U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: May 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to ____
Commission file number 0-21320
Magna-Lab Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New York 11-3074326
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
250Z Executive Drive, Edgewood. NY 11717
----------------------------------------
(Address of principal executive offices)
(516) 595-2111
---------------------------
(Issuer's telephone number)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date - June 30, 1996
Class A Common Stock, $.001 Par Value 3,743,899
-------------------------------------------------- ----------------
Class B Common Stock, $.001 Par Value 1,846,101
-------------------------------------------------- ----------------
Class Shares
Transitional Small Business Disclosure Format (check one) Yes ( ) No (X)
<PAGE>
MAGNA-LAB INC.
CONTENTS
PART 1 - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. - FINANCIAL STATEMENTS
BALANCE SHEETS 1
STATEMENTS OF OPERATIONS 2
STATEMENTS OF CASH FLOWS 3
STATEMENT OF STOCKHOLDERS' EQUITY 4
NOTES TO FINANCIAL STATEMENTS 5-6
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 7-8
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 8
ITEM 5 - OTHER INFORMATION 8
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 8
All items which are not applicable or to which the answer is negative have been
omitted from this report.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. - Financial Statements
MAGNA-LAB INC.
BALANCE SHEETS
May 31, 1996 (unaudited) and February 29, 1996
<TABLE>
<CAPTION>
May 31, February 29,
1996 1996
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,928,000 $ 3,047,000
Accounts receivable 7,000 62,000
Inventory 440,000 199,000
Deposits and other 468,000 475,000
------------ ------------
Total current assets 2,843,000 3,783,000
------------ ------------
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization of
approximately $298,000 and $272,000, respectively 380,000 351,000
------------ ------------
OTHER ASSETS 15,000 2,000
------------ ------------
$ 3,238,000 $ 4,136,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 748,000 $ 754,000
Accrued liabilities 454,000 558,000
Customer deposits 555,000 635,000
------------ ------------
Total current liabilities 1,757,000 1,947,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share, 5,000,000
shares authorized, no shares issued -- --
Common stock, Class A, par value $.001 per share,
40,000,000 shares authorized, 3,743,899 shares issued,
3,743,899 and 3,736,802 shares outstanding, respectively 4,000 4,000
Common stock, Class B, par value $.001 per share,
3,750,000 shares authorized, 1,875,000 shares issued,
1,846,101 and 1,853,198 shares outstanding, respectively 2,000 2,000
Capital in excess of par value 13,324,000 13,324,000
Accumulated deficit (11,849,000) (11,141,000)
------------ ------------
Total stockholders' equity 1,481,000 2,189,000
------------ ------------
$ 3,238,000 $ 4,136,000
============ ============
</TABLE>
See accompanying notes to financial statements
1
<PAGE>
MAGNA-LAB INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended May 31,
------------------------------
1996 1995
----------- -----------
REVENUES $ -- $425,000
----------- -----------
COSTS AND EXPENSES:
Cost of sales -- 333,000
Selling and marketing 130,000 150,000
General and administrative 285,000 261,000
Research and development 319,000 369,000
----------- -----------
734,000 1,113,000
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (2,000) (137,000)
Interest income 28,000 5,000
----------- -----------
NET LOSS (708,000) $ (820,000)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,590,000 2,025,000
=========== ===========
NET LOSS PER SHARE $ (0.15) $ (0.40)
=========== ===========
See accompanying notes to financial statements
2
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MAGNA-LAB INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
Three Months ended May 31,
--------------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (708,000) $ (820,000)
----------- -----------
Adjustments:
Depreciation and amortization 26,000 22,000
Imputed interest -- 91,000
Effect on cash of changes in
operating assets and liabilities:
Inventory (241,000) 83,000
Accounts receivable 55,000 (65,000)
Deposits and other (6,000) (52,000)
Accounts payable and accrued liabilities (110,000) 251,000
Customer deposits (80,000) 60,000
----------- -----------
Total adjustments (356,000) 390,000
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,064,000) (430,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software (55,000) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (55,000) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repay 10% Bridge Notes -- (400,000)
Other, net -- 2,000
----------- -----------
NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES -- (398,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,119,000) (828,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,047,000 903,000
----------- -----------
End of period $ 1,928,000 $ 75,000
=========== ===========
See accompanying notes to financial statements
3
<PAGE>
MAGNA-LAB INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the quarter ended May 31, 1996 (unaudited)
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------- Capital in
Class A Class B Excess
---------------------- ----------------------- Of Par Accumulated
Shares Amount Shares Amount Value Deficit
--------- ----------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, February 29, 1996 3,736,802 $ 4,000 1,853,198 $ 2,000 $ 13,324,000 (11,141,000)
CONVERT B SHARES TO A 7,097 (7,097)
NET LOSS (708,000)
----------------------------------------------------------------------------------
BALANCES, May 31, 1996 (unaudited) 3,743,899 $ 4,000 1,846,101 $ 2,000 $ 13,324,000 (11,849,000)
========= =========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
MAGNA-LAB INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying financial statements have been prepared in accordance with the
instructions to Form 10-QSB and do not include all of the information and
footnotes required by generally accepted accounting principles. All adjustments
which are of a normal recurring nature and, in the opinion of management,
necessary for a fair presentation have been included. These statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's annual report on Form 10-KSB for the year ended February 29, 1996.
Prior to February 29, 1996, the Company has reported as a development stage
company.
NOTE 2 - LOSS PER SHARE OF COMMON STOCK:
Net loss per share is computed based on the weighted average number of Class A
Common and Class B Common shares outstanding after subtracting certain
(1,000,000) shares, which are forfeitable unless certain events occur, from
shares outstanding in computing net loss per share. Such forfeitable shares
would not be deducted in computing net income per share. Dilutive options and
warrants outstanding would be considered in the computation of net income per
share under the treasury stock method when their effect is to reduce reported
net income per share.
NOTE 3 - DEPOSITS:
In August 1993, the Company made a $480,000 non-refundable deposit payment
pursuant to an agreement with an unaffiliated European supplier of MRI
components (consoles). Such agreement, as amended in July 1994, provides for
purchases of consoles and the license of certain technology underlying consoles.
The Company has agreed to purchase initial consoles which, as amended, would
result in an additional payment of approximately $240,000 (which has been paid)
beyond the $480,000 paid as a deposit. All initial consoles have been purchased
and an unamortized deposit of approximately $332,000 remains at May 31, 1996.
Such remaining deposit will be amortized over the remaining consoles to be
purchased under the amended agreement. Such amount is included in deposits and
other assets in the accompanying financial statements. If the Company does not
purchase consoles beyond the initial consoles, such remaining deposit (or
portion thereof) would be forfeited.
At May 31, 1996, the Company is in discussion with this vendor regarding
purchasing a new model console and the effect on pricing and amortization of
remaining deposits.
NOTE 4 - PROPERTY AND EQUIPMENT:
Details of property and equipment at May 31, 1996 are as follows:
Machinery and equipment $600,000
Purchased software 78,000
--------
678,000
Less accumulated depreciation and amortization 298,000
--------
$380,000
========
Note 5 - NOTES PAYABLE:
On May 23, 1995, the Company repaid $400,000 principal amount of 10% bridge
notes (issued in November 1994) at their maturity together with accrued interest
of approximately $20,000. The remaining notes payable of $1.25 million at May
31, 1995 consisted of 12% bridge notes due in December 1995 (or the closing of
an earlier equity financing), net of amounts allocated to warrants issued
together with the notes. In May and July 1995, holders of such 12% bridge notes
and warrants
5
<PAGE>
indicated their intention to convert their notes payable, accrued interest,
warrants to purchase 625,000 shares of Class A common stock and an additional
approximately $167,000 into Class A common stock. Amortization during the
quarter ended May 31, 1995 of the amounts allocated to the warrants approximated
$91,000. Of the notes and warrants, $500,000 and 250,000, respectively, were
held by an entity whose Treasurer became a member of the Company's Board of
Directors in 1996.
NOTE 6 - STOCKHOLDERS' EQUITY:
During the first quarter ended May 31, 1995, the Company granted options to
purchase 215,000 shares of Class A Common Stock to officers and a director of
the Company. In June 1995, the Company agreed with the holders of Class C
Warrants to issue them 25,000 shares of Class A Common Stock in exchange for
their agreement to postpone any sales of shares under such warrants, and defer
their registration right relating to these shares, in connection with a
financing which was concluded in January 1996.
The pro-forma effect, as if such transactions had occurred at the beginning of
the periods presented, on Net Loss, Net Loss per Share and Weighted Average
Number of Shares Outstanding of: (i) the conversion of $1.25 million principal
amount of notes and warrants into 625,000 shares of Class A Common Stock
(discussed in Note 5) and (ii) the issuance of 25,000 shares of stock to the
Class C warrantholders as described above, is as follows:
As Reported Pro-Forma
------------ ------------
Quarter ended May 31, 1995:
Net Loss $ (820,000) $ (700,000)
Weighted Average Shares 2,025,000 2,675,000
Net Loss Per Share $ (.40) $ (.26)
Note 7 - CUSTOMER DEPOSITS:
Activity in customer deposits during the quarter ended May 31, 1995 included
receipt of additional deposits from a related party totaling $420,000 and
release to the Statement of Operations of $360,000 of customer deposits
previously recorded. During the quarter ended May 31, 1996, the Company returned
$80,000 in customer deposits to this related party at their request.
Note 8 - ACCRUED LIABILITIES:
Included in accrued liabilities at May 31, 1996 are approximately $62,000 and
$57,000 related to notes payable for certain insurance policies and accrued
payroll, respectively.
