SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996, or
[ ] 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 0-28498
Paradigm Medical Industries, Inc.
(Name of small business issuer in its charter)
DELAWARE 87-0459536
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1772 West 2300 South 84119
Salt Lake City, Utah (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(801) 977-8970
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
- ------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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
-----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year were
$294,993.
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of December 20, 1996 was
$8,107,000.
As of December 20, 1996, Registrant had outstanding
3,214,208 shares of Common Stock, 121,704 shares of Series A
Preferred Stock, and 442,023 shares of Series B Preferred Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registration Statement on Form SB-2, as
filed on March 19, 1996, and amendments thereto are incorporated
by reference into Part IV hereof.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
PART I
Item 1. Description of Business
General
Paradigm Medical Industries, Inc. (the "Company" or
"Registrant") develops, sells and markets ophthalmic surgical
systems designed for minimal invasive cataract treatment. The
Company currently markets an ultrasonic cataract removal system
and related disposable products and accessories. The Company is
developing a laser cataract surgery system which it believes is
superior to current ultrasound technology and which it hopes will
become the preferred worldwide, state-of-the-art system for
cataract treatment. The Company's laser products are designed to
improve current technology and to permit applications which are
not currently available using conventional ultrasonic systems, or
other traditional medical instruments. Although the Company is
presently utilizing its core proprietary technology and expertise
in developing its fully integrated laser surgery system to
perform surgical treatment procedures to remove cataracts, the
Company intends to expand the use of its laser systems to treat
other ophthalmic disorders, as well as non-ophthalmic surgical
treatments.
The Company estimates that there are over 44,000
ophthalmologists worldwide, approximately 16,000 of which are in
the United States. Since the first use of ophthalmic ultrasound
and laser surgical devices in the early 1970's, new technical
delivery systems and laser wavelengths have broadened the
applications for which ophthalmologists have used these devices
in treating eye disorders. Industry sources estimate that at
least 90% of all ophthalmologists practicing in the United States
currently use some form of ultrasonic and/or laser system for one
or more eye treatments.
The Company believes that in 1993 approximately 3.7 million
cataract surgeries were performed worldwide that could have been
done with the Company's products. Cataract surgery is the single
largest volume and revenue producing surgical procedure for
ophthalmologists worldwide. Industry sources report that in 1993
over 80% of all cataract procedures in the United States were
performed using a method called phacoemulsification or "phaco,"
which employs an ultrasonic probe device. The Company
manufacturers and sells such a device, the Precisionist(trademark)
system. However, the Company believes phaco systems can be difficult
for ophthalmic surgeons to master and are limited in their ability to
be the most minimally invasive method possible. The Company has
developed a proprietary patented laser system and unique probe
for laser cataract removal that may alleviate these difficulties
associated with phaco systems. That development was done in
cooperation with Daniel M. Eichenbaum, M.D., a United States
cataract surgeon and medical device engineer. Dr. Eichenbaum
serves on the Company's Clinical Advisory Board and is the
Company's primary technical consultant for the laser cataract
application.
This laser system, the Photon(trademark) laser cataract
system, is intended to be easier to use and safer than present phaco
cataract surgery systems. The probe is smaller than typical
probes employing ultrasonic technology and delivers laser energy
directly to the desired area with a blunt end and therefore,
unlike the sharp open-ended ultrasonic probes, causes no
vibration throughout the rest of the eye which can damage other
delicate eye structures. The Company is not aware of any
circumstance where the Photon(trademark) laser cataract could not be used
for cataract surgery other than where a patient's health would
not enable him or her to undergo any type of surgery. There is
no assurance, however, that disadvantages or problems unique to
the Photon(trademark) laser cataract system will not be discovered during
clinical trials or following United States Food and Drug
Administration ("FDA") market approval. Because of the
advantages of the Photon(trademark) laser cataract system, the Company
believes that it is positioned to significantly change the
ophthalmic surgical marketplace. In addition, the Company
believes that its laser system is capable of being configured
with specialty probes for use in surgical procedures unrelated to
ophthalmics, such as plastic surgery, urology and orthopedics.
