition to any other remedies available
to Buyer under this Agreement, or at law or in equity, T.R. shall indemnify,
defend and hold harmless Buyer, and its officers, directors, employees, agents
and shareholders, against and with respect to any and all Claims that such
indemnitees shall incur or suffer, which arise, result from or relate to any
breach of, or failure by T.R. to perform, any of his respective representations,
warranties, covenants or
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agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished to Buyer by T.R. under this Agreement.
6.3 INDEMNIFICATION BY BUYER. In addition to any other remedies
available to the Seller Parties under this Agreement, or at law or in equity,
Buyer shall indemnify, defend and hold harmless each of Seller and its officers,
directors, employees, and agents, T.R. and Shareholders against and with respect
to any and all Claims that such indemnitees shall incur or suffer, which arise,
result from or relate to any breach of, or failure by Buyer to perform, any of
its representations, warranties, covenants or agreements in this Agreement or in
any schedule, certificate, exhibit or other instrument furnished or to be
furnished by or on behalf of Buyer under this Agreement.
6.4 INDEMNIFICATION PROCEDURE.
6.4.1 Promptly upon the receipt of notice of any third-party
Claim, judicial or otherwise, with respect to any matter as to which
indemnification may be claimed under this Article 6, the indemnified party shall
give written notice thereof to the indemnifying party together with such
information respecting such matter as the indemnifying party shall then have;
PROVIDED HOWEVER, that the failure of the indemnified party to give notice as
provided herein shall not relieve the indemnifying party of any obligations, to
the extent the indemnifying party is not materially prejudiced thereby. If
indemnification is sought with respect to a third-party (I.E., one who is not a
party to this Agreement) Claim asserted or brought against an indemnified party,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party. After such notice from the indemnifying party to such
indemnified party of its election to so assume the defense of such a third-party
Claim, the indemnifying party shall not be liable to such indemnified party for
any legal or other expenses subsequently incurred by the latter in connection
with the defense thereof, other than reasonable and necessary costs of
investigation, unless the indemnifying party has failed to assume and diligently
prosecute the defense of such third-party Claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects not to
assume the defense of a third-party Claim shall not be liable for the fees and
expenses of more than one counsel in any single jurisdiction for all parties
indemnified by such indemnifying party with respect to such Claim or with
respect to Claims separate but similar or related in the same jurisdiction
arising out of the same general allegations. Notwithstanding any of the
foregoing to the contrary, the indemnified party will be entitled to select its
own counsel and assume the defense of any action brought against it if the
indemnifying party fails to select counsel reasonably satisfactory to the
indemnified party or if counsel fails to diligently prosecute, the expenses of
such defense to be paid by the indemnifying party. No indemnifying party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the indemnified party, which consent shall not be
unreasonably withheld. No indemnified party shall consent to entry of any
judgment or enter into any settlement of any such action the defense of which
has been assumed by an indemnifying party without the consent of such
indemnifying party, which consent shall not be unreasonably withheld.
6.4.2 If any party becomes aware of a fact, circumstance,
claim, situation, demand or other matter (other than a third party Claim) for
which it or any other indemnified party has been
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indemnified under this Article 6 and which has resulted or could result in a
Claim being owed to the indemnified party by the indemnifying party, the
indemnified party shall give prompt written notice to the indemnifying party of
the Claim, stating the nature and basis of the Claim and the amount claimed
thereunder, together with supporting information to the Claim, if any. If the
indemnifying party does not notify the indemnified party within 10 days from the
date such Claim notice is given that it disputes the Claim, the amount of the
Claim shall conclusively be deemed to be a liability of the indemnifying party
hereunder.
6.4.3 If an indemnified party and an indemnifying party cannot
reach agreement with respect to the validity and amount of any Claim within 20
days after notice thereof is first given, the validity and amount thereof, as
the case may be, shall be finally settled pursuant to the dispute resolution
procedure set forth in Section 7.3 below.
6.4.4 Payments of all amounts owing hereunder with respect to
any Claim shall be made immediately after (i) the settlement between the parties
of the third party Claim, or (ii) if the final resolution of the dispute
pursuant to Section 7.3.
6.5 INDEMNIFICATION THRESHOLD. Notwithstanding any provision to the
contrary contained in this Agreement, neither Buyer nor any of the Seller
Parties shall make any Claim against the other party for any breach of
representation, warranty, covenant or agreement under this Agreement until the
dollar amount of all loss to such other party for such breaches suffered after
the Closing, shall exceed in the aggregate the amount of $25,000, and, if such
amount is exceeded, Buyer, or Seller, T.R. or Shareholders, as the case may be,
shall be required to pay the entire amount of such aggregate loss to the other
party for all such breaches; PROVIDED, HOWEVER, that a party's obligation and
liability for any and all breaches of the representations, warranties, covenants
and agreements set forth in this Agreement shall not exceed in the aggregate an
amount equal to the actual purchase price paid pursuant to the provisions of
Sections 1.2 and 1.3.
6.6 1994 AUDIT INDEMNIFICATION. Notwithstanding the indemnification
threshold contained in Section 6.5, Seller and Shareholders agree to indemnify
Buyer against any and all Claims arising out of or relating to the 1994 Audit.
ARTICLE 7
MISCELLANEOUS
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties, covenants and agreements made by the parties hereto
shall survive indefinitely without limitation, notwithstanding any investigation
made by or on behalf of any of the parties hereto. All statements contained in
any certificate, schedule, exhibit or other instrument delivered pursuant to
this Agreement shall be deemed to have been representations and warranties by
the respective party or parties, as the case may be, and shall also survive
without limitation despite any investigation made by any party hereto or on its
behalf.
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7.2 NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given if served personally on the party entitled thereto to whom notice is to be
given, or if mailed to the party entitled thereto to whom notice is to be given,
by first-class mail, registered or certified, postage prepaid, addressed as
follows (or such other address as the party entitled thereto may have prior
thereto specified by notice given as contemplated in this Section):
If to Seller: Gatti Medical Supply, Inc.
840 Philadelphia Street
Indiana, Pennsylvania 15701
Attn.:T. R. Gatti
If to Shareholders: William J. Gatti
840 Philadelphia Street
Indiana, Pennsylvania 15701; and
Mary Jane Gatti
840 Philadelphia Street
Indiana, Pennsylvania 15701
If to T.R.: T. R. Gatti
840 Philadelphia Street
Indiana, Pennsylvania 15701
If to Buyer: Lasermedics, Inc.
120 Industrial Boulevard
Sugar Land, Texas 77478
Attn.: Michael M. Barbour
but if mailed or telefaxed, the same shall not be deemed effective unless and
until actually received by the party entitled thereto.
7.3 DISPUTE RESOLUTION. Except as otherwise contemplated by Section 5.1
(enforcement of non-compete), any dispute or controversy between the parties
hereto arising from or relating to this Agreement or the construction, validity,
interpretation, meaning, performance, non-performance, enforcement, operation or
breach of this Agreement shall be submitted to mediation, and if such mediation
is unsuccessful then to mandatory, final and binding arbitration. Any mediation
or arbitration under this Agreement shall take place pursuant to the following
procedures:
7.3.1 If a dispute or controversy arises either party will
request that Judicial Arbitration and Mediation Service ("JAMS") (or
similar mediation service of a similar national scope if JAMS no longer
then exists) appoint an independent mediator, who shall serve as
mediator for all purposes hereof. Each party shall pay an equal
proportion of the cost of the mediator's services, in advance upon
request by the mediator or any party.
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7.3.2 Within ten (10) days after appointment of the mediator,
the mediator shall schedule a meeting among the parties and the
mediator for the purpose of mediating the dispute. If the parties do
not resolve the dispute within thirty (30) days after appointment of
the mediator, the dispute shall be resolved in arbitration.
7.3.3 Within fifteen (15) days after the mediation, the
parties shall each name and appoint their own arbitrator. If either
party fails to name and appoint an arbitrator timely, then an
arbitrator shall be appointed for that party by the Senior United
States District Judge for the United States District Court in Houston,
Texas. The two arbitrators so appointed shall appoint a third
arbitrator within fifteen (15) days, and if they cannot agree, the
appointment of the third arbitrator will he made by the Senior United
States District Judge for the United States District Court in Houston,
Texas.