Note 9 - OTHER
Related party matters - A director of the Company, who is also a principal owner
of a company which owns stock in the Company, is a partner in a law firm which
provides legal services to the Company. Fees accruing to such firm in the
quarter ended May 31, 1996 have been recorded at approximately $75,000 related
to financing, strategic and general corporate matters. Amounts owing to such
firm are included in the financial statements at approximately $50,000 at May
31, 1996.
Also see Notes 5 and 7.
Litigation matter - During the quarter ended May 31, 1996, a vendor filed a
litigation against the Company over certain contested balances due and certain
alleged commitments for services in the future. The Company intends to
vigorously contest this litigation unless the vendor agrees to negotiate a
settlement on a reasonable basis. While the ultimate liability in this matter is
not known and the vendor seeks damages materially in excess of amounts recorded,
the Company believes, based on the advice of counsel, that its liability will
not exceed amounts recorded in the financial statements.
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
(a) Plan of Operation:
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto and other information about the business
contained in the Company's annual report on Form 10-KSB for the year ended
February 29, 1996.
Discussion of cash requirements (next 12 months) and financing needs
During the fiscal year ended February 28, 1994, the Company realized net
proceeds of approximately $5.4 million in connection with the initial public
offering of its equity securities. At that time, it was estimated that the
proceeds of the public offering would last the Company for approximately one
year and that the Company may be dependent upon the receipt of additional
financing in order to continue its activities beyond that time. During the
fiscal year ended February 28, 1995, the Company raised an aggregate of $1.65
million through the private placement of notes payable in 1995 and warrants (see
notes 5 and 6 to the financial statements). During the fiscal year ended
February 29, 1996, the Company raised $500,000 (approximately $410,000 net
proceeds) in a bridge loan transaction and approximately $4.6 million in net
proceeds from a public offering of equity securities.
The Company believes, based upon present resources and anticipated operations,
that it has the financial resources to fund its operations for the remainder of
the current fiscal year ending February 28, 1997. Thereafter it is expected to
require additional financing. This belief is based upon estimates and
assumptions including, among other things, levels of existing and projected
orders and sales, as well as existing and projected operating and production
costs, efficiencies and scheduling. The sales and production levels projected
for the fiscal year ended February 28, 1997 are substantially greater than the
sales and production levels in the past fiscal year. In that regard, it is noted
that the Company has only emerged from the development stage in the fourth
quarter of the fiscal year ended February 29, 1996. The ability of the Company
to achieve the increased sales and production will depend upon, among other
things, the success of the Company and its distributors in fostering market
acceptance of the Company's product and the success of production programs and
vendor cooperation. The Company has assumed that shipments will commence in the
second quarter of the fiscal year ending February 28, 1997 and will increase in
later quarters. The Company's assumptions also included the finalization of an
arrangement with Elscint substantially as described in Item 5 - Other
information, including the receipt of an up-front nonrefundable royalty payment.
In the event that the Company's estimates and assumptions prove materially
incorrect, the Company's financial resources may not be adequate to fund planned
operations which could have a material adverse effect on the Company's business
and operations. The foregoing information constitutes forward-looking statements
within the meaning of Section 21E under the Securities Exchange Act of 1934, as
amended.
Summary of product research and development being performed and to be
performed
The Company plans to maintain an ongoing program of research and development
aimed at continuous improvement of existing scanners in order to keep pace with
changing technology and developing scanners capable of imaging other parts of
the human body. Further, during the fiscal year ending February 28, 1997, the
Company is commited to complete certain development tasks under its strategic
business arrangement with Elscint which both parties have agreed are necessary
for marketing in the territories covered by the agreement with Elscint (all of
which are located outside the U.S.). There can be no assurance that the Company
will have sufficient funds from operations to maintain its research and
development efforts at levels which it considers necessary. In the event that
sufficient funds are not generated from operations, the Company may be forced to
limit its development efforts. In any event, the Company does not presently
anticipate that it will have sufficient funds in the coming fiscal year to
enable the Company to develop a working prototype of any new or significantly
enhanced scanners without additional financing.
Expected purchase or sale of plant or significant equipment
The Company expects to continue to purchase equipment as needed in the ordinary
course of its activities. The Company expects to make commitments to purchase
approximately $300,000 of test equipment and production tooling during the
fiscal year ending February 28, 1997. Additional capital expenditures may need
to be made based upon the level of operations.
Reference is made to Note 3 to the Financial Statements which discusses certain
purchase commitments made with a vendor for components of the MAGNA-SL system.
Such agreement calls for additional payments as specified therein. In addition,
the Company has commenced certain purchasing activities related to other
components for the MAGNA-SL.
7
<PAGE>
Expected changes in the number of employees
At July 1, 1996, the Company had approximately 20 full time employees. During
the next 12 months, the Company plans to add additional employees in the areas
of sales and marketing, service/support, applications, production and general
and administrative functions. The number and timing of such hiring will vary
depending upon the success of sales and marketing effort
PART II - OTHER INFORMATION
Item 1. - Legal proceedings
Reference is made to Part I - Item 2 of Form 10-KSB for the year ended February
29, 1996 for discussion of a legal proceeding commenced against the Company in
the current fiscal year.
Item 5. - Other information
In June 1996, the Company and Elscint Cryomagnetics, Ltd. a subsidiary of
Elscint, Ltd. ("Elscint") signed definitive agreements covering a strategic
business arrangement in which Elscint would manufacture the MAGNA-SL for
marketing and sale by Elscint in certain non-United States territories including
Europe, the Peoples Republic of China, parts of the Middle East and Latin
America, Australia and other territories. The Company would be paid royalties on
each system manufactured and sold by Elscint. To maintain its rights under the
agreement, Elscint is required to sell a minimum number of systems in the first
two year period (commencing after an agreed upon period of start-up) and a
higher number of systems in the first permitted two year renewal period.
Thereafter, the agreement is renewable by Elscint in two year sales periods at
higher minimum quantities which will be set by the parties in good faith. If
Elscint manufactures and sells the minimum quantities contemplated by the
agreement, (assuming the initial term and two renewal periods) minimum royalties
would be approximately $7.5 million. Elscint has the right to cure shortfalls
by, among other things, making payment of approximately 87% of the minimum
royalties. Upon execution of the agreement, a nonrefundable deposit of $250,000
was paid to the Company to be applied to first year royalties. Additionally,
Elscint and the Company have agreed to cooperate in making certain capital
expenditures and other areas of manufacturing in order to reduce production
costs and increase operating margins. The parties have also agreed to
collaborate in developing new features and improvements to the MAGNA-SL and the
Company has agreed to provide certain ongoing research and development support.
Elscint has a right of first negotiation on certain new products.
The parties have agreed to certain development tasks and enhancements, which, if
not completed within five months of the signing of the agreement, could, if not
cured, result in termination of the agreement by Elscint.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
(10.38) License and Distribution Agreement with Elscint Cryomagnetics,
Ltd. dated June 11, 1996. Confidential treatment is being
requested for portions of this agreement pursuant to Rule 24b -2
(11) Statement re: computation of loss per share - A statement
regarding the computation of loss per share is omitted because
computation can be clearly determined from the material contained
in this Quarterly Report on Form 10-QSB.
(27) Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the quarter
for which this report is filed.
8
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGNA-LAB, INC.
---------------
(Registrant)
Date: July 15, 1996 By:/s/ Lawrence A. Minkoff
---------------------------------
Lawrence A. Minkoff, Chairman of the
Board of Directors, Chief Executive
Officer and President
(Principal Executive Officer)
Date: July 15, 1996 By:/s/ Kenneth C. Riscica
---------------------------------
Kenneth C. Riscica, Vice President - Finance,
Chief Financial Officer, Treasurer and
Assistant Secretary
(Principal Financial and Accounting Officer)
9
LICENSE AND DISTRIBUTION AGREEMENT
THIS LICENSE AND DISTRIBUTION AGREEMENT is entered into as of June 11, 1996
(the "Agreement Date"), by and between MAGNA-LAB INC., a New York corporation
having offices at 250Z Executive Drive, Edgewood, New York 11717 (hereinafter
referred to as "Magna-Lab"), and ELSCINT CRYOMAGNETICS LTD., a corporation
organized under the laws of Great Britain having an address at Colonial Business
Park, Colonial Way, Waterford, Herts WD2 4PT, Great Britain (hereinafter
referred to as "Elscint").
1. INTRODUCTION
Magna-Lab is engaged in the developing, designing, manufacturing,
marketing, selling and distributing of medical diagnostic imaging equipment, and
in connection therewith has developed the Product (as defined in Section 2(g))
and is the owner of various patents, know-how and other intellectual property
rights relating thereto. Elscint and its subsidiaries are engaged in, among
other things, the manufacturing, marketing, selling, distributing and servicing
of medical diagnostic imaging equipment and Elscint desires to obtain rights to
manufacture, market and distribute the Product. Accordingly, in consideration of
the mutual promises contained herein, the parties agree to the terms and
conditions set forth in this Agreement.
2. DEFINITIONS
As used in this Agreement:
(a) "Affiliated Parties" of either party to this Agreement means entities
that are owned or controlled by or which own or control such party or which are
owned or controlled by a person or entity that owns or controls the party. An
entity shall be deemed to be "owned or controlled" by the person or entity
having a direct or indirect right to vote a sufficient portion of the subject
entity's equity securities (or other voting interests) to control management's
policies and directives.
(b) "Base Technology" means the inventions, discoveries, methods,
techniques, trade secrets, data and other information known to Magna-Lab on the
Agreement Date or hereafter discovered by Magna-Lab during the term of this
Agreement that is necessary or useful to the design, development, manufacture or
service of the Product, other than to the extent constituting a New Product (as
defined in Section 2(e)).
(c) "Field" means diagnostic medical imaging equipment utilizing pole-face
magnet technology.
-1-
<PAGE>
(d) "Inventions" means all discoveries, works, inventions, concepts, ideas
or intangible property, whether or not patentable or copyrightable, made,
conceived or reduced to practice during the term of this Agreement.