These potential non-ophthalmic applications present substantial
growth opportunities including sales within the equipment market
and disposables sales, conducted either directly or through
strategic licensing. However, potential non-ophthalmic uses of
the Company's laser system are still in the early planning stages
and there is no assurance that these applications will be
developed or approved. For the near future, the Photon(trademark) laser
cataract system's only target application is cataract removal.
Background
Corporate History. The Company's business originated with
Paradigm Medical, Inc., a California corporation formed in
October 1989 ("PMI"). PMI developed the Company's present
ophthalmic business and was operated by its founders Thomas F.
Motter and Robert W. Millar. In May 1993, PMI entered into a
merger agreement with the Company wherein PMI merged with and
into the Company. At the time of the merger, the Company was a
dormant public shell existing under the name French Bar
Industries, Inc. ("French Bar"). Pursuant to the merger, the
Company caused a 1-for-7.96 reverse stock split of its shares of
Common Stock. The Company then acquired all of the issued and
outstanding shares of Common Stock of PMI using shares of its own
Common Stock as consideration. As part of the merger, the
Company changed its name from French Bar Industries, Inc. to
Paradigm Medical Industries, Inc. and the management of PMI
assumed control of the Company. In April 1994, the Company
caused a 1-for-5 reverse stock split of its shares of Common
Stock. In February 1996, the Company redomesticated to Delaware
pursuant to a reorganization.
The predecessor company of French Bar was formed on June
16, 1970 as Woodlike Industries, Inc. ("Woodlike"). Woodlike was
organized to design, manufacture, and market building and
construction materials and decorative products made from
bituminous materials, such as plastics, fiber glass and rigid
polyurethane foam. In April 1972, Woodlike conducted a small
public offering of its common stock. However, by early 1974,
Woodlike had ceased operations, disposed of its assets and began
looking for a merger candidate with viable business operations.
In April 1984, Woodlike merged with French Bar Mines, Inc.,
a Montana corporation. As part of the merger, Woodlike changed
its name from Woodlike Industries, Inc. to French Bar Industries,
Inc. and new management assumed control. French Bar operated a
mining and tourist business in Montana. However, it never
generated significant revenues. Prior to its merger with PMI in
1993, French Bar had disposed of its mineral and mining assets in
a settlement of outstanding debt and had returned to the status
of a dormant entity.
Disorders of the Eye Overview. The human eye is a complex
organ which functions much like a camera, with a lens in front
and a light-sensitive screen, the retina, in the rear. The
intervening space contains a transparent jelly-like substance,
the vitreous, which together with the outer layer, the sclera and
cornea, helps the eyeball to maintain its shape. Light enters
through the cornea, a transparent domed window at the front of
the eye. The size of the pupil, an aperture in the center of the
iris, controls the amount of light that is then focused by the
lens onto the retina as an upside-down image. The lens is the
internal optical component of the eye and is responsible for
adjusting focus. The lens is enclosed in a capsule. The retina
is believed to contain more than 130 million light-receptor
cells. These cells convert light into nerve impulses that are
transmitted right side up by the optic nerve to the brain, where
they are interpreted. Muscles attached to the eye control its
movements.
Birth defects, trauma from accidents, disease and age
related deterioration of the components of the eye can all
contribute to eye disorders. The most common eye disorders are
either pathological or refractive. Many pathological disorders
of the eye can be corrected by surgery. These include cataracts
(clouded lenses), glaucoma (elevated pressure in the eye),
corneal disorders such as scars, defects and irregular surfaces
and vitro-retinal disorders such as the attachment of membrane
growths to the retina causing blood leakage within the eye. All
of these disorders can impair vision. Many refractive disorders
can be corrected through the use of eyeglasses and contact
lenses. Myopia (nearsightedness), hyperopia (farsightedness) and
presbyopia (inability to focus) are three of the most common
refractive disorders.