7.3.4 Each party shall bear its own arbitration fees, costs
and expenses. The arbitration hearing shall be held in Houston, Texas
within fifteen (15) days of the appointment of the third arbitrator at
a location designated by a majority of the arbitrators within ten (10)
days of the appointment of the third arbitrator. The Commercial
Arbitration Rules of the American Arbitration Association, as
supplemented hereby, shall apply to the arbitration. The substantive
laws of the State of Texas (excluding conflict of laws provisions)
shall also apply to the arbitration.
7.3.5 The arbitration hearing shall be concluded within ten
(10) days unless otherwise ordered by a majority of the arbitrators,
and the award thereon shall be made within fifteen (15) days after the
closing of submission of evidence. An award rendered by a majority of
the arbitrators shall be final and binding on all parties to the
proceeding and non-appealable, and judgment on the award may be entered
by any court of competent jurisdiction.
7.3.6 The parties stipulate that the provisions of this
Section 7.3 shall be a complete defense to any suit, action or
proceeding instituted in any federal, state or local court or before
any administrative tribunal with respect to any controversy or dispute
arising out of this Agreement between the parties, and the parties
waive any right to have the award of the arbitrators appealed. The
arbitration provisions of this Agreement shall, with respect to such
controversy or dispute, survive the termination or expiration of this
Agreement. Should any party institute judicial proceedings seeking to
avoid the mediation or arbitration provisions of this Agreement, or
should any party in judicial proceedings successfully contest an
arbitration award rendered under this Section 7.3, the other parties
shall be entitled to recover reasonable attorney's fees, costs and
expenses associated with the judicial proceedings, with the amount of
attorney's fees, costs and expenses to be determined by the court. If a
party fails to comply with the terms of an arbitration award made under
this Agreement, the other parties shall be entitled to recover
reasonable attorney's fees, costs and expenses incurred in seeking
judicial confirmation of the award, with the amount of attorney's fees,
costs and expenses to be determined by the court. Failure to comply
with the terms of an arbitration award shall include without limitation
the failure to pay the full amount due under an arbitration award
within the time specified in the arbitration award.
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7.3.7 In determining any award under this Section 7.3, the
arbitrators may award amounts for special damages, consequential
damages, incidental damages, lost profits, damages for lost business
opportunity punitive damages or exemplary damages.
None of the parties hereto nor any of the arbitrators may disclose the existence
or results of any arbitration hereunder without the prior written consent of the
other parties; nor may any party hereto disclose to any party any confidential
information disclosed by any other party hereto in the course of an arbitration
hereunder without the prior written consent of such other party.
7.4 COUNTERPARTS. This Agreement may be executed by facsimile signature
and in any number of counterparts and each such counterpart shall be deemed to
be an original instrument, but all such counterparts together shall constitute
but one and the same instrument.
7.5 AMENDMENTS AND WAIVERS. This Agreement may be amended, modified, or
superseded only by written instrument executed by each party hereto. Any waiver
of the terms, provisions, covenants, representations, warranties, or conditions
hereof shall be made only by a written instrument executed and delivered by an
authorized officer of such party. The failure of any party at any time or times
to require performance of any provision hereof shall in no manner affect the
right to enforce the same. No waiver by any party of any condition, or of the
breach of any term, provision, covenant, representation, or warranty contained
in this Agreement in one or more instances shall be deemed to be or construed as
a further or continuing waiver of any such condition or breach or a waiver of
any other condition or the breach of any other term, provision, covenant,
representation, or warranty.
7.6 ENTIRE AGREEMENT; CONFLICTS. This Agreement (including the
schedules and exhibits hereto, all of which are by this reference fully
incorporated into this Agreement) and the documents and materials expressly
referred to in schedules or exhibits hereto sets forth the entire Agreement and
understanding of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreements, arrangements, and understandings
relating to the subject matter hereof. In the event of any conflict or
inconsistency between the provisions of this Agreement and the contents or
provisions of any schedule or exhibit hereto, the provisions of this Agreement
shall be deemed controlling.
7.7 SUCCESSORS AND ASSIGNS. All of the terms, provisions, covenants,
representations, warranties, and conditions of this Agreement shall be binding
on and shall inure to the benefit of and be enforceable by the parties hereto
and their respective successors, but this Agreement and the rights and
obligations hereunder shall not be assignable or delegable by any party, except
as otherwise provided in this Agreement.
7.8 APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without regard to the laws
which would otherwise apply by application of Texas' internal principles of
conflicts of law.
7.9 SEVERABILITY. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the
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terms, provisions, covenants and restrictions shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed this Agreement had the terms, provisions, covenants and re strictions
which may be hereafter declared invalid, void, or unenforceable not initially
been included herein.
7.10 HEADINGS AND CAPTIONS. The headings and captions contained in this
Agreement are solely for convenient reference and shall not be deemed to affect
the meaning or interpretation of any article, section, or paragraph hereof.
7.11 SUCCESSOR LAWS. Reference made herein to any law or statute shall
include reference to any future law amending or superseding such law or statute
and to any future laws applicable to the same subject matter.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
this Agreement on and as of the date first above written.
BUYER:
LASERMEDICS, INC.
By: /S/ MICHAEL M. BARBOUR
Michael M. Barbour
President and Chief Executive Officer
SELLER:
GATTI MEDICAL SUPPLY, INC.
By: /S/ WILLIAM J. GATTI
William J. Gatti
President
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SHAREHOLDERS:
/S/ WILLIAM J. GATTI
William J. Gatti
/S/ MARY JANE GATTI
Mary Jane Gatti
T.R.:
/S/ T. R. GATTI
T. R. Gatti
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EXHIBIT 10.11
MASTER AGREEMENT
This Agreement is by and between Lasermedics, Inc. ("LM"), a corporation
organized and existing under the laws of the State of Texas and with its
principal offices located at 120 Industrial Boulevard, Sugar Land, Texas 77478,
and CB Svendsen A/S ("CBS"), a corporation organized and existing under the laws
of the Country of Denmark and with its principal office located at Kirke
Vaerloesevej 22, DK - 3500 Vaerloese, Denmark.
W I T N E S S E T H:
WHEREAS, CBS and LM entered an Exclusive License Agreement dated
November 5, 1993, pursuant to which CBS agreed to grant and convey to LM the
sole and exclusive right for LM to manufacture, sell and use certain Products,
hereinafter defined, throughout the World subject to the cash payment and the
payment of a 3% Royalty for a seven-year term, as set forth therein;
WHEREAS, LM wishes to make such cash payment and enter this Agreement,
which supersedes the November 5, 1993 agreement between the parties, and to
acquire the sole and exclusive right to manufacture, sell and use the Products
throughout the World; and
WHEREAS, CBS wishes to transfer the sole and exclusive right for LM to
manufacture, sell and use the Products all as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
expressed, the parties agree as follows:
1. DEFINITIONS
1.1 "Product(s)" shall mean all laser equipment and component parts thereof
designed and manufactured by or for CBS, and sold by CBS for medical, dental or
veterinary applications prior to and during the Payment Period, including laser
equipment of the type known in the trade
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and industry as non-surgical laser products and defined by the U.S. Federal Food
& Drug Administration Center for Devices and Radiological Health ("FDA") as
category "3b" and any improvements, modifications or changes thereto by CBS.
1.2 "Patents" shall mean any patents and patent applications related to the
Product owned or licensed by CBS and/or any divisions, continuations-in-part,
applications or reissues thereof, and all United States and Foreign Letters
Patents issued upon any such patent applications.
1.3 "Patent Rights" shall mean (i) any and all past, present or future rights
in, to and associated with the Patents throughout the world, whether arising
under common law or statutory law, and whether arising under federal law, state
law, foreign law, or otherwise, including but not limited to the following: all
such rights arising out of or associated with the Patents; the right (but not
the obligation) to sue or bring opposition, interference, and/or cancellation
proceedings in the name of LM for any and all past, present and future
infringements of, or any other damages or injury to, the Patents or the Patent
Rights, and the rights to damages or profits due or accrued arising out of or in
connection with any such past, present or future infringement, damage or injury;
and (ii) the Contract Rights, subject to Article 8 hereof.