(e) "New Products" means material modifications or improvements to the
Product developed after the date of this Agreement resulting in a new product
which is based upon pole- face magnet technology having one or more additional
applications than those of the Product, the right to each of which shall belong
to Magna-Lab except as otherwise provided in Section 7(b) hereof.
(f) "Patents" means the patents set forth on Exhibit A attached hereto.
(g) "Product" means the Magna-SL MRI extremity scanner as modified or
improved from time to time hereunder in a manner that would not require the
filing of a new 510(k) with the United States Food and Drug Administration
(other than as a result of differences in product performance), including,
without limitation, the "Magna-SL Light" and any version of the Magna- SL having
the same application.
(h) "Territory" means the countries of France, United Kingdom, Germany,
Spain, Italy, Benelux, Sweden, Switzerland, Norway, Greece, Czech Republic,
Hungary, Poland, Slovakia, Serbia, Austria, CIS, Portugal, Finland, Israel,
Turkey, Jordan, Egypt, Morocco, Cyprus, all countries in Latin America (other
than Mexico), Peoples Republic of China, Thailand, Korea, Hong Kong, Philipines,
Australia and South Africa.
(i) "Trademarks" means the trademarks or service marks set forth on Exhibit
B attached hereto.
3. LICENSE AND APPOINTMENT
(a) Magna-Lab hereby appoints Elscint as its exclusive distributor for the
Product and components and spare parts therefor in the Territory, and hereby
grants Elscint a nontransferable, exclusive license to utilize the Base
Technology and Patents solely to manufacture, market, distribute and service the
Product and components and spare parts therefor in the Territory; provided that
such license shall also include the right to manufacture the Product and
components and spare parts therefor within the United States.
(b) Magna-Lab hereby grants Elscint a nontransferable license to use the
Trademarks in connection with Elscint's marketing, sales, distribution and
servicing of the Product and components and spare parts therefor in the
Territory. Elscint shall take whatever action is reasonably requested by
Magna-Lab (at Magna-Lab's expense) to protect Magna-Lab's rights to these
Trademarks in the Territory, including without limitation using appropriate
notices and applying to become a registered user.
-2-
<PAGE>
4. NEW PRODUCTS
(a) Subject to the terms and conditions of this Section 4, Magna-Lab hereby
grants to Elscint, and Elscint hereby accepts from Magna-Lab, for a period
concurrent with the term of this Agreement, the right of first negotiation on
the right to manufacture, market and distribute in the Territory, and to
manufacture in the United States, each medical diagnostic imaging product
developed by or on behalf of Magna-Lab which would be directed to the same or
similar markets as the Product and which would compete with the Product,
including, without limitation, shoulder, head or spine scanners which also
enable the scanning of extremities (each such product, a "New Magna-Lab
Product").
(b) Upon development of a New Magna-Lab Product, at any stage as Magna-Lab
may elect, Magna-Lab shall provide prompt written notice thereof to Elscint
(each, a "New Product Notice"), which New Product Notice shall set forth with
particularity the design, use and present status of such New Magna-Lab Product,
and shall promptly thereafter make a working prototype available, if one exists
at that stage of development, to Elscint for testing. Any such disclosure shall
be specifically subject to the provisions of the Confidentiality Agreement
between the parties dated August 10, 1995 (the "Confidentiality Agreement"),
other than Sections 6 and 11 thereof.
(c) Elscint shall, within thirty (30) days from the date of its receipt of
the New Product Notice and the working prototype, if one exists, becoming
available to it, submit to Magna-Lab a proposal for the commercialization of the
specific New Magna-Lab Product in the Territory (hereinafter referred to as an
"Offer"), which shall contain a reasonably detailed description of the proposed
program pursuant to which Elscint would manufacture, market and distribute the
New Magna-Lab Product in the Territory. Following the delivery by Elscint to
Magna-Lab of the Offer and continuing for a period of sixty (60) days thereafter
(the "Restricted Period"), Magna- Lab shall negotiate exclusively with Elscint,
in good faith, in an attempt to reach mutually acceptable terms for the
commercialization of such New Magna-Lab Product. The framework for any such
negotiations shall begin with the principles embodied in this Agreement
adjusted, however, for the differences in business circumstances existing at
that time, including the potential effect of the New Magna-Lab Product on the
marketability of the Product.
(d) In the event that Elscint fails to provide an Offer to Magna-Lab within
the time period set forth above or within such time period gives written notice
to Magna-Lab that it declines to submit an Offer with respect to the
commercialization of the New Magna-Lab Product in the Territory or, in any
event, following the expiration of the Restricted Period, Magna-Lab shall be
free to seek other means of commercializing the New Magna-Lab Product in the
Territory and elsewhere and Elscint shall have no further rights thereto
pursuant to this Agreement.
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<PAGE>
5. LICENSE FEES AND ROYALTIES
(a) In consideration of the License granted hereby, from and after the
Agreement Date Elscint shall pay to Magna-Lab a royalty (herein referred to,
individually, as the "Royalty" and, collectively, as the "Royalties") in the
amount of $(*) for each unit of the Product sold by Elscint (other than units
sold to Magna-Lab as provided in Section 8(f) hereof) and accepted by the
customer during the term of this Agreement. The parties acknowledge that a
substantial portion of the Royalty amount is attributable to the license of the
Base Technology to Elscint hereunder. The Product selling price and the selling
price of any components and spare parts for the Product shall be established
from time to time by Elscint in its sole discretion.
(b) Contemporaneously with the execution of this Agreement, Elscint is
delivering to Magna-Lab a non-refundable advance against the Royalty in the
amount of $250,000 (the "Advance Royalty Payment"), to be credited against the
sixth (6th) through the (*) units of the Product sold by Elscint with respect to
which a Royalty would be payable to Magna-Lab pursuant to Section 5(a);
provided, however, that in the event that Magna-Lab shall fail to perform any of
the tasks set forth on Exhibit D attached hereto within the applicable time
period set forth in Section 6(b), including the expiration of the 30-day cure
period provided in Section 12(d), such that Elscint shall have the right to
perform such task on Magna-Lab's behalf pursuant to Section 12(d) hereof, the
Advance Royalty Payment shall be credited against the first (*) units of the
Product sold by Elscint with respect to which a Royalty would be payable to
Magna- Lab pursuant to Section 5(a).
(c) Royalties computed pursuant to Section 5(a) shall be payable within
sixty (60) days following the end of each calendar quarter.
(d) Without limiting any other provision contained in this Agreement, if
any claim is brought against the Product, the Base Technology or Elscint with
respect to the Product, which results in the definitive withdrawal of the
Product from sale or distribution in the market due to the failure of, or a
defect in, the design of the Product (not caused by Elscint), or any part
thereof and which failure or defect is not remedied by Magna-Lab (at its sole
expense) within a reasonable time and in a reasonable manner sufficient to
enable Elscint to return to the marketplace the units of the Product previously
recalled and to resume the manufacture, marketing, sale and distribution of the
Product as contemplated by this Agreement, then Elscint's obligations with
respect to the payment of Royalties with respect thereto as provided in this
Section 5 shall terminate, and Elscint shall be reimbursed promptly by Magna-Lab
for any over-payment of Royalties resulting from the withdrawal of the Product
and its inventory costs incurred with respect to all inventories or recalls of
the Product withdrawn.
(e) All payments shall be made in U.S. dollars.
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(*) Confidential treatment is being requested for this information.
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6. TECHNICAL ASSISTANCE
(a) Within thirty (30) days following the Agreement Date, Magna-Lab shall
deliver to Elscint all technical information with respect to the Base Technology
then known to Magna-Lab and necessary to enable Elscint to manufacture the
Product. Magna-Lab shall provide Elscint, at Magna-Lab's expense, with such
technical assistance as may be reasonably necessary to inform Elscint fully
about the Base Technology. Magna-Lab shall upon reasonable notice and at
reasonable times during the term of this Agreement make all appropriate
production, engineering and marketing personnel available to Elscint, at no
charge, in order to provide reasonable training and preparation of Elscint for
Elscint's production and marketing of the Product; provided, however, that
reasonable direct out-of-pocket expenses, if any, incurred by Magna-lab in
assisting Elscint, outside of Magna-Lab's facilities, in Elscint's preparation
and training for Elscint's production and marketing of the Product shall be
borne by Elscint.
(b) Magna-Lab shall perform all development and engineering of the Product
in accordance with the specifications set forth on Exhibit C attached hereto (as
hereafter revised in the manner described below), and within a period of five
(5) months following the Agreement Date shall fully perform each of the tasks
set forth on Exhibit D attached hereto. Within thirty (30) days following the
Agreement Date, Magna-Lab shall deliver to Elscint a revised set of Product
specifications that will take into account the tasks to be performed by
Magna-Lab set forth on Exhibit D. Elscint and Magna-Lab shall communicate with
each other on an ongoing basis regarding the performance of the tasks set forth
on Exhibit D. Elscint shall provide Magna- Lab with interim monthly reports
identifying any tasks which as of the date of the report were scheduled to be
completed but were not completed to Elscint's satisfaction. Upon the expiration
of five (5) months from the Agreement Date, the parties shall review the status
of the tasks. If, after reviewing the tasks, Elscint determines that certain of
such tasks have not been performed by Magna-Lab to Elscint's satisfaction,
Elscint shall promptly provide written notice to Magna-Lab specifying with
particularity the tasks which remain unperformed to its satisfaction and
providing a good faith estimate of the cost to perform such tasks. Subject to,
and as provided in Section 12(d) hereof, Elscint shall then have the right to
perform each of such tasks.