Ultrasound Technology Overview. Ultrasound devices have
been used in ophthalmology since the late-1960's for diagnostic
and surgical applications when treating or correcting eye
disorders. In diagnostics, ultrasound instruments are used to
measure distances and shapes of various parts of the eye for
prescription of eyeglasses and contact lenses and for calculation
of lens implant prescriptions for cataract surgery treatment.
These devices emit sound waves through a hand-held probe that is
placed onto or near the eye with the sound waves emitted being
reflected by the targeted tissue. The reflection "echo" is
computed into a distance value that is presented as a visual
image, or cross-section of the eye, with precise measurements
displayed and printed for diagnostic use by the surgeon.
Surgical use of ultrasound in ophthalmology is limited to
treatment of cataractous lenses in the eye through a procedure
called phacoemulsification or "phaco." A primary objective of
cataract surgeries is the removal of the opacified (cataractous)
lens through an incision that is as small as possible. The
opacified lens is then replaced by a new synthetic lens
intraocular implant ("IOL"). Phaco technology involves a process
by which a cataract is broken into small pieces using ultrasonic
shock waves delivered through a hollow, open-ended metal needle
attached to a hand-held probe. The fragments of cataractous
tissue are then removed through aspiration. Phaco systems were
first designed in the late 1960's after various attempts by
surgeons to use other techniques to remove opacified lens,
including crushing, cutting, freezing, drilling and applying
chemicals to the cataract. By the mid-1970's, ultrasound had
proven to be the most effective way to fragment cataracts.
Industry sources indicate that phaco cataract treatment is the
technology for cataract removal used in over 80% of surgeries in
the United States and 20% of all foreign surgeries.
Laser Technology Overview. The term "laser" is an acronym
for Light Amplification by Stimulated Emission of Radiation.
Lasers have been commonly used for a variety of medical and
ophthalmic procedures since the 1960's. Lasers emit photons of
light into a highly intense beam of energy that typically
radiates at a single wavelength or color. Laser energy is
generated and intensified in a laser tube or solid-state cavity
by charging and exciting photons of energy contained within
material called the lazing medium. This stored light energy is
then delivered to targeted tissue through focusing lenses by
means of optical mirrors or fiber optics. Most laser systems use
solid state crystals or gases as their lazing medium. Differing
wavelengths of laser light are produced by the selection of the
lazing medium. The medium selected determines the laser
wavelength emitted, which in turn is absorbed by the targeted
tissue in the body. Different tissues absorb different
wavelengths or colors of laser light. The degree of absorption
by the tissue also varies with the choice of wavelength and is an
important variable in treating various tissue. In a surgical
laser, light is emitted in either a continuous stream or in a
series of short duration "pulses," thus interacting with the
tissue through heat and shock waves, respectively. Several
factors, including the wavelength of the laser and the frequency
and duration of the pulse or exposure, determine the amount of
energy that interacts with the targeted tissue and, thus, the
amount of surgical effect on the tissue.
Lasers are widely accepted in the ophthalmic community for
treatment of certain eye disorders and are popular for surgical
applications because of their relatively non-invasive nature. In
general, ophthalmic lasers, such as argon, Nd:YAG and excimer
(argon-fluoride) are used to coagulate, cut or ablate targeted
tissue. The argon laser is used to treat leaking blood vessels
on the retina (retinopathy) and retinal detachment. The eximer
laser is currently undergoing clinical trials for corneal
refractive surgery. The Nd:YAG pulsed laser is used to perforate
clouded posterior capsules (posterior capsulotomy) and to relieve
glaucoma-induced elevated pressure in the eye (iridotomies).
Argon, Nd:YAG and excimer lasers are primarily used for one or
two clinical applications each. In contrast to these
conventional laser systems, the Company's Photon(trademark) laser cataract
system is designed to be used for multiple ophthalmic
applications, including certain new applications that may be made
possible with the Company's proprietary technology. Such
applications, however, must be tested in clinical trials and be
approved by the FDA.