1.4 "Know-How" shall mean all of the technical information, processes, formulas,
designs, and preparation and usage information on materials and sources thereof,
directly or indirectly, related to the manufacture of the Products, including
without limitation, mechanical, chemical, engineering, and other scientific and
practical information and formulas, and other technical information such as
clinical data, drawings, validation procedures, specifications, notes, models,
records, electronic information and other writings and all steps and operations
required in the manufacture, processing, packaging, testing and/or storage of
the Product and the material incidental thereto; all such technical information
shall be used or practiced or be capable of being
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used or practiced for the design, development, manufacture, or use of the
Products and/or any improvements thereon and shall also include all business
information relating to the manufacturing, marketing, and sales of the Products
including promotion methods and techniques.
1.5 "Trademarks" shall include all service marks, trademarks, trade names,
logotypes, displays, designs or other marks associated with the Product.
1.6 "Contract Rights" shall mean any and all past, present or future rights and
interests of CBS pursuant to any and all licensing and distributor agreements of
CBS, or to which CBS shall be a party during the Payment Period, pertaining to
the Patents, Know-How, or Trademarks, including the right in the name of CBS to
enforce, sue and recover for, any past, present or future breach or violation of
any such agreement.
1.7 "Governmental Approvals" shall mean any approval, clearance, permission,
license, or registration in the name of or owned by CBS and relating to the
Product that is given by the competent public health authority in any country
for the manufacture, sale, or use of the Product including without limitation,
the documentation relating to compliance with the Danish Regulations for Medical
Device Manufacturing and the CE mark.
1.8 "Intellectual Property" shall mean all Patents, Know-How, Trademarks, Patent
Rights, Contract Rights and any other intellectual property and industrial
property rights owned by or originating with CBS which are in any way related to
the Product.
1.9 "Revenue" shall mean the ultimate amount of receipts of cash or its
equivalent from the sale of Product by LM throughout the World, such receipt to
be net of any trade or quantity or cash discounts and all returns of Product and
any allowances thereon which are appropriate at the reasonable discretion of LM.
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1.11 "Effective Date" shall mean March 12, 1997, the date this Agreement shall
take effect.
1.12 "Payment Period" shall mean the period of seven (7) years after the
Effective Date of this Agreement.
2. GRANTS BY CBS
2.1 Upon the payment of the consideration set forth in Paragraph 4.1 of this
Agreement, CBS hereby grants and conveys to LM, the sole and exclusive right and
license for LM to offer to sell, sell, use, or otherwise commercialize the
Product throughout the World subject only to the payment of the Royalties set
forth in Paragraph 4.3 of this Agreement.
2.2 Upon the payment of the consideration set forth in Paragraph 4.2 of this
Agreement, CBS hereby grants and conveys to LM, the sole and exclusive right and
license for LM to manufacture the Product throughout the World subject only to
the payment of the Royalties set forth in Paragraph 4.3 of this Agreement.
2.3 CBS grants to LM the right and license to use the Trademarks provided LM
shall conform to such reasonable standards as CBS may from time to time suggest
relative to the size, design, logotype, or other display of the Trademarks. CBS
agrees that LM may use its own trademarks and trade names in connection with the
sale or use of Product.
2.4 LM grants to CBS a royalty-free sublicense to manufacture, use and sell the
Product on behalf of LM in accordance with the CBS Manufacturing Agreement
executed concurrently herewith and attached hereto as Exhibit A.
2.5 CBS grants to LM the right to grant fair and reasonable sublicenses to
others for the manufacture, sale and use of Product; provided, that any
sublicenses granted by LM shall be first presented to CBS for approval which
will not unreasonably be withheld by CBS, and provided such sublicenses shall
include appropriate provisions and safeguards to ensure payment to CBS
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of a three percent (3%) Royalty on the Revenue of any sublicensee from the sale
of Product anywhere in the World during the Payment Period.
3. INTELLECTUAL PROPERTY
3.1 CBS shall, within thirty (30) days after the Effective Date, deliver to LM a
copy of all Intellectual Property and other things which are necessary for LM to
become fully enabled to use and sell the Product throughout the World, and
shall, within thirty (30) days after the cash payment by LM of Paragraph 4.2,
deliver to LM a copy of all Intellectual Property and other things which are
necessary for LM to become fully enabled to manufacture the Product throughout
the World. All Intellectual Property shall be reduced to writing in the English
language at the expense of CBS.
3.2 Upon the payment of the Royalties for the Payment Period as set forth in
Paragraph 4.3 of this Agreement, CBS hereby assigns to LM all Intellectual
Property, Governmental Approvals and the fully-paid, perpetual right to use and
sell Product throughout the World. CBS covenants that CBS and its successors and
assigns will execute all papers and perform such other acts as may be reasonably
necessary to give LM, its successors and assigns, the full benefit of the
assignments pursuant to this Paragraph 3.2. All Intellectual Property shall
remain the property of CBS until the full payment of the Royalties for the
Payment Period as set forth in Paragraph 4.3 of this Agreement.
4. CONSIDERATION TO CBS
4.1 In consideration of the grants of Paragraph 2.1 of this Agreement, LM agrees
to pay CBS the sum of One Hundred Thousand Dollars ($100,000) in cash upon the
execution of this Agreement.
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4.2 In consideration of the grants of Paragraph 2.2 of this Agreement, LM agrees
to pay CBS the sum of One Hundred and Seventy Five Thousand Dollars ($175,000)
in cash within three (3) months after written notice to CBS by LM of LM's intent
to become the exclusive manufacturer of the Product ("Notice of Intent to
Manufacture"), such payment to occur no later than June 15, 1998.
4.3 During the Payment Period, LM agrees to pay CBS a three percent (3%) Royalty
("Royalties") on the Revenue received by LM or its sublicensees from the sale of
Product.
4.4 Royalties due under this Agreement shall be accounted for by LM to CBS each
calendar quarter ending March, June, September and December following the
Effective Date of this Agreement, and such accounting shall be submitted to CBS
with proper cash payment of Royalties no later than forty-five (45) days after
the end of each calendar quarter. All payments under this Agreement shall be
made by LM in immediately available U.S. funds to CBS's address specified in the
first paragraph hereinabove written.
4.5 To the extent LM engages in the leasing of Product to customers, any unpaid
rental of Product in the hands of customers at the end of the Payment Period
contemplated by this Paragraph for Royalty calculations shall be capitalized for
purposes of final payment of Royalties due CBS under this Agreement.
4.6 During and after the term of this Agreement, CBS shall have the right, at
the sole expense of CBS, to conduct an annual audit of the books and records of
LM by a licensed certified public accountant to be appointed by CBS for the
purposes of assuring CBS that the proper Royalties are paid by LM under this
Agreement.
5. TERMINATION
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5.1 The parties shall have the right to terminate this Agreement at any time by
notice to the other party, effective immediately, as follows:
(a) Either party may terminate if the other party has breached any of
its obligations hereunder and has failed to reasonably remedy such breach within
thirty (30) days after written notice thereof; it being understood that the
refusal of a party to terminate this Agreement for the other party's breach of
any condition shall not affect its right to terminate this Agreement for
subsequent breaches of the same or other conditions; or
(b) LM may terminate if, for any other reason, there is a change,
directly or indirectly, in the control of CBS, unless LM consents in writing to
that change of control, which consent shall not be unreasonably withheld. 5.2
Upon termination of the CBS Manufacturing Agreement pursuant to LM's Notice of
Intent to Manufacture, CBS agrees for a period of five (5) years to cease the
manufacture, sale or use of Product throughout the World, and disassociate
itself in the marketplace in all respects concerning the Product except for the
warranty obligations for any Product previously sold by CBS. CBS shall also
refrain from allowing any other party to manufacture, use or sell Product. 5.3
For a period of six months after the termination of the CBS Manufacturing
Agreement pursuant to LM's Notice of Intent to Manufacture, CBS shall provide
technical assistance, including training and support, to assist LM in assuming
the manufacture of the Products including all steps and operations required in
the manufacture, processing, packaging, testing and/or storage of the Product
and the material incidental thereto. LM shall exercise reasonable discretion in
making requests for assistance from CBS and shall pay all reasonable travel and
lodging expenses of CBS incurred pursuant to a request by LM for assistance. CBS
agrees to provide up to ten (10) days of technical assistance without further
remuneration and the parties
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shall agree on appropriate remuneration for any technical assistance by CBS in
excess of ten (10) days.