(c) Magna-Lab shall, at Magna-Lab's expense, provide Elscint with
reasonable research and development support for improvements and modifications
to the Product that the parties consider necessary for marketing of the Product,
including, but not limited to, possible magnet shimming software, coil design,
possible pulse sequences, possible 3D reconstruction, image printing, dicom,
cost efficiencies and all research and development documentation activities and
reporting needed to conform the Product to all applicable regulatory
requirements (including, without limitation, quality control) in the Territory.
Subject to the last sentence of Section 8(l) hereof, Magna-Lab shall make its
personnel available to Elscint on a time and materials basis to perform
Elscint-initiated Product improvement projects that would be beneficial to, but
not necessary for, marketing of the Product.
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(d) Elscint shall provide purchasers of the Product with whatever
information, technical assistance, service and repairs is reasonable or
appropriate in light of the cost and use of the Product and the sophistication
of the average purchaser and as may otherwise be customary in the Territory for
such products.
7. INTELLECTUAL PROPERTY RIGHTS
(a) The Base Technology, Patents, Product, New Products and New Magna-Lab
Products are and shall continue to be the property of Magna-Lab exclusively and
may be used by Magna-Lab at all times and may be used by Elscint only as
provided in this Agreement.
(b) All Inventions which are made by Elscint or jointly by the parties
during the term of the Agreement shall be owned as follows:
(i) If such Invention (A) is based primarily or entirely upon Elscint
proprietary technology existing prior to the Agreement Date and (B) is
incorporated into the Product or New Products, the Invention shall be
owned exclusively by Elscint, provided that Magna-lab shall have a
perpetual, non-terminable, non-exclusive royalty-free worldwide
license to use and otherwise exploit the Invention solely in the
Field.
(ii) If such Invention is developed jointly by the parties and is not based
on Elscint proprietary technology (developed by Elscint other than in
connection with the joint efforts of the parties hereunder), the
Invention shall be owned exclusively by Magna-Lab, provided that
Elscint shall have a perpetual, non-terminable, non-exclusive
royalty-free worldwide license to use and otherwise exploit the
Invention.
(iii) With respect to all such Inventions not covered by clauses (i) or
(ii) above and which relate to the Field, the Invention shall be owned
exclusively by Elscint, provided that Magna-Lab shall have a
perpetual, non-terminable exclusive royalty- free worldwide license to
use and otherwise exploit the Invention solely in the Field, further
provided, however, that Elscint shall have the right to use the
Invention in the Field in connection with any products that do not
compete with any Product or New Products produced, marketed or sold by
Magna-Lab or for Magna-Lab by any distributor, agent or representative
appointed by Magna-Lab.
(iv) With respect to all other Inventions made by Elscint and not covered
by clauses (i), (ii) or (iii) above, all such Inventions shall be
owned exclusively by Elscint and Magna-Lab shall have no rights
therein.
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Any licenses granted by virtue of the foregoing clauses (i), (ii) or (iii) above
shall remain in effect unchanged regardless of any breach, expiration or
termination of this Agreement. All Inventions made solely by Magna-Lab shall be
the sole property of Magna-Lab, subject to Elscint's rights under Sections 3 and
4 of this Agreement. Each party shall promptly disclose to the other party any
Invention to which the other party has rights hereunder.
(c) Unless otherwise agreed to by Magna-Lab, the Product shall be marketed
and distributed under the trade names, trademarks and colors of Magna-Lab. All
proprietary rights in the trade names or trademarks used in the marketing and
distribution of the Product (except to the extent such trade name or trademark
incorporates the trade names or trademarks of Elscint) shall be the property of
Magna-Lab and shall, subject to Elscint's rights pursuant to Sections 12(e) and
12(h) hereof, revert to Magna-Lab exclusively upon the expiration or termination
of this Agreement. All Products manufactured by or for Elscint pursuant to this
Agreement shall be labelled with patent and other notices in form and content
reasonably sufficient to protect Magna- Lab's intellectual property rights and
shall indicate that such Products have been manufactured by Elscint under
license from Magna-Lab.
(d) During the term of this Agreement, Elscint shall have the right, in any
and all countries within the Territory in which, in its sole discretion, Elscint
determines that patent protection would be reasonably necessary and commercially
advantageous, subject to Magna- Lab's prior written consent (which consent shall
not be unreasonably withheld or delayed), to: (i) file and prosecute in
Magna-Lab's name all applications for letters patent including, without
limitation, divisions, continuations and continuations-in-part thereof,
pertaining to the Base Technology; and (ii) maintain in Magna-Lab's name such
letters patent and/or applications, divisions, continuations and
continuations-in-part thereof in full force and effect, and file any or all
necessary documents in Magna-Lab's name required for such purposes under the
patent laws of the country in which the letters patent are granted or
application is pending. The cost and expense of the foregoing shall be borne
solely by Magna-Lab.
8. COMMERCIALIZATION; MARKETING AND OTHER OBLIGATIONS
(a) Except as otherwise provided in this Agreement, Elscint shall undertake
all expenses of commercializing the Product in the Territory, such as funding
capital equipment requirements, packaging, production start-up, marketing and
manufacturing expenses.
(b) Elscint shall be responsible for obtaining all governmental and
regulatory approvals necessary to sell the Product in the Territory, including
the costs thereof; provided that Magna- Lab shall cooperate and provide Elscint
with all reasonable assistance necessary in order to enable Elscint to obtain
such approvals.
(c) Elscint shall use its commercially reasonable best efforts to
manufacture and optimize sales of the Product in the Territory and otherwise
perform its obligations pursuant to this Agreement, including the tasks set
forth on Exhibit E hereto. Elscint shall devote
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manufacturing capacity and other resources reasonably necessary to enable
Elscint to manufacture and sell at least the Minimum Quantity (as defined in
Section 12(c)) of the Product for each Sales Period (as defined in Section
12(c)) during the term of this Agreement. Within thirty (30) days following the
Agreement Date, Elscint shall deliver to Magna-Lab a list, reasonably
satisfactory to Magna-Lab, setting forth a summary description of the tasks
which Elscint intends to undertake in connection with its marketing, sales and
distribution of the Product hereunder.
(d) Elscint and Magna-Lab acknowledge that this Agreement requires the sale
by Elscint of a Minimum Quantity of the Product during each Sales Period
(excluding a minimum of ten (10) units of the Product anticipated to be
purchased by Magna-Lab from Elscint during each Sales Period), as specifically
provided in Section 12(c). In connection therewith, Elscint and Magna-Lab have
established the following target Product sales levels by geographic region
within the Territory (the "Regional Sales Targets"):
Initial Sales Period Second Sales Period
-------------------- -------------------
Europe: (*) Units (*) Units
Asia: (*) Units (*) Units
Latin America: (*) Units (*) Units
The parties also acknowledge and agree that the Regional Sales Targets shall
serve solely as a guideline in monitoring and evaluating the success of the
Product within specific geographic regions within the Territory and for no other
purpose and that Magna-Lab shall have no right to terminate this Agreement and
Elscint shall have no liability to Magna-Lab solely as a result of any failure
by Elscint to achieve any of the Regional Sales Targets. The foregoing shall in
no way limit or otherwise affect Magna-Lab's right to terminate this Agreement
pursuant to Section 12(c) hereof.
(e) Elscint shall manufacture and package the Product in a good and
workmanlike manner and, unless the parties shall otherwise agree, in accordance
with the specifications therefor set forth on Exhibit C hereto as hereafter
revised in accordance with Section 6(b) hereof. Elscint shall conduct its
manufacturing operations and the Product will be manufactured and, subject to
Magna-Lab's performance of its obligations pursuant to Sections 6(b) and 6(c)
hereof, sold in compliance with all applicable Federal, state, local and foreign
laws, statutes, ordinances, rules and regulations.
(f) Following Elscint's first commercial sale of the Product pursuant to
this Agreement, Elscint shall provide units of the Product for sale to Magna-Lab
for resale by Magna-Lab outside of the Territory at a transfer price to be
mutually agreed upon, provided that such units of the Product so ordered by
Magna-Lab are to be manufactured in accordance with the specifications set forth
on Exhibit C attached hereto and any such purchase order for the Product from
Magna-Lab shall be provided to Elscint no less than
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(*) Confidential treatment is being requested for this information.
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ninety (90) days prior to the required delivery date. Elscint shall give
Magna-Lab orders for the Product equal priority to orders received by Elscint
from third parties.
(g) Magna-Lab shall, at its sole cost and expense, secure and maintain a
policy or policies of liability insurance providing itself and Elscint coverage
insuring itself and Elscint against any liability to the public or any users for
material defects in the design of any Product sold during the term of this
Agreement; provided, however, that, at Magna-Lab's discretion, in the event
that: (i) Elscint's current coverage may be modified to provide therefor, and
(ii) such modification will not result in any increased costs of insurance to
Elscint in respect of liability coverage for any matter other than the design or
manufacture of the Products sold, Elscint shall secure and maintain such policy
or policies; provided, further, that Magna-Lab shall promptly reimburse Elscint,
in each case upon request by Elscint therefor and upon presentment to Magna- Lab
of written substantiation therefor reasonably acceptable to Magna-Lab, in
respect of any and all costs whatsoever incurred by Elscint to provide such
coverage. Such policy or policies shall be in the aggregate in an amount not
less than $1,000,000 per person and $2,000,000 per occurrence and upon terms
providing coverage which are at least as extensive as those terms which Elscint
shall reasonably deem necessary or appropriate, and shall be issued by insurers
of recognized responsibility in all respects reasonably acceptable to Elscint,
and which are highly rated by a national rating organization. Elscint
acknowledges that Magna-Lab's current product liability insurance carrier,
Hartford Fire Insurance Company, is acceptable to Elscint for the foregoing
purposes. Each policy shall provide, inter alia, written notice to Elscint and
Magna-Lab of cancellation of such policy no less than thirty (30) days prior to
the effective date of cancellation. Such insurance shall be in place no later
than the commencement of commercial sales of the Product and Magna-Lab (or
Elscint, in the event of the operation of the provisos to the first sentence of
this Section 8(g)) shall, prior to or at such time, and upon modification,
amendment or endorsement, thereof, furnish to the other party hereto a copy of
each policy. Elscint shall, at its sole cost and expense, secure and maintain a
policy or policies of comparable liability insurance providing itself and
Magna-Lab coverage insuring itself and Magna-Lab against any liability to the
public or any users for material defects in the manufacture of any Product sold
by Elscint during the term of this Agreement. Such policy or policies shall be
in the aggregate in an amount not less than $1,000,000 per person and $2,000,000
per occurrence and upon terms providing coverage which are at least as extensive
as those terms which Elscint shall reasonably deem necessary or appropriate, and
shall be issued by insurers of recognized responsibility in all respects
reasonably acceptable to Elscint, and which are highly rated by a national
rating organization. Magna-Lab acknowledges that Elscint's current liability
insurance carrier, American Insurance Group/Europe, is acceptable to Magna-Lab
for the foregoing purposes.