Products
The Company's principal products are a fully-integrated
laser-assisted surgery system and an ultrasonic surgery system
for use by ophthalmologists to perform surgical treatment
procedures to remove cataracts. In 1990, the Company received
clearance from the FDA pursuant to Section 510(k) of the Food,
Drug and Cosmetics Act (the "FDC Act") on its Precisionist(trademark) phaco
system for cataract surgery. The Company also has completed its
pre-clinical in vitro and in vivo (animal) testing of its Photon(trademark)
laser cataract solid-state laser cataract surgical system and
submitted a Section 510(k) Premarket Notification to the FDA for
the Photon(trademark) laser cataract system in September 1993, with a
follow-up Investigational Devise Exemption ("IDE") application
submitted to support its filing made in October 1994. The IDE
was conditionally approved by the FDA in February 1995 upon the
Company's final submission of its product specifications data.
Final IDE approval was granted in May 1995. Clinical trials were
begun in April 1996 and were completed in December 1996.
The Company's solid-state pulsed Nd:YAG (Neodymium:
Yttrium-Aluminum-Garnet) laser system and patented proprietary
hand-held fiber optic laser probe are designed to allow greater
precision when removing cataract tissue from the eye than the
ultrasonic phacoemulsification method presently used. This
system provides for the introduction of a probe into the eye in
direct contact with the cataract and the performance of three
surgical functions simultaneously: (i) plasmatization
(disintegration) of the hardened cataract, (ii) irrigation of the
surgical area and (iii) removal of the plasmatized cataract from
the eye through aspiration (suction). As far as the Company can
determine, no other integrated single laser probe is presently
available on the market that uses laser energy directly,
contained in an enclosed probe, to plasmatize cataract tissue at
a precise location inside the eye while simultaneously irrigating
and aspirating the site. Pre-clinical studies to date indicate
that the precision and energy containment afforded by the
Company's laser delivery technology presents the opportunity for
significantly less trauma to adjacent tissue and fewer adverse
effects from thermal and acoustic shock, which should lead to
greater efficacy, safety and ease of use for the procedure. The
safety, precision and ease of use afforded by the Company's laser
cataract system is anticipated to create a significant demand by
ophthalmic users of current ultrasonic surgical systems.
Additionally, the Company believes that this system will expand
market demand to ophthalmologists who presently do not use a
surgical system for cataract surgery because of present or
perceived difficulties and/or risks. There is, however, no
assurance that the above-referenced market demand will in fact
materialize.
The Company's laser system is based upon the scientific
principle that short-pulsed, high repetition rate laser energy
produced with the micro-processor controlled Nd:YAG laser system
provides ophthalmic surgeons with a more precise and less
traumatic alternative in cataract surgery. Although conventional
ultrasonic surgical systems have proven effective and reliable in
clinical use for many years, due to their use of high frequency
shock waves and vibration to fragment the cataract, ultrasonic
surgical systems can make the procedure difficult and present
unnecessary risk of complication both during and after surgery.
In contrast, the Company's laser system, which utilizes short,
centralized energy bursts, permits the delivery of the laser beam
with less trauma to adjacent tissue. Therefore, unlike
ultrasonic systems, whose vibrations and shock waves affect (and
can damage) non-cataractous tissues within the eye, the Company's
Photon(trademark) laser cataract system only affects tissues it comes into
direct contact with.
The Company's product development strategy is initially to
commercialize its core technologies for participation in the
cataract surgery market. To do this the Company has designed its
proprietary ultrasonic and laser surgical systems with
fully-integrated control software, aspiration fluidics systems
and disposable or semi-disposable delivery systems and
accessories. The laser system, which the Company expects to be
completed and shipped internationally in mid-1997, is designed on
a modular format allowing for upgrade or replacement of the core
surgical system components. Further, the Company has filed a
patent with the United States Patent and Trademark Office for an
outpatient surgical instrument to provide a unique, less invasive
means of correcting refractive disorders, including
nearsightedness, farsightedness and astigmatism. The Company
believes that this corneal surgery system is a unique
computerized tracking and microsurgical tissue cutting system
utilizing ultrasound technology for performing radial keratotomy
surgery. The patent application is based on the product sensing
and adjusting operations related to the physiology of the eye by
a movable cutter that will not require biological modification of
the cornea. There is, however, no assurance that the Company
will be awarded this patent or that the Company will be able to
fully develop or commercialize this product.