6. SECRECY OBLIGATION
6.1 During the term of this Agreement and for two years after the termination of
the CBS Manufacturing Agreement, LM agrees to treat with strict confidentiality
all Know-How and particularly not to disclose to any other person or entity the
Know-How.
6.2 During the term of this Agreement and for the remaining life of the Know-How
as defined by Paragraph 6.3, CBS agrees to treat with strict confidentiality all
Know-How and particularly not disclose to any other person or entity the
Know-How.
6.3 Neither party shall be required to maintain confidential any portion of the
Know-How which:
(a) was in the possession of the public upon the Effective Date of this
Agreement;
(b) becomes published or otherwise available to others or the public
after the Effective Date of this Agreement under circumstances such that such
other or the public may utilize that portion of the Know-How without any direct
or indirect obligation to the parties hereto; and
(c) is, or at any time may be, acquired by a third party rightfully
possessed of that portion of the Know-How having no direct or indirect
obligation to the parties hereto with respect to such portion of the Know-How.
6.4 Article 6 shall remain in full force and effect notwithstanding any
termination of this Agreement.
7. REPRESENTATIONS AND WARRANTIES
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7.1 Both parties to this Agreement represent and warranty that they have taken
all steps prior to signing this Agreement to ensure that this Agreement and its
execution is lawful and binding to themselves, respectively, and that they have
full and complete power and authority to enter into and carry out their
obligations under this Agreement and under any documents which may be executed
in connection herewith..
7.2 CBS hereby represents and warrants to LM that to the best of its knowledge,
CBS is the sole legal and beneficial owner of the entire right, title and
interest in and to the Intellectual Property, subject to no restrictions, liens
or encumbrances of any kind, that the Patents are patentable, valid and
enforceable, and that no shop right in any of the Intellectual Property has been
granted to any third party. CBS further represents and warrants that it has not
heretofore made any license, commitment or agreement, nor will CBS make any
license, commitment or agreement which is inconsistent with this Agreement and
the rights granted herein, and that there is no dispute, disagreement, action or
investigation pending, or to the best of its knowledge, threatened against CBS
concerning any of the Intellectual Property. CBS further represents and warrants
that to the best of its knowledge, CBS has the right and authority to use the
Intellectual Property in connection with the Product in the manner in which the
Intellectual Property is presently used and such use does not conflict with,
infringe upon or violate any patent, trademark, copyright or other similar right
vested, or claimed to be vested, in any third party.
7.3 CBS agrees to indemnify and hold LM harmless from any liabilities, costs and
expenses (including attorneys' fees and expenses), obligations and causes of
action arising out of or related to any breach of the representations and
warranties made by CBS herein. Any costs incurred by LM because of any breach of
this Paragraph 7.3, or payments made by LM on behalf of CBS to
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cure any breach of this Paragraph 7.3, may be deducted from any Royalties due
and payable under Paragraph 4.3 hereof until all such costs are fully recovered.
8. PROTECTION OF INTELLECTUAL PROPERTY
8.1 The parties hereto shall each promptly inform the other of any suspected
infringement of any Intellectual Property by a third party and each shall have
the right to institute an action against such third party to protect the
Intellectual Property in accordance with the following procedure:
(a) In the event that both parties agree to institute suit jointly, the
suit shall be brought in both their names, the costs thereof, including
attorneys' fees, shall be borne equally, and recoveries, if any, whether by
judgment, award, decree or settlement, shall be shared equally.
(b) If LM does not wish to institute a suit, CBS may institute suit. CBS
shall bear the entire cost of such litigation and shall be entitled to retain
the entire amount of any recovery by way of judgment, award, decree or
settlement.
(c) If CBS does not wish to institute a suit, LM may institute suit. LM
shall bear the entire cost of such litigation and shall be entitled to retain
the entire amount of any recovery by way of judgment, award, decree or
settlement, subject to CBS's right of approval of any provisions relating to the
validity and/or infringement of any Patents owned by CBS. 8.2 Should either
party commence a suit under the provisions of Paragraph 8.1 and thereafter elect
to abandon the same, it shall give timely notice to the other party who may, if
it so desires, continue prosecution of such suit; provided how-ever, that the
sharing of expenses and recovery in such suit shall be as agreed upon between
the parties.
9. ASSIGNMENT
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9.1 Except as provided in Paragraph 2.4 of this Agreement, neither party has the
right to assign the rights of either such party to a third party without the
express written consent of the other affected party to this Agreement, except
that CBS may assign its duties hereunder to another company wholly-owned by
either CBS or C. B. Svendsen, individually, with the prior written approval of
LM, which approval shall not be unreasonably withheld.
9.2 In the event LM undergoes a liquidation process by receivership or
bankruptcy before all Royalties are made by LM pursuant to Paragraph 4.3 of this
Agreement, CBS shall automatically be deemed to hold an assignment or reversion
of the CBS rights conveyed hereunder.
10. ENTIRETY OF THE AGREEMENT
10.1 This Agreement and the CBS Manufacturing Agreement, executed concurrently
herewith, contain the entire understanding between the parties and supersede any
and all prior agreements, understandings, and arrangements, written or oral,
between the parties relating to the subject matter hereof and in particular
supersedes the Exclusive License Agreement dated November 5, 1993 which shall
become null and void on the Effective Date hereof. No amendment, change,
modification, or alteration of the terms and conditions hereof shall be binding
upon CBS or LM unless in writing and signed by a duly authorized officer of each
party hereto.
11. MANDATORY AND BINDING ARBITRATION
11.1 If any dispute arises between CBS and LM concerning the interpretation of
any of the terms, conditions, or provisions of this Agreement, or any of the
rights or duties of either party, the dispute shall be referred to two
Arbitrators, one of which shall be chosen by CBS and the other by LM. Such two
Arbitrators so chosen shall, if they cannot themselves reach agreement, select
an Umpire to hear the arguments of both Arbitrators and review the evidence. The
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decision of said Arbitrators, or Arbitrators and Umpire, shall be final and
binding on both CBS and LM. The Arbitrators and the Umpire shall all regard this
Agreement as an honorable undertaking and shall make their findings and award
with a view to effecting the general purpose of the Agreement in a reasonable
and equitable manner, rather than in accordance with a literal or technical
interpretation of any language used in this Agreement, viewing and considering
parole evidence as they see fit. Both CBS and LM hereby agree to hold harmless
the Arbitrators and the Umpire who accept engagements to handle any disputes
arising under this Agreement.
11.2 If LM initiates the arbitration, then the arbitration shall be held in
Denmark and the costs of the arbitration shall be borne by LM. If CBS initiates
the arbitration, then the arbitration shall be held in Houston, Texas and the
costs of the arbitration shall be borne by CBS.
12. APPLICABLE LAW AND VENUE
12.1 After arbitration proceedings under Paragraph 11.1 are exhausted, if LM
initiated the arbitration, this Agreement shall be governed and construed
according to Danish law and if CBS initiated the arbitration, this Agreement
shall be governed and construed according to the laws of the State of Texas, U.
S. A. Further, if LM initiated the arbitration, venue shall be The Maritime and
Commercial Court (So- og Handelsretten) of Copenhagen and if CBS initiated the
arbitration, venue shall be in Harris County, Texas. In any event, jurisdiction
of a court in either Denmark or Texas must be established before suit can
commence in either jurisdiction. The parties recognize, however, that the
preparation and execution of this Agreement is in Texas, and that the
obligations of LM under this Agreement will be substantially all performed in
Texas.