(h) Elscint shall furnish to all end users of Equipment such maintenance
service as is commonly provided by Elscint as it may from time to time determine
in its sole discretion and set forth in a standard form of maintenance
agreement, which Elscint shall have the authority to offer to such end users in
connection with sales of the Product; provided that Elscint shall consult with
Magna-Lab prior to materially modifying the maintenance service
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that it intends to offer generally to end users of the Product. Elscint shall be
entitled to receive all maintenance payments made by end users for the servicing
of Equipment pursuant to such agreements.
(i) With respect to all components and parts that comprise the Product,
Magna-Lab and Elscint shall together negotiate the prices, delivery times,
warranties and other material terms with respect thereto. Blanket purchase
orders shall be placed with the suppliers of such components and parts against
which Magna-Lab and Elscint shall place orders and draw down. Each supplier
shall bill directly to Magna-Lab or Elscint, as the case may be. If at all
feasible, payment and delivery terms shall be equal. Each party agrees to not
impose its influence upon any vendors to provide more favorable terms or to
otherwise favor itself over the other. In the event that either party proposes
new sources of supply, such party shall notify the other and Magna-Lab and
Elscint shall together use their best efforts to qualify the vendor.
(j) Elscint shall not (i) distribute or sell the Product outside the
Territory, (ii) distribute or sell the Product to any person who Elscint knows
distributes or sells, or has good reason to believe would distribute or sell
(without imposing any obligation of investigation upon Elscint), the Product
outside the Territory, or (iii) sell the Product to any end-user located within
the Territory who Elscint knows, or has good reason to believe, will use the
Product within the United States.
(k) Elscint and Magna-Lab each acknowledge and agree that they shall in
good faith cooperate to minimize capital expenditures that may from time to time
be required to enable both parties to manufacture the Product.
(l) Throughout the term of this Agreement, Elscint and Magna-Lab shall work
together to reduce the manufacturing costs of the Product, to improve the
performance of the Product, and to develop and add new features that would
enhance the Product. Notwithstanding the foregoing, Elscint shall not have the
right to make improvements to the Product without Magna-Lab's prior written
consent, which consent shall not be unreasonably withheld.
(m) Elscint and Magna-Lab each shall, upon reasonable notice and at
reasonable times, permit the other party and that party's representatives to
inspect its premises in connection with the development, manufacturing and
marketing of the Product pursuant to this Agreement.
(n) Neither Elscint nor Magna-Lab shall take any action during the term of
this Agreement that would injure or harm the reputation of the other.
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9. BOOKS AND RECORDS
(a) Each payment of Royalties with respect to actual sales of the Product
pursuant to Section 5(a) of this Agreement shall be accompanied by a report
detailing the number of units of the Product sold, the amount of Royalties due
and any additional details necessary to show how this amount was determined as
well as such other information as is reasonably necessary to enable Magna-Lab to
comply with any reporting obligations to which Magna-Lab may be subject in
connection with any royalties that may be payable by Magna-Lab to any third
party with respect to the Product.
(b) Elscint shall keep true and accurate records and books of account
containing all the data reasonably required for the computation and verification
of Royalty payments due under this Agreement for each calendar quarter. Such
materials shall be retained for a period of at least two (2) years following the
end of the fiscal year to which they relate. Elscint's books of account shall be
maintained in accordance with generally accepted accounting principles
consistently applied. Elscint shall permit the reasonable inspection and copying
of such records and books of account by a certified public accountant selected
by Magna-Lab during regular business hours at Elscint's regular place of
business as set forth above or, if Elscint moves during the term hereof, at a
location acceptable to Magna-Lab that is no less convenient for Magna-Lab than
the prior place of business. Magna-Lab shall give Elscint at least two (2) days
prior written notice of its election to inspect Elscint's records and books of
account. Fees and expenses incurred in connection with such inspections (such as
professional fees and expenses paid to accountants or other examiners retained
by Magna-Lab and the cost of copying records and books of account) shall be
borne by Magna-Lab; provided that Elscint shall be obligated to reimburse
Magna-Lab for its reasonable fees and expenses incurred in the event that such
an inspection reveals an underpayment by Elscint by $100,000 or more of the
total amount of Royalties properly due and payable to Magna-Lab with respect to
any calendar quarter during the term of this Agreement for which royalties were
required to be paid hereunder.
10. CONFIDENTIALITY
The parties hereby agree that all proprietary information disclosed by one
party to the other pursuant to this Agreement, including, without limitation,
all information provided by Elscint to Magna-Lab pursuant to Section 9 hereof,
shall be subject to the terms and conditions of the Confidentiality Agreement,
other than Sections 6 and 11 thereof.
11. REPRESENTATIONS AND WARRANTIES
(a) Magna-Lab hereby represents and warrants to Elscint that:
(i) It is duly organized, validly existing and in good standing
under the laws of the State of New York and has full corporate power and
authority to own or hold under lease the assets and properties which it owns or
holds under lease and to enter into this
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Agreement and perform its covenants and agreements hereunder. It is in good
standing in each other jurisdiction wherein the failure so to qualify would have
a material adverse effect upon the assets, liabilities, earnings, business,
operations or financial condition of Magna-Lab or its ability to enter into this
Agreement or perform its obligations hereunder (a "Material Adverse Effect").
(ii) The execution and delivery of this Agreement by it, the
performance by it of its covenants and agreements hereunder and the consummation
by it of the transactions contemplated herein have been duly authorized by all
necessary corporate action. When executed and delivered by it this Agreement
shall constitute its valid and legally binding agreement enforceable against it
in accordance with the terms hereof, except as may be limited by bankruptcy,
insolvency or other laws affecting generally the enforceability of creditors'
rights and by limitations of the availability of equitable remedies.
(iii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein will violate any provision
of the certificate of incorporation or by-laws of Magna-Lab or any law, rule
regulations, writ, judgment, injunction, decree, determination, award, or other
order of any court, government or governmental agency or instrumentality,
domestic or foreign, binding upon Magna-Lab, or (unless such conflict, breach,
event, creation or position would not, individually or in the aggregate, have a
Material Adverse Effect upon Magna-Lab or conflict with or result in any breach
of or event of termination under any of the terms of, or constitute a default
under or result in the termination of or the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature pursuant to, the terms of any contract or agreement to
which Magna- Lab is a party or by which Magna-Lab or any of its assets and
properties is bound.
(iv) It owns, licenses or leases, and has the unimpaired use of, all
properties, assets and facilities and has all financial and technical resources
necessary for the fulfillment of its obligations under this Agreement, and shall
continue ownership, license, or lease of such properties, assets and facilities,
as the case may be, and such use, in effect for so long as its obligations
hereunder remain outstanding.
(v) Set forth on Exhibit A attached hereto is a complete list and
brief description of all patents, licenses and other similar rights and
applications owned or controlled by Magna-Lab for each of the foregoing
constituting or used in connection with, or describing, the Base Technology or
the Product. Except for the Patents, neither Magna-Lab nor any Affiliated Party
holds, or has applied for, any United States or foreign letters patent relating
to the Base Technology or the Product or in any way utilizable in connection
with the Base Technology or the Product; and no Affiliated Party owns or
controls any other intellectual property in any way utilizable in connection
with the Base Technology or the Product. Except for the Patents, neither it nor
any Affiliated Party has at any time filed, or caused to be filed, applications
for patents, or obtained in its name or caused to be obtained in the name of
others, any patents in the United States or elsewhere in respect to the Base
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Technology or the Product, or any process or other property right in any way
similar thereto or in any way utilizable in connection with the transactions
contemplated hereunder. Magna-Lab owns all right, title and interest in and to
the inventions and process covered by the Patents free and clear of all liens,
claims, charges or encumbrances whatsoever. There is no outstanding option,
license or agreement relating to the Patents or any part thereof, or any
invention or process covered hereby, respectively. The Patents and all rights of
Magna-Lab thereto are (except for applications therefor) valid and in full force
and effect as of the date hereof and no event has occurred and is continuing
which, after notice or lapse of time or otherwise, would result in the
invalidity or forfeiture of such Patents, or any part thereof, or any of
Magna-Lab's rights thereto. Magna-Lab has furnished Elscint with true and
complete copies of all documents and instruments establishing or evidencing the
ownership, scope and nature of such Patents.
(vi) Neither it, nor any of its agents, employees or independent
contractors has taken or, through the expiration of the term of this Agreement,
shall take any action in any way inconsistent with its exclusive ownership of
all right, title and interest in and to the Base Technology as heretofore
developed or as hereinafter may be developed. No party has or shall have any
right, title or interest whatsoever in the Base Technology, or any part thereof,
which in any way prohibits or restricts the use thereof pursuant to this
Agreement or any transaction contemplated hereunder, and Magna-Lab, its agents,
employees or independent contractors shall not enter into any arrangement which
would have such effect. There are no outstanding options, licenses or agreements
of any kind whatsoever entered into by Magna-Lab, or any agent, employee or
independent contractor of Magna-Lab, relating to the Base Technology or the
development thereof. Magna-Lab has maintained the Base Technology, including,
without limitation, its trade secrets, know-how and other intellectual or
intangible property rights, with respect thereto, as confidential information,
and, except as set forth on Exhibit A attached hereto, has not suffered any of
its trade secrets, know-how, other intellectual or intangible property rights
with respect to or utilized in connection with the Base Technology to enter into
the public domain.
(vii) There are no claims, disputes, actions, suits or proceedings,
including, without limitation, suits for patent infringement, pending or, to the
best of Magna-Lab's knowledge, threatened against or affecting the Patents or
the Base Technology, or the use thereof by Magna-Lab or Elscint. Neither the
Patents nor the Base Technology, nor the use of the Patents nor the Base
Technology, nor any part thereof by Elscint under this Agreement, will infringe
or conflict with any patents, patent applications, know-how, processes, trade
secrets, techniques, procedures or other proprietary property rights held by any
third party. Magna-Lab has not failed to comply with any law, rule, regulation,
writ, judgment, injunction, decree, determination, award or other order of any
court or other governments agency or instrumentality, in any jurisdictions in
which the Base Technology is covered by letters patent, which relates to the
Base Technology, or any part thereof, and there is no reasonable basis for any
claim for compensation, damages or otherwise arising out of any violation of the
foregoing.
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(viii) Magna-Lab has (or has made timely application for) all
franchises, licenses, permits and other governmental approvals necessary to
enable it to fulfill its obligations hereunder (including, without limitation,
all required registrations as a medical device manufacturer), and its employees
and agents also have obtained all such franchises, licenses, permits and other
governmental approvals required of them in carrying out their duties on behalf
of it, except where the failure to have such approvals would not, individually
or in the aggregate, have a Material Adverse Effect upon Magna-Lab. All such
franchises, licenses, permits and other governmental approvals are in full force
and effect, there has been no default or breach thereunder, and there is no
pending or threatened proceeding under which any may be revoked, terminated or
suspended, except where the failure to maintain such approvals would not,
individually or in the aggregate, have a Material Adverse Effect.
(ix) Exhibit F attached hereto sets forth a true and correct list of
each currently outstanding purchase order, price quote or other arrangement,
including each amendment and modification thereto, to which Magna-Lab is a party
and pursuant to which it purchases or has been offered the right to purchase
goods, services or materials utilized in connection with the manufacture of the
Product, identifying for each the name of the supplier, the date of the purchase
order, price quote or other arrangement, the part or component covered thereby,
the price quoted and each of the other material terms thereof, true and correct
and complete copies of each of which, if they are in writing, have heretofore
been delivered by Magna-Lab to Elscint.
(x) Magna-Lab is not contemplating the recall of any Products sold
by it to date nor have any Products sold by it been subject to any recalls in
the past. Magna-Lab has not received notice from any end-user that any Product
contains any defect or is not functioning properly.
(xi) Exhibit G attached hereto contains a complete and accurate list
and description of the Base Technology as of the Agreement Date.
(b) Elscint hereby represents and warrants to Magna-Lab that:
(i) It is duly organized, validly existing and in good standing
under the laws of Great Britain and has full corporate power and authority to
own or hold under lease the assets and properties which it owns or holds under
lease and to enter into this Agreement and perform its covenants and agreements
hereunder. It is in good standing in each other jurisdiction wherein the failure
so to qualify would have a Material Adverse Effect upon Elscint.
(ii) The execution and delivery of this Agreement by it, the
performance by it of its covenants and agreements hereunder and the consummation
by it of the transactions contemplated herein have been duly authorized by all
necessary corporate action. When executed and delivered by it, this Agreement
shall constitute its valid and legally binding agreement enforceable in
accordance with the terms hereof, except as may be limited by
-14-
<PAGE>
bankruptcy, insolvency or other laws affecting generally the enforceability of
creditors' rights and by limitations on the availability of equitable remedies.
(iii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein will violate any provision
of the certificate of incorporation or by-laws of Elscint or any law, rule,
regulation, writ, judgment, injunction, decree, determination, award, or other
order of any court, government or governmental agency or instrumentality,
domestic or foreign, binding upon Elscint, or (unless such conflict, breach,
event, creation or imposition would not, individually or in the aggregate, have
a Material Adverse Effect upon Elscint, conflict with or result in any breach of
or event of termination under any of the terms of, or constitute a default under
or result in the termination of or the creation or imposition of any mortgage,
deed of trust, pledge, lien, security interest or other charge or encumbrance of
any nature pursuant to, the terms of any contract or agreement to which Elscint
is a party or by which Elscint or any of its assets and properties is bound.
(iv) It possesses manufacturing capacity and other resources
reasonably necessary to enable it to manufacture and sell at least the Minimum
Quantity of the Product for each Sales Period during the term of this Agreement.
12. TERM AND TERMINATION
(a) Except as otherwise expressly provided in this Section 12, this
Agreement shall remain in effect for an initial term commencing on the Agreement
Date and continuing for a period of two (2) years following the date of the
first commercial sale of the Product by Elscint hereunder, provided that such
two-year portion of the term shall commence following (i) a reasonable period of
production start-up by Elscint not to exceed nine (9) months following the
Agreement Date (however, such nine-month period shall be extended to the extent
of any delay caused by any failure of Magna-Lab to properly and timely perform
its tasks set forth on Exhibit D hereto and its obligations pursuant to Section
6(a) hereof), and (ii) up to three (3) months thereafter for the delivery and
installation by Elscint of the Product for its first clinical use at a customer
site (such period for the completion by Elscint of the matters described in
clauses (i) and (ii) shall be referred to as the "Start-up Period"). In
addition, provided that Elscint has satisfied the conditions set forth in either
of clauses (A), (B) or (C) of Section 12(c) hereof, the term of this Agreement
shall be automatically extended for successive additional terms of two (2) years
(each such two-year period following the Start-up Period, a "Sales Period"),
unless Elscint acting in its sole discretion notifies Magna-Lab of its intent
not to extend the term at least thirty (30) days prior to commencement of any
additional term, or unless the Agreement is otherwise terminated as permitted in
this Section 12.
(b) Elscint and Magna-Lab shall each have the right to terminate this
Agreement immediately upon written notice to the other upon the occurrence to
the other party of any of the following events:
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<PAGE>
(i) the institution of proceedings by the non-terminating party in
bankruptcy, reorganization, receivership or dissolution;
(ii) the institution of proceedings against the non-terminating
party in bankruptcy, reorganization, receivership, or dissolution, unless such
proceedings have been dismissed or otherwise terminated within sixty (60) days
following the date they were initiated; or
(iii) the making of an assignment for the benefit of creditors by
the non- terminating party.
(c) Except as otherwise provided in the last sentence of this Section
12(c), Magna-Lab shall have the right to terminate this Agreement following the
end of any Sales Period upon ninety (90) days prior written notice to Elscint in
the event that Elscint fails to become obligated to pay Royalties with respect
to at least the Minimum Quantity of the Product during such Sales Period;
provided, however, that such right of termination shall be Magna-Labs' sole and
exclusive remedy for such breach by Elscint and Magna-Lab shall have no other
rights or remedies, either at law or in equity, as a result thereof. For
purposes of this Agreement, "Minimum Quantity" shall mean (i) (*) units of the
Product during the initial Sales Period, and (ii) (*) units of the Product
during each Sales Period thereafter; provided, that the Minimum Quantity with
respect to any Sales Period shall be reduced by the amount, if any, by which
Magna-Lab's purchases of Products from Elscint pursuant to Section 8(f) during
such Sales Period is less than ten (10) units; and provided further that
following the commencement of the third Sales Period hereunder, if any, the
parties shall in good faith negotiate an appropriate increase to the Minimum
Quantity with respect to that Sales Period and each Sales Period thereafter.
Notwithstanding the foregoing, Elscint shall be deemed to have cured any failure
to sell the Minimum Quantity with respect to any Sales Period, and Magna-Lab
shall have no right to terminate this Agreement as a result thereof, in the
event that Elscint, at its option, either (A) pays to Magna-Lab prior to the end
of such Sales Period a sum equal to the product obtained by multiplying $(*)
times the difference between the actual number of units of the Product for which
Elscint becomes obligated to pay Royalties during such Sales Period and the
Minimum Quantity with respect to that Sales Period, (B) in the case of the
initial Sales Period, becomes obligated to pay Royalties with respect to at
least (*) units of the Product during such period or, in the case of any
subsequent Sales Period, becomes obligated to pay Royalties with respect to at
least (*) units of the Product during such period, or (C) becomes obligated to
pay Royalties with respect to at least the Minimum Quantity of the Product
during the period which includes the Sales Period plus an additional period of
four (4) months thereafter.
(d) Either party may terminate this Agreement at any time upon a material
default by the other party, effective on the date specified in a notice of
termination, provided that at least thirty (30) days prior to giving such notice
of termination the terminating party shall have notified the defaulting party of
the default and the defaulting party shall have failed to
- ----------
(*) Confidential treatment is being requested for this information.