12.2 Notices under this Agreement shall be delivered by hand or by certified
mail or its equivalent to the respective other party at the addresses first
shown above in this Agreement on
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the first page or at such alternate address as may be noticed by either party to
the other from time to time.
13. GENERAL
13.1 HEADINGS. The subject headings of the paragraphs of this Agreement are
included for purposes of convenience only, and shall not affect the construction
or interpretation of any of its provisions.
13.2 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
and all so executed shall constitute one agreement, binding on both parties
hereto notwithstanding that both parties are not signatory to the same
counterpart.
13.3 INDEPENDENT CONTRACTOR. Each party's relationship to the other hereunder
shall be that of an independent contractor only. Neither party shall be the
agent of the other party, and neither party shall have authority to act for or
on behalf of the other party in any manner.
13.4 SEVERABILITY. All rights and restrictions contained herein may be exercised
and shall be applicable and binding only to the extent that they do not violate
any applicable laws and are intended to be limited to the extent necessary so
that they will not render this Agreement illegal, invalid or unenforceable.
13.5 WAIVER. Each party covenants and agrees that if the other party fails or
neglects for any reason to take advantage of any of the terms hereof providing
for the termination of this Agreement or if, having the right to declare this
Agreement terminated, such other party shall fail to do, any such failure or
neglect shall not be or be deemed or be construed to be a waiver of any cause
for the termination of this Agreement subsequently occurring, or as a waiver of
any of the terms, covenants, or conditions of this Agreement or of the
performance thereof. None of
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the terms, covenants, or conditions of this Agreement can be waived except by
the written consent of the waiving party. THE PARTIES APPEAR AND BIND THEMSELVES
TO THIS "AGREEMENT' BY SIGNING IN THE APPROPRIATE PLACES INDICATED THEREFOR.
LASERMEDICS, INC.
BY ________________________ Date of execution:_____________________
Title: President
CB SVENDSEN A/S
BY /s/ ILLEGIBLE Date of execution:_____________________
Title: Chairman
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CBS MANUFACTURING AGREEMENT
This AGREEMENT is by and between Lasermedics, Inc. ("LM"), a corporation
organized and existing under the laws of the State of Texas and with its
principal offices located at 120 Industrial Boulevard, Sugar Land, Texas 77478,
and CB Svendsen A/S ("CBS"), a corporation organized and existing under the laws
of the Country of Denmark and with its principal office located at Kirke
Vaerloesevej 22, DK - 3500 Vaerloese, Denmark.
WITNESSETH
WHEREAS, LM desires for CBS to manufacture the Products for the account
of LM at CBS's facilities located in Vaerloese, Denmark until LM has the
requisite manufacturing capability to manufacture the Products; and
WHEREAS, CBS wishes to continue the manufacture of the Products for LM.
NOW, THEREFORE, in consideration of the mutual covenants herein
expressed, the parties agree as follows:
1. DEFINITIONS
1.1 MANUFACTURING; MANUFACTURE. Manufacturing and Manufacture shall mean all
steps and operations required in the manufacture, validation, processing,
packaging, testing and/or storage of the Products and the Material incidental
thereto, until delivery to LM.
1.2 MATERIAL. Material shall mean all raw materials, components, supplies,
packaging and labeling components and materials acquired by CBS for use in the
Manufacture of the Products for LM.
1.3 PRODUCT. Product shall mean all laser equipment designed and manufactured by
or for CBS, and sold by CBS for medical, dental or veterinary application,
including laser equipment of
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the type known in the trade and industry as non-surgical laser products and
defined by the U.S. Federal Drug Administration Center for Devices and
Radiological Health ("FDA") as category "3b".
1.4 GOVERNMENTAL APPROVALS. Governmental Approvals shall mean any approval,
clearance, permission, license, or registration in the name of or owned by CBS
and relating to the Product that is given by the competent public health
authority in any country for the manufacture, sale, or use of the Product
including without limitation, the documentation relating to compliance with the
Danish Regulations for Medical Device Manufacturing and the CE mark.
1.5 SPECIFICATIONS. Specifications shall mean specifications for the manufacture
of the Product and specifications for the completed Product, such specifications
to be mutually approved by CBS and LM and shall be in the English language;
provided, however, such specifications shall include compliance with the
Government Approvals and any other applicable regulations of the competent
public health authority in any country in which the Product is to be
manufactured, used, or sold.
1.6 EFFECTIVE DATE. Effective Date shall mean March 12, 1997, the date this
Agreement shall take effect.
1.7 PAYMENT PERIOD. Payment Period shall mean the period of seven (7) years
after the Effective Date of this Agreement.
2. DELEGATION
2.1 Each of LM and CBS represents and warrants that each is duly authorized to
enter into and to carry out the present Agreement regarding the Manufacture of
the Products.
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2.2 Nothing contained in this Agreement shall be construed as granting to CBS
any authority to contract, subcontract or delegate to any third party the
obligations or responsibilities undertaken by CBS hereunder without the prior
written consent of LM, which consent shall not be unreasonably withheld.
3. PREPARATION - EQUIPMENT
3.1 CBS shall provide and utilize all equipment and implements necessary for the
Manufacture of the Products. CBS shall adopt the necessary and advisable
measures for the prompt Manufacture of the Products.
4. SUPPLY OF MATERIAL
4.1 CBS will acquire the Material required for the Manufacture of the Products,
and all such Material shall be used exclusively for such Manufacture.
4.2 All Products, at any state of Manufacture, shall be and remain dedicated to
the Manufacture of Products for LM.
5. RESPONSIBILITY OF MANUFACTURE
5.1 CBS shall be responsible for the quality of all Material used in the
Manufacture of Products.
5.2 CBS shall comply with the approved standards, procedures, instructions, and
specifications furnished pursuant to Section 12.1. CBS shall maintain the
highest standards of workmanship and care customary among leading medical device
manufacturers.
5.3 CBS agrees to manufacture all Products in accordance with Good Manufacturing
Practices and other applicable regulations as defined by the FDA.
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5.4 Control samples, the number of which shall be mutually agreed upon, for each
lot of Products shall be retained by CBS for inspection by LM, for a period of
five (5) years from the dates of their respective Manufacture.
5.5 In the Manufacture of Products, CBS shall observe all pertinent laws and
regulations in force and effect at the time of Manufacture and shall obtain and
comply with all Governmental Approvals.
5.6 CBS shall indemnify and hold LM harmless against any claims asserted or
suits brought against LM arising out of CBS's negligence in the Manufacture of
the Products, including, without limitation, the use of faulty or defective
Material furnished by CBS or due to CBS's failure to comply with the
instructions, specifications, and procedures pertaining to the Products. LM
shall promptly notify CBS of any such claims or suits.
5.7 LM shall indemnify and hold CBS harmless against any claims asserted or
suits brought against CBS in cases wherein such claims or suits arise from the
use of the Products in accordance with the instructions for use thereof,
provided such Products are prepared pursuant to the agreed-upon instructions,
specifications and procedures. CBS shall promptly notify LM of any such claims
or suits and, at LM's option and sole cost, permit LM to handle or control such
claims or suits.
6. PRODUCT WARRANTY
6.1 CBS warrants to LM that Product delivered hereunder meets the specifications
for the Product, that the Product is free from defects in design, labeling, and
specifications for materials and workmanship, and that Product is merchantable
and fit for use in its intended purpose.
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6.2 LM does not assume any warranty liability whatsoever for Product
manufactured and sold by CBS heretofore or hereafter, and CBS shall retain
general warranty obligations and liability for Product manufactured by CBS and
sold by either CBS or LM, particularly those obligations described as follows:
(a) The warranty obligation of CBS is to repair or replace the
defective parts or the entire defective Product without charge to LM or
its customer, and costs of return and reshipment of Product will be
absorbed by CBS. However, no fewer than ten Product units shall be
returned to CBS by LM for repair or replacement at any one time unless
six months have elapsed from the date of any previous return shipment of
Product by LM to CBS for repair or replacement.