-16-
<PAGE>
remedy the default within such 30-day period or, if the default is not
susceptible of being remedied within such period, shall have failed to initiate
action within such period that is reasonably calculated to remedy the default as
promptly as practicable or shall have failed to pursue such action diligently to
completion. Notwithstanding the foregoing, in the event that Magna-Lab shall
have failed to perform, within five (5) months from the Agreement Date, any of
its obligations pursuant to Sections 6(a) or 6(b) that are reasonably necessary
to complete the development or design of the Product or reasonably necessary in
order to enable Elscint to manufacture, market, sell or distribute the Product
pursuant to this Agreement (but only if such failure is not caused by Elscint's
failure or delay in completing any tasks which it is to perform and on which
Magna-Lab's obligation or obligations depend), such failure by Magna-lab shall
be deemed to be a material default by Magna-Lab for purposes of the first
sentence of this Section 12(d) and Elscint shall, in addition to any and all
other rights and remedies that may be available to it, have the right, but not
the obligation, to perform directly, or have performed on its behalf by a third
party, any such obligations not performed by Magna-Lab; provided that Elscint
shall not be permitted to exercise such right unless Magna-Lab shall have failed
to perform such obligation within thirty (30) days following its receipt of the
Elscint notice referred to in the penultimate sentence of Section 6(b). If
Elscint exercises such right, Magna-Lab shall be obligated to immediately
reimburse Elscint for all reasonable costs and expenses incurred by Elscint in
performing such of Magna-lab's obligations hereunder. In addition, Elscint shall
have the right to offset any such amounts expended in performing Magna-Lab's
obligations against the amount of any Royalties payable by Elscint to Magna-Lab
pursuant to Section 5 hereof. If, during Elscint's performance of such
obligations, the estimated cost increases by 10% or more, Elscint shall
immediately notify Magna- Lab. Notwithstanding the foregoing, Magna-Lab shall
not be obligated to reimburse, and Elscint shall not be entitled to offset, any
of such costs (i) if such costs are less than $10,000 in the aggregate, (ii) if
and to the extent Magna-Lab shall have objected thereto in writing within ten
(10) business days following notice thereof or, in the case of notice of any 10%
or more increase in cost, within five (5) business days following notice
thereof, or (iii) to the extent such costs exceed $250,000 in the aggregate. The
amount so objected to is referred to herein as the "Disputed Amount". The Chief
Executive Officer of Elscint and the Chief Executive Officer of Magna-Lab shall
in good faith attempt to resolve any Disputed Amount. If the matter has not been
resolved within twenty (20) days, the matter shall be referred to arbitration in
accordance with Section 26 hereof.
(e) Except as otherwise provided in Sections 12(e), 12(f) and 12(h) hereof,
upon expiration or termination of this Agreement for any reason, the licenses
and appointment set forth in Section 3 above shall terminate. Within thirty (30)
days following the effective date of termination, Elscint shall give Magna-Lab
written notice of the number of units of the Product then in its inventory
(including model numbers if there is more than one such number). Magna-Lab
shall then have thirty (30) days to notify Elscint whether or not it wishes to
purchase all or part of the inventory at the Transfer Price. If Magna-Lab elects
to purchase the inventory, the parties shall cooperate to complete the
transaction within sixty (60) days following Magna-Lab's notice of election.
Elscint shall be entitled to sell to any
-17-
<PAGE>
third parties any Product remaining in its inventory that Magna-Lab does not
elect to purchase for a period of one hundred eighty (180) days following the
date of termination and to use the Trademarks in connection therewith.
(f) Upon termination of this Agreement, Elscint shall return to Magna-Lab,
or, with Magna-Lab's consent (which shall not be unreasonably withheld),
destroy, all materials in its possession that constitute or describe, in whole
or in part, any confidential, or trade secret information of Magna-Lab,
including without limitation confidential information concerning the Base
Technology and New Products of Magna-Lab. However, Elscint may retain copies of
any materials reasonably necessary for it to exercise its sell-off rights under
Section 12(e) above or to provide any maintenance or support obligations and
components and spare parts to its customers and, thereafter, return the same to
Magna-Lab.
(g) If this Agreement is terminated, then the terminating party shall not
be liable to the other for any loss of profits or prospective profits of any
kind sustained or arising out of such termination, both parties hereby
irrevocably waiving any such rights to the fullest extent permitted under the
laws of their respective countries and of any other jurisdiction. Neither party
shall bring any action or proceeding of any nature whatsoever in any court,
before any tribunal, or under any arbitration proceeding provided for herein,
seeking or claiming any such loss. Each party recognizes and acknowledges that
the other party is entering into this Agreement in reliance upon and in
consideration of the agreements and covenants contained in this Section 12(g).
(h) Notwithstanding the termination for any reason or expiration of this
Agreement, Elscint shall retain a non-exclusive license to use the Base
Technology and Patents to manufacture components and spare parts for the Product
sold and service the Product sold in the Territory for a period of seven (7)
years following the date of such termination or expiration.
(i) Sections 5(a), 7, 8(g), 8(h), 8(j), 9, 10, 12(e), 12(f), 12(g), 12(h),
13, 14, 27 and 28 (and Sections 18 through 26 to the extent they apply to the
foregoing Sections) shall survive termination of this Agreement.
13. INDEMNIFICATION
(a) Magna-Lab hereby agrees to indemnify and hold harmless, absolutely,
unconditionally and forever, Elscint, its directors, officers, employees,
agents, and their respective legal representatives, successors and assigns from
and against all direct or consequential damages, costs, expenses, losses,
claims, demands, liabilities and/or obligations, including, without limitation,
reasonable counsel fees (hereinafter referred to, collectively, as "Damages"),
based upon: (i) any breach of any warranty, representation, agreement or
covenant of Magna-Lab set forth in this Agreement; (ii) any infringement action
which may be brought against Elscint as a result of the exercise of its rights
under this Agreement insofar as relating to the Base Technology, the Patents,
the Trademarks or the
-18-
<PAGE>
Product; (iii) any product liability or warranty claims resulting from the use
of the Product to the extent resulting from defects in the design of the
Product; or (iv) any royalty payable to any third party in connection with the
Base Technology, the Patents or the manufacture, sale or distribution of the
Product pursuant to this Agreement.
(b) Elscint hereby agrees to indemnify and hold harmless, absolutely
unconditionally and forever, Magna-Lab, its directors, officers, employees,
agents and their respective legal representatives, successors and assigns from
and against all Damages based upon: (i) any breach of any warranty,
representation, agreement or covenant of Elscint set forth in this Agreement;
(ii) any product liability or warranty claims resulting from the use of the
Product resulting from defects in the Product to the extent caused by Elscint's
manufacturing or sale of the Product and to the extent not caused by any defect
in the design of the Product; or (iii) any infringement action which may be
brought against Magna-Lab as a result of any modifications or alterations by
Elscint to the Product which are not authorized or permitted pursuant to this
Agreement.
(c) Without prejudice to the rights of the party entitled to
indemnification hereunder (hereinafter referred to as "Indemnified Party"), the
Indemnified Party agrees promptly to notify the party from whom indemnification
is being sought (hereinafter referred to as the "Indemnifying Party") of any
actual or threatened claim or demand by any person other than a party hereto or
its permitted successors or assigns subject to indemnification under Sections
13(a) or 13(b) hereof. The parties agree to consult with each other and
cooperate in the defense of any such claims.
(d) In the event that any Indemnified Party shall incur any Damages in
respect of which indemnity may be sought pursuant to this Agreement, the
Indemnifying Party shall be given written notice thereof promptly by such
Indemnified Party, which notice shall, to the extent reasonably available to
such Indemnified Party, specify the amount and nature of the Damages incurred
and include the request of such Indemnified Party for indemnification therefor.
The Indemnifying Party shall, within ten (10) days following such notice, pay to
such Indemnified Party the amount of the Damages specified.
(e) Each party undertakes and agrees that it shall not at any time during
the term of this Agreement, bring, commence, institute, maintain, prosecute or
in any way assist in a manner adverse to the interests of the parties, in any
action at law or proceeding in equity, or any other claim for damages or relief
whatsoever, which is based in whole or in part upon (i) any challenge to this
Agreement, the Product, the Base Technology or the Patents; or (ii) the
infringement by either party, in their exploitation of any such rights, of any
other proprietary rights of any party.
(f) Each party hereby undertakes and agrees promptly to advise and
cooperate fully with the other with respect to the prosecution of any action or
proceeding in the event that any party shall have cause to believe that others
are infringing on the rights of either party hereunder. Magna-Lab hereby agrees,
at its own cost and expense, to diligently pursue
-19-
<PAGE>
any such prosecution in the event and to the extent the rights to the Base
Technology or the Patents are infringed as aforesaid. If such use of the Base
Technology or the Patents is claimed or held to constitute such an infringement,
or if Magna-Lab determines that such claim or holding is likely to be made,
Magna-Lab, at its option and expense, may either procure for Elscint the right
to continue using the allegedly infringing item; modify the item so that it
becomes non-infringing; replace the item with a non-infringing counterpart; or
terminate the associated license rights, require the return of the applicable
material, and, if appropriate, adjust or refund the payments made or to be made
by Elscint. The foregoing indemnity shall not apply to the extent that the claim
of infringement either is based upon Elscint's use of the allegedly infringing
item with an article or process developed by Elscint or obtained from a third
party, or arises from Elscint's activities outside the scope of the Section 3(a)
and 3(b) license, or arises from uses of the Product by Elscint's customers in
ways that were not intended.
14. NON-COMPETITION
(a) Elscint hereby agrees that, from the date hereof and continuing during
the term of this Agreement (the "Non-Competition Period"), it shall not, except
pursuant to this Agreement, engage in the manufacture, marketing, sale and/or
distribution of, or enter into any agreement to manufacture, market, sell or
distribute, any MRI extremity scanner; provided that the Non- Competition Period
shall continue for a period of six (6) months following the date of expiration
or termination of this Agreement in the event that either (i) Magna-Lab
terminates this Agreement pursuant to Sections 12(b), 12(c) or 12(d) hereof, or
(ii) Elscint elects not to extend the term of this Agreement for an additional
Sales Period pursuant to the last sentence of Section 12(a) hereof, and, in the
case of either of clauses (i) or (ii), Magna-Lab is not then in default under
any of its obligations pursuant to this Agreement. Except as expressly provided
in the proviso to Section 3(a), Elscint hereby agrees to use the Base Technology
and the Patents only for the development, manufacture, marketing and servicing
of the Product and components and spare parts therefor in the Territory.
(b) Elscint hereby acknowledges and agrees that its agreements contained
Section 14(a) hereof are of a special, unique, and extraordinary nature and that
Magna-Lab would suffer irreparable injury as a consequence of the violation
thereof, and by reason thereof Elscint hereby consents and agrees that, if it
should in any way violate such provisions, Magna-Lab shall be entitled to an
injunction to be issued by any court of competent jurisdiction, restraining the
violator from committing or continuing any such violation, in addition to any
other remedies available to it in law or equity.
15. INDEPENDENT CONTRACTOR STATUS
Magna-Lab and Elscint are independent contractors, and this Agreement shall
not be deemed to constitute either party a partner, joint venturer, franchisee,
servant, agent, or employee of the other.
-20-
<PAGE>
16. FORCE MAJEURE
Neither party shall be deemed to be in default under this Agreement as long
as its failure to perform any of its obligations hereunder is occasioned solely
by fire, labor disturbance, acts of civil or military authorities, acts of God,
or any similar cause beyond such party's reasonable control. However, if a party
is so rendered incapable of performing for a continuous period of one hundred
eighty (180) days or more, the other party may terminate this Agreement
immediately upon notice to the non-performing party, subject to the provisions
of Sections 12(e) through 12(i) hereof.
17. FURTHER ASSURANCES
Each party shall cooperate fully with the other party, execute and deliver
such further instruments, documents, and agreements, and give such further
written assurances, as may be reasonably requested by the other party to carry
into effect the intents and purposes of this Agreement, including, without
limitation, (a) execute and deliver all instruments of assignment, transfer,
conveyance and other similar documents as may be reasonably necessary to
properly vest in the other party its ownership of any Inventions hereunder, and
(b) execute and deliver all documents, certificates and instruments and take
such actions as may be reasonably necessary to facilitate the obtaining of all
applicable exemptions from withholding taxes with respect to the payment of
Royalties hereunder.
18. COUNTERPARTS
This Agreement may be executed in separate counterparts, each of which
shall be deemed an original and, even if executed separately by each party,
shall constitute a single original instrument, effective as if the parties had
executed one and the same instrument.
19. WAIVER
No waiver of any term or condition of this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be a further or
continuing waiver of that term of condition or a waiver of any other term or
condition.
20. NOTICES
All notices, requests or instruction hereunder shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
or by nationally recognized overnight courier as follows:
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<PAGE>
(a) if to Magna-Lab:
Magna-Lab Inc.
250Z Executive Drive
Edgewood, New York 11717
Attention: Lawrence A. Minkoff, Ph.D.
President and Chief Executive Officer
with a copy to:
Rubin Baum Levin Constandt & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Irwin M. Rosenthal, Esq.
(b) if to Elscint or Parent:
Elscint Cryomagnetics Ltd.
c/o Elscint, Ltd.
P.O. Box 550
Haifa 31004, Israel
Attention: Mr. Tovi Bachar
Vice President, MRI Division Manager
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Henry I. Rothman, Esq.
Any notice so addressed and mailed shall be deemed to be given five (5) business
days after the date when so mailed. Any notices so addressed and otherwise
delivered shall be deemed to be given when actually received by the addressee.
Any of the above addresses may be changed at any time by notice delivered to the
other party as provided above; provided, however, that any such notice with
respect to change of address shall be effective only upon receipt.
21. ENTIRE AGREEMENT; AMENDMENT AND MODIFICATION
This Agreement and the Confidentiality Agreement contain the entire
agreement between the parties hereto with respect to the transaction
contemplated hereby. No modification hereof shall be effective unless in writing
and signed by the party against which it is sought to be enforced.
-22-
<PAGE>
22. BINDING EFFECT; SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that neither
party may assign, sublicense or subcontract its rights or obligations hereunder
without the prior written approval of the other party having first been
obtained, which approval shall not be unreasonably withheld; provided that
Elscint shall have the right to sublicense or subcontract its rights and
obligations hereunder to Parent (as defined in Section 28) or any other
wholly-owned subsidiary of Parent with notice to Magna-Lab but without
Magna-Lab's approval; further provided that no such assignment, sublicense or
subcontract by either party (whether to an Affiliated Party or otherwise) shall
relieve such party of any of its obligations hereunder. Except as otherwise
expressly provided in this Section, any attempted assignment, sublicense or
subcontract by either party without the consent of the other party hereto shall
be null and void and of no force or effect. For purposes of this Section, an
assignment by Elscint requiring the prior approval by Magna-Lab shall be deemed
to have occurred upon and in the event of a change in control of Elscint
resulting in any person or entity other than Parent owning or controlling
Elscint.
23. SEVERABILITY; ENFORCEABILITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provisions.
24. HEADINGS
The section headings contained in this Agreement are for informational
purposes only and are not to be construed to affect the meaning or application
of any provision.
25. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable in the case of agreements made and to
be performed entirely within such State, without regard to the conflicts of law
rules thereof.
26. ARBITRATION OF DISPUTES
(a) If any controversy or dispute arises under, out of or in relation to
any of the provisions hereof which cannot be settled by the parties within
twenty (20) days after the same shall arise, such controversy or dispute shall
be submitted for arbitration in New York, New York before a panel of three
arbitrators, one of which shall be selected by the party initiating such
arbitration, one of which shall be selected by the other party and the third of
which (hereinafter referred to as the "Third Arbitrator") shall be selected by
the two arbitrators so selected; provided, however, that in the event that such
other arbitrators shall not agree on the selection of the Third Arbitrator, the
Third Arbitrator shall be selected by
-23-
<PAGE>
the American Arbitration Association located in New York, New York. Any dispute
or controversy submitted to arbitration in accordance with the provisions of
this Section 26 shall be determined by such arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then
existing.
(b) The arbitrators may award any relief which they shall deem proper in
the circumstances, without regard to the relief which would otherwise be
available to any party in a court of law or equity including, without
limitation, an award of money damages, specific performance, injunctive relief
and/or declaratory relief. The award and findings of the arbitrators shall be
conclusive and binding upon all of the parties hereto, whether or not all
parties hereto participate in the arbitration proceeding, and judgment upon the
award may be entered in any court of competent jurisdiction upon the application
of any party.
(c) The costs of the arbitration shall be borne equally by the parties and
each party shall bear its own associated costs, except that if one party
prevails in arbitration hereunder this prevailing party shall be entitled to
recover reasonable attorney fees and costs incurred in connection with the
arbitration.
(d) Notwithstanding the foregoing, the parties reserve the right to seek
and obtain injunctive relief, whether in the form of a temporary restraining
order, preliminary injunction, injunction to enforce an arbitration award, or
other order of similar import, from any court of competent jurisdiction prior
to, during, or after commencement or prosecution of arbitration proceedings or
the final decision and award of the arbitrators.
27. PUBLICITY
The parties hereto agree that the timing and content of press releases and
other announcements with respect to the transactions contemplated pursuant to
this Agreement shall be subject to mutual agreement; provided that either party
may make any public disclosure it believes in good faith is required by law or
regulation (in which case the disclosing party will use reasonable efforts to
advise the other party prior to making such disclosure and provide the other
party an opportunity to review the proposed disclosure).
28. GUARANTY
Elscint, Ltd., a corporation organized under the laws of Israel and the
parent corporation of Elscint ("Parent"), hereby unconditionally and irrevocably
guarantees the payment and performance by Elscint of all of its obligations,
covenants and agreements hereunder. This guaranty is an absolute, unconditional,
present and continuing guaranty of payment and not of collection and is in no
way conditioned or contingent upon any attempt to collect from Elscint or upon
any other condition or contingency. This guaranty shall remain in full force and
effect notwithstanding any modification of this Agreement, including, without
limitation, any modification increasing the extent or nature of Elscint's
obligations or covenants hereunder. Parent hereby waives notice of acceptance
hereof, and of
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<PAGE>
nonperformance or nonpayment by Elscint of its covenants and obligations under
this Agreement. Parent represents and warrants to Magna-Lab that it has the
authority to enter into this guaranty, and that, upon execution and delivery
hereof, this guaranty will constitute a legal, valid and binding obligation of
Parent enforceable against Parent in accordance with its terms.
[END OF PAGE]
-25-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
MAGNA-LAB INC.
By: /s/ Lawrence A. Minkoff
---------------------------------------
Lawrence A. Minkoff, Ph.D.
President and Chief Executive Officer
ELSCINT CRYOMAGNETICS LTD.
By: /s/ Tovi Bachar
---------------------------------------
Name: Tovi Bachar
Title:
By: /s/ Alex Palkovich
---------------------------------------
Name: Alex Palkovich
Title: Director
ACCEPTED AND AGREED TO, solely
with respect to Section 28
hereof (and Sections 18
through 26 to the extent they
apply to such Section):
ELSCINT, LTD.
By: /s/ Tovi Bachar
---------------------------------------
Tovi Bachar
Vice President, MRI Division Manager
By: /s/ A. Yarom
---------------------------------------
Name: Artzy Yarom
Title: Executive Vice President
-26-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contians summary financial information extracted from Form 10-QSB
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Feb-29-1996
<PERIOD-START> Mar-01-1996
<PERIOD-END> May-31-1996
<CASH> 1,928,000
<SECURITIES> 0
<RECEIVABLES> 7,000
<ALLOWANCES> 0
<INVENTORY> 440,000
<CURRENT-ASSETS> 2,843,000
<PP&E> 678,000
<DEPRECIATION> 298,000
<TOTAL-ASSETS> 3,238,000
<CURRENT-LIABILITIES> 1,767,000
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 1,475,000
<TOTAL-LIABILITY-AND-EQUITY> 3,238,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 734,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> (708,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (708,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (708,000)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