(b) This warranty shall not extend to any defects attributable to
the failure of LM to preserve, install, operate, maintain, repair, or
replace Product in accordance with applicable recommendations by CBS or
to defects attributable to the misuse, neglect, accident, whether in the
operation, transit, storage, of such Product or in damage caused by
fire, flood, or other acts of God.
(c) The express warranty herein extended by CBS to LM is in
effect for only twelve (12) months from the date of receipt by LM of any
Product unit delivered by CBS.
6.3 If CBS for any reason fails to meet its warranty obligations, LM may at its
sole discretion resolve any Product complaint for the account of CBS, and with
respect to any Product not sold by LM, LM may service any such customer
complaint by use of any reasonable means LM deems necessary under the
circumstances, and LM shall have the right to charge CBS one-half of the actual
out-of-pocket expense incurred by LM in the satisfaction of such customer
complaint.
6.4 If any lot of Products is defective or fails to conform to the approved
standards and specifications due to CBS's negligence or CBS's failure to observe
the instructions, or CBS's use of defective or faulty Material, CBS shall credit
LM for LM's cost for said Products and shall replace, without charge, any such
Product, in its sole discretion.
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6.5 As to any Product manufactured by LM, CBS shall have no warranty obligations
whatsoever related to the design and merchantability of Product.
6.6 CBS will carry products liability insurance in an amount commensurate with
the risks connected with the manufacture and sale of the Products. Such
insurance shall name LM as co-insured.
7. ORDERS AND DELIVERY
7.1 LM shall order Products from CBS in writing at a reasonable time in advance
of each shipment hereunder. Such written orders shall identify the Product being
ordered and include the quantity of Product, the shipping instructions, and the
date on which delivery is desired.
7.2 LM shall use its best efforts to place orders for, and shipments shall be
made in, approximately equal monthly quantities, or if the total quantity of any
Product required to be purchased hereunder is insufficient to permit monthly
shipments, then in quantities approximately evenly spaced throughout the term
hereof.
7.3 LM's receipt at LM's destination of any Products delivered hereunder shall
be a conditional acceptance of such Products, pending inspection and absence of
a latent defect in the Products. In the case of non-delivery, LM shall provide
CBS written notice of non-delivery within forty-five (45) days of the date set
for delivery and CBS shall furnish documentation of shipment and tracking
information to LM.
7.4 If, upon inspection of any shipments of Products hereunder, such Products
fail to meet Product specifications, LM shall have the right to return the
shipment of Products at the expense of CBS. At the option of LM, LM shall have
the right to deduct the original invoice price of such
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rejected Products from any outstanding invoices or statements to CBS or to have
CBS credit LM the original invoice price.
8. PROGRAM OF PREPARATION
8.1 CBS agrees to Manufacture such quantities of the Products as are specified
in written orders which are submitted from time to time to CBS by LM.
8.2 Each such order shall specify the quantities and delivery dates of the
Products to be Manufactured by CBS during each calendar month of the calendar
quarter which commences after the date of submission of LM's first order. LM
shall also furnish CBS with an estimate of the quantities of the Products which
LM intends to order from CBS during each subsequent calendar quarter at least
sixty (60) days prior to that calendar quarter. CBS shall have the right to
approve any increase in the order of a subsequent calendar quarter where the
increase is over fifty percent (50%) of the order of the previous calendar
quarter. LM shall not be bound by any such estimate unless the increase is over
fifty percent (50%) of the order of the previous calendar quarter.
8.3 CBS will proceed promptly in the Manufacture, execution and delivery of LM's
orders for Products in accordance with good manufacturing practices.
8.4 In connection with the Manufacture of the Products under this Agreement, CBS
agrees to act in good faith and not to prioritize the Manufacture of the
Products of third parties over the Manufacture of the Products for LM.
9. STORAGE
9.1 CBS shall provide, at no cost to LM, adequate and safe storage (i) for all
Materials reasonably required at any given time for the Manufacture of the
Products, and (ii) for all Products pending delivery to LM or LM's designee in
accordance with this Section 9.
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9.2 All Products in any state of Manufacture shall be traceable by CBS according
to Good Manufacturing Practices and other applicable regulations as defined by
the FDA and in accordance with the EC/ISO 9000 requirements so that all Products
can be separated from those items belonging to CBS or held by CBS for third
parties.
9.3 CBS will take all reasonable measures that LM may request for the full
protection of LM's interest in the Products, including adequate insurance
endorsed and payable to LM in suitable amounts (unless LM advises CBS, in
writing, that LM has already provided such insurance), in the Material and the
Products in any state of Manufacture, against all risks of loss or damage. Proof
thereof shall be furnished to LM on LM's request.
10. APPROVALS FROM COMPETENT AUTHORITIES
10.1 During the term of this Agreement, CBS shall be responsible for securing,
at its sole cost and expense, the CE mark and LM shall be responsible for
maintaining all existing Governmental Approvals and securing, at its sole cost
and expense, all other Governmental Approvals required by appropriate
authorities in order to permit the Manufacture and sale of the Products
hereunder.
10.2 CBS represents that the Product is in full compliance with the Danish
Regulations for Medical Device Manufacturing and that the Product meets ISO 9000
requirements.
10.3 CBS agrees to make the appropriate submissions for obtaining a CE mark on
the Product. Any and all expenses incurred in connection with such filings for
obtaining the CE mark shall be borne entirely by CBS. If CBS does not apply for
the CE mark by December 31, 1997, LM shall make the appropriate submissions at
the expense of CBS and shall have the right to deduct such expenses from any
consideration due pursuant to Article 11.
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10.4 Any submission for governmental approval to the public health authorities
in any country shall be made in the name of LM. Any approval, clearance,
permission or registration relating to the Product that is given by the public
health authorities in any country shall be held and maintained in the name of LM
and at the sole cost and expense of LM.
10.5 CBS agrees to maintain all documentation relating to compliance with the
Danish Regulations for Medical Device Manufacturing and the documentation
relating to the CE mark.
10.6 CBS agrees to maintain these government licenses, approvals and
registrations at the sole cost and expense of LM until the expiration of the
Payment Period.
11. PAYMENT FOR THE PRODUCTS
11.1 CBS agrees to manufacture and sell to LM the Product or component parts of
the Product for sale by LM throughout the World.
11.2 LM agrees to purchase from CBS Product or component parts of Product from
CBS under terms which require LM to pay one-third of the purchase price at the
time an order is placed with CBS, with one-third of the price of the order to be
paid at the time notice of shipment is received by LM, and one-third of the
price of the order within thirty (30) days after the order is received from CBS
by LM.
11.3 CBS agrees to sell to LM the Product and component parts of the Product at
the prices set forth in Schedule A. The prices shown on Schedule A shall be
subject to increase or decrease once a year by mutual agreement of the parties,
or by demand of either party in writing if the relationship of the Danish Krone
and the United States Dollar varies by more than ten (10%) percent for any
consecutive ninety (90) day period. Any new Product pricing demanded by such
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party shall be consistent with the changed exchange rate until any future
modification by operation of this provision of this Agreement.
11.4 The parties hereby stipulate that the exchange rate as of the Effective
Date shall be one Danish Krone per .15385 U.S. Dollar, or one U.S. Dollar per
6.5 Danish Krone.
11.5 All payments under this Agreement shall be made by LM in immediately
available U.S. funds to CBS's address specified in the first paragraph
hereinabove written.
11.6 Except as the law otherwise provides, LM shall pay CBS, in addition to the
price of the Products, the amount of all governmental taxes, excises and/or
other charges (except taxes on or measured by net income) that CBS may be
required to pay with respect to the Products delivered hereunder.
11.7 Within ninety (90) days after LM provides CBS with the Notice of Intent to
Manufacture as set forth in Paragraph 14.1 hereof, LM agrees to purchase from
CBS the inventory of CBS of component parts of Product at the documented cost of
CBS as shown in the computer listing of CBS in Danish Krone, but payable by LM
in prevailing U.S. Dollars.
11.8 If LM fails to pay for Product within the agreed time after receipt of
goods, LM shall pay CBS appropriately calculated interest at the prevailing
prime rate in New York City plus two (2%) percent, but in no event to exceed
eighteen (18%) percent per annum on any over due amounts from the due date of
payment by LM until the date of actual receipt of proper payment by CBS.
11.9 All Products delivered pursuant to this Agreement shall be considered to be
delivered when suitably packed for air freight shipment in CBS's standard
shipping cartons, marked for shipment to LM's address, and placed with a carrier
FOB CBS's manufacturing plant. Unless
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otherwise instructed in writing by LM, CBS shall select the carrier. All costs
to transfer the Product to LM including all freight, insurance, and other
shipping expenses, as well as any special packing expenses and handling expenses
shall be paid by CBS. LM shall bear all applicable taxes, customs, duties,
documentation and similar charges that may be assessed against the Products
after delivery by CBS to the carrier.
12. TECHNOLOGY; CONFIDENTIAL INFORMATION
12.1 LM and CBS shall fully disclose to each other in writing and in the English
language all know-how, instructions, formulae, standards, validations,
procedures, specifications, the Intellectual Property, as that term is defined
in the Master Agreement, and other information and technology necessary in and
for the Manufacture of the Products. Any translations into English shall be at
the expense of CBS.
12.2 All Manufacturing instructions, as well as any subsequent written
communications designated as confidential, shall be held in confidence by the
parties hereto during the term of this Agreement, and thereafter. Such
information is authorized for use only in such manner and to such extent as
shall be reasonably necessary in carrying out the purposes of this Agreement,
and neither party shall prevent disclosure thereof to all persons except those
to whom such disclosure may be necessary to carry out this Agreement.
12.3 Neither party shall be required to maintain confidential any
information which:
(a) was in the possession of the public upon the Effective Date of this
Agreement;
(b) becomes published or otherwise available to others or the public
after the Effective Date of this Agreement under circumstances such that such
other or the public may utilize the information without any direct or indirect
obligation to the parties hereto; and
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(c) is, or at any time may be, acquired by a third party rightfully
possessed of the information and having no direct or indirect obligation to the
parties hereto with respect to such information.
12.4 Paragraphs 12.2 and 12.3 of this Agreement shall remain in full force and
effect notwithstanding any termination of this Agreement.
13. ASSISTANCE BY CBS
13.1 During the term of this Agreement, CBS shall supply to LM, at LM's
principal office in Sugar Land, Texas and without expense to LM, a copy of all
the Intellectual Property, as that term is defined in the Master Agreement.
13.2 During the term of this Agreement, CBS shall assist and train the personnel
of LM, with respect to the manufacture and use of the Products, the marketing
and distribution of the Products, and any developing future improvements in the
Products whereby LM shall become fully enabled to manufacture, use, sell, and
otherwise commercialize the Product throughout the world.
13.3 LM shall exercise reasonable discretion in making requests for CBS to
provide the assistance and training as provided herein. LM shall pay all the
reasonable travel and lodging expenses of CBS incurred pursuant to a request by
LM for services. CBS agrees to provide up to ten (10) days of assistance and
training without further remuneration and the parties shall agree on appropriate
remuneration for any assistance and training by CBS in excess of ten (10) days.
CBS agrees to assist LM after the expiration of this Agreement in accordance
with such terms as the parties may agree.
14. DURATION AND TERMINATION
12
<PAGE>
14.1 This Agreement shall be effective as of the date first written above, and,
except as otherwise provided in this Agreement, shall terminate upon three (3)
months prior written notice to CBS by LM of its intent to become the exclusive
manufacturer of the Product ("Notice of Intent to Manufacture"). Upon receipt of
the Notice of Intent to Manufacture from LM, CBS agrees to cease the
manufacture, sale or use of Product, and disassociate itself in the marketplace
in all respects concerning the Product except for the warranty obligations for
any Product previously sold by CBS. CBS shall also refrain from allowing any
other party to manufacture, use or sell Product.
14.2 Upon LM becoming the exclusive manufacturer of the Products pursuant to
Paragraph 14.1, LM shall be responsible for all expenses required to manufacture
the Products. CBS agrees to sell to LM or LM's designated vendor CBS's Material
and supplies used by CBS in the Manufacture of the Product and any inventory of
the Product. LM shall have no obligation to CBS as would otherwise be required
by the warranties for the Products Manufactured by LM pursuant to this
Paragraph.
14.3 Notwithstanding the provisions of Paragraph 14.1, the parties shall have
the right to terminate this Agreement at any time by notice to the other party,
effective immediately, as follows:
(a) Either party may terminate if the other party has breached any of
its obligations hereunder and has failed to reasonably remedy such breach within
thirty (30) days after written notice thereof; it being understood that the
refusal of a party to terminate this Agreement for the other party's breach of
any condition shall not affect its right to terminate this Agreement for
subsequent breaches of the same or other conditions; or
13
<PAGE>
(b) LM may terminate if, for any other reason, there is a change,
directly or indirectly, in the control of CBS, unless LM consents in writing to
that change of control, which consent shall not be unreasonably withheld.
14.4 Upon termination of this Agreement, LM agrees to use its best efforts to
assist CBS in the reduction or elimination of any CBS inventory of Product and
component parts of Product existing at the time of termination by purchasing
from CBS all of the needs of LM for Product and component parts of Product first
from CBS rather than any other party; provided, however, that LM shall not be
required to purchase any Product or component parts of Product which are not
integral parts of any items shown on Schedule A to this Agreement.
15. RECORDS AND INSPECTIONS
15.1 CBS shall maintain separate records for the operations carried out pursuant
to this Agreement, and will supply LM with the production and other reports as
may reasonably be required by LM.
15.2 While this Agreement is in force and upon reasonable notice during normal
business hours, LM shall have access to such records maintained by CBS and
relating to this Agreement, and may review and make copies of those records. LM
shall have the right to inspect the spaces where CBS stores the Material and
Products and take physical inventories of the same.
15.3 CBS shall allow persons authorized by LM to inspect the Manufacture of any
of the Products during any phase of Manufacture.
16. FORCE MAJEURE
16.1 Neither party shall be liable or deemed in default for failure to perform
any duty or obligation that such party may have under this Agreement where such
failure has been occasioned
14
<PAGE>
by any Act of God, fire, strike, inevitable accident, war, or any other cause
outside the reasonable control of that party, and occurring without its fault or
negligence. The party whose performance has been so interrupted shall give the
other party prompt notice of the interruption and the cause thereof, and shall
use every reasonable means to resume full performance of this Agreement as soon
as possible.
17. NOTICES
17.1 Notices under this Agreement shall be delivered by hand or by certified
mail or its equivalent to the respective other party at the addresses first
shown above in this Agreement on the first page or at such alternate address as
may be noticed by either party to the other from time to time.
18. REPRESENTATION
18.1 Except as specifically authorized by this Agreement or otherwise in
writing, neither party is authorized to, nor shall either party undertake to,
bind the other party in any way by any warranty, agreement, contract,
representation or order, whether written or oral, or by any instrument or action
of any kind.
18.2 The parties hereto shall at all times during this Agreement be deemed
independent contractors. Neither CBS nor any persons or entities employed,
contracted or otherwise utilized by CBS for any purpose shall be deemed the
employees, representatives or agents of LM, unless specifically agreed to in
writing between the parties.
19. ASSIGNMENT
19.1 Neither party has the right to assign the rights of either such party to a
third party without the express written consent of the other affected party to
this Agreement, except that CBS may
15
<PAGE>
assign its duties hereunder to another company wholly-owned by either CBS or C.
B. Svendsen, individually, with the prior written approval of LM, which approval
shall not be unreasonably withheld.
20. MANDATORY AND BINDING ARBITRATION
20.1 If any dispute arises between CBS and LM concerning the interpretation of
any of the terms, conditions, or provisions of this Agreement, or any of the
rights or duties of either party, the dispute shall be referred to two
Arbitrators, one of which shall be chosen by CBS and the other by LM. Such two
Arbitrators so chosen shall, if they cannot themselves reach agreement, select
an Umpire to hear the arguments of both Arbitrators and review the evidence. The
decision of said Arbitrators, or Arbitrators and Umpire, shall be final and
binding on both CBS and LM. The Arbitrators and the Umpire shall all regard this
Agreement as an honorable undertaking and shall make their findings and award
with a view to effecting the general purpose of the Agreement in a reasonable
and equitable manner, rather than in accordance with a literal of technical
interpretation of any language used in this Agreement, viewing and considering
parole evidence as they see fit. Both CBS and LM hereby agree to hold harmless
the Arbitrators and the Umpire who accept engagements to handle any disputes
arising under this Agreement.
20.2 If LM initiates the arbitration, then the arbitration shall be held in
Denmark and the costs of the arbitration shall be borne by LM. If CBS initiates
the arbitration, then the arbitration shall be held in Houston, Texas and the
costs of the arbitration shall be borne by CBS.
21. APPLICABLE LAW AND VENUE
21.1 After arbitration proceedings under Paragraph 20.1 are exhausted, if LM
initiated the arbitration, this Agreement shall be governed and construed
according to Danish law and if CBS
16
<PAGE>
initiated the arbitration, this Agreement shall be governed and construed
according to the laws of the State of Texas, U. S. A. If LM initiated the
arbitration, venue shall be The Maritime and Commercial Court (So - og
Handelsretten) of Copenhagen and if CBS initiated the arbitration, venue shall
be in Harris County, Texas. In any event, jurisdiction of a court in either
Denmark or Texas must be established before suit can commence in either
jurisdiction. The parties recognize, however, that the preparation and execution
of this Agreement is in Texas, and that the obligations of LM under this
Agreement will be substantially all performed in Texas.
22. ENTIRE AGREEMENT
22.1 This Agreement contains the entire understanding between the parties and
superseded any and all prior agreements, understandings and arrangements,
written or oral, express or implied, between the parties relating to the subject
matter hereof. No amendment, change, modification or alteration of the terms and
conditions hereof shall be binding upon either party unless in writing and
signed by a duly authorized officer of both parties.
23. GENERAL
23.1 HEADINGS. The subject headings of the paragraphs of this Agreement are
included for purposes of convenience only, and shall not affect the construction
or interpretation of any of its provisions.
23.2 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
and all so executed shall constitute one agreement, binding on both parties
hereto notwithstanding that both parties are not signatory to the same
counterpart.
17
<PAGE>
23.3 INDEPENDENT CONTRACTOR. Each party's relationship to the other hereunder
shall be that of an independent contractor only. Neither party shall be the
agent of the other party, and neither party shall have authority to act for or
on behalf of the other party in any manner.
23.4 SEVERABILITY. All rights and restrictions contained herein may be exercised
and shall be applicable and binding only to the extent that they do not violate
any applicable laws and are intended to be limited to the extent necessary so
that they will not render this Agreement illegal, invalid or unenforceable.
23.5 WAIVER. Each party covenants and agrees that if the other party fails or
neglects for any reason to take advantage of any of the terms hereof providing
for the termination of this Agreement or if, having the right to declare this
Agreement terminated, such other party shall fail to do, any such failure or
neglect shall not be or be deemed or be construed to be a waiver of any cause
for the termination of this Agreement subsequently occurring, or as a waiver of
any of the terms, covenants, or conditions of this Agreement or of the
performance thereof. None of the terms, covenants, or conditions of this
Agreement can be waived except by the written consent of the waiving party.
IN WITNESS WHEREOF, the parties have executed this Agreement by their respective
duly authorized representatives, as of the day first above written.
LASERMEDICS, INC. CB SVENDSEN A/S
- ------------------------------------ -----------------------------------
Name:_________________________ Name:______________________________
Title:________________________ Title:_____________________________
18
<PAGE>
SCHEDULE A TO "CBS MANUFACTURING AGREEMENT"
Net prices to be paid by LM for Product pursuant to Sections 3.4 and 6.1 of the
Agreement:
<TABLE>
<CAPTION>
<S> <C>
Product And Description Net Price
- ----------------------- ---------
DENTAL LASER EQUIPMENT:
CBM MASTER 1, Consisting of: 1 Basic Unit
1 DP1A Dental Probe - 30 mW
1 LG3 Autoclavable Tip $1,700
CBM MASTER 1B, Consisting of: 1 Basic Unit with Battery
1 DP1A Dental Probe - 30 mW
1 LG3 Autoclavable Tip $1,750
CBM MASTER 3 ("Lasermedics 830 DS") Consisting of:
1 Basic Unit
1 DP3 Dental Probe - 30 mW
1 LG3 Autoclavable Tip $2,269
PHYSIOTHERAPEUTIC LASER EQUIPMENT:
CBM MASTER 1, Consisting of: 1 Basic Unit
1 PhP1 Physiotherapeutic
Probe - 30 mW $1,499
CBM MASTER 1B, Consisting of: 1 Basic Unit with Battery
1 PhP1 Physiotherapeutic
Probe - 30 mW $1,549
CBM MASTER 3 ("Lasermedics 830 DS") Consisting of:
1 Basic Unit
1 PhP3 cordless Physiotherapeutic
Probe -30 mW $1,825
-70 mW $2,068
CBM MASTER 4 ("Lasermedics 830 830T"Consisting of:
l Basic Unit
l PhP4 Triple Physiotherapeutic
Probe $2,565
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ACCESSORIES:
PhP1 Physiotherapeutic Probe for CBS MASTER 1 & 2 - 30 mW $ 695
DP1A Dental Probe for CBM MASTER 1 & 2
(excluding tip ) - 30 mW $ 785
PhP3 Physiotherapeutic Probe for MASTER
3-30 mW $1,000
-70 mW $1,240
DP3 Dental Probe for CBM MASTER 3
-30 mW $1,330
-70 mW $1,570
PhP4 Triple Probe for MASTER 4 (3 x 30 mW) $1,640
LG3 Autoclavable Tip for Intraoral use $ 111
PhLG3 Autoclavable Tip for Extraoral use $ 111
BUS Basic Unit CBM MASTER 3 $ 828
BU4 Basic Unit CBM MASTER 4 $ 925
FC Flight Case (Al-case) for CBM MASTER 1 & 2 Lasers $ 85
Ph Probe Holder for CBM MASTER 3 Probes $ 20
BP3 Spare Battery for CBM MASTER 3 Probes $ 80
PB Probe Box for CBM MASTER 3 & 4 Probes $ 37
BU1 Base Unit for Master 1 $ 804
BU1B Portable Base Unit for Master 1 with Battery $ 854
Laser Safety Glasses $ 42
Remote Interlocks $ 43
</TABLE>
20
SCHEDULE 21.1
SUBSIDIARIES OF LASERMEDICS, INC.
The following is a list of all of the subsidiaries of the Company at
December 31, 1996. Each of the subsidiaries is wholly-owned by the Company.
CORPORATE NAME OF SUBSIDIARY STATE OF INCORPORATION
---------------------------- ----------------------
Health Career Learning Systems, Inc. Michigan
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation of our report dated February 23,
1997 included in this Form 10-KSB into the Company's previously filed
Registration Statement on Form S-8 (No. 33-76614).
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET, STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 507,892
<SECURITIES> 0
<RECEIVABLES> 4,959,194
<ALLOWANCES> 0
<INVENTORY> 4,427,991
<CURRENT-ASSETS> 10,229,395
<PP&E> 3,488,586
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,224,972
<CURRENT-LIABILITIES> 4,637,398
<BONDS> 0
0
0
<COMMON> 30,214
<OTHER-SE> 2,432,719
<TOTAL-LIABILITY-AND-EQUITY> 16,224,972
<SALES> 12,485,961
<TOTAL-REVENUES> 12,485,961
<CGS> 5,716,156
<TOTAL-COSTS> 5,716,156
<OTHER-EXPENSES> 6,726,692
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (814,636)
<INCOME-PRETAX> (879,337)
<INCOME-TAX> 0
<INCOME-CONTINUING> (879,337)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (879,337)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