Initially, the Company will offer three ophthalmic cataract
surgery systems: (i) the Precisionist(trademark) phaco system, an
ultrasonic cataract system, (ii) the Precisionist(trademark) Thirty
Thousand ocular surgery system, an ultrasonic cataract surgery
system that can be upgraded to the Photon(trademark) laser cataract system
with the installation of the laser module, and (iii) the Photon(trademark)
laser cataract system. The combination of these systems forms a
complete small-incision cataract surgery equipment offering for
all practitioners, at all technology and price levels. A summary
of the key attributes of the Company's surgical systems follows:
Precisionist(trademark) Phaco System. This system is designed for
the steadily growing domestic and international cataract surgery
market. This system is differentiated by being lower in price
and less expensive to operate on a per surgery basis.
Additionally, it is compact, easier to use and carries an
extended two year warranty based on advanced proprietary
electronics design and increased reliability. Although compact,
the Precisionist(trademark) is comparable in performance to current
ultrasonic systems. The system utilizes a proprietary
"smart-pump" software algorithm to control the aspiration in a
manner that "senses" potential vacuum build-up in the eye and
adjusts aspiration flow to eliminate pressure in the eye to
provide a surgical environment in the eye that eliminates the
majority of the problems of fluidic surge and chamber maintenance
problems associated with ultrasound. The system also features
automated "hands free" priming and tuning, and an advanced
pneumatic pump system to drive the vitrector cutter, which is
capable of operating at 600 cuts per minute for both anterior
cataract and posterior vitrectomy (retinal) applications.
Precisionist(trademark) Thirty Thousand Ocular Surgery System. As
the base system for the Photon(trademark) laser cataract system, the
Precisionist(trademark) Thirty Thousand system offers advanced programmable
memories, a VGA color graphic display screen and additional
surgical modalities and controls not offered on the lower priced
Precisionist(trademark). The Precisionist(trademark) Thirty Thousand
is intended for installations that want to upgrade to the
Photon(trademark) laser cataract system when it becomes available.
The upgrade is accomplished by installation of the Photon(trademark)
laser cataract module into the cabinet and installing a "software
link." The Company obtained 510(k) clearance to market this product
in October 1995.
Photon(trademark) Laser Cataract System. As the Company's premier
ophthalmic surgical laser surgery system, the Photon(trademark) laser
cataract system, utilizes an on-board microprocessor computer to
generate short pulse laser energy delivered through a patented
hand-held fiber optic probe to the targeted tissue inside the
eye, while simultaneously irrigating the eye and aspirating
unwanted cataract tissue and fluids. The system is expandable
with both software and hardware modules, including the actual
laser system. Another feature of the system is its containment
of energy. The probe is designed so that the energy used to
emulsify the cataract is contained in a photo vaporization
chamber. The energy used to remove the cataract is not exposed
to the other contents of the eye. The system also permits the
surgeon to use standard clinical treatment parameters, or to
customize surgical parameters through an on-screen menu display.
The modular technology of the laser fluidics systems allows for
upgrade of the Precisionist Thirty Thousand system to the Photon(trademark)
laser cataract surgical system. The system also allows cataract
removal through incisions in the 2 to 3 mm range as opposed to
the 3 to 6 mm range currently performed with ultrasound systems.
The Company believes that the trend in intraocular lens
development to reduce the size of intraocular lens implants which
are placed in the eye during cataract surgery will make its laser
system which has smaller incision requirements more attractive.
There is no assurance, however, that smaller intraocular lenses
or lenses which can be folded or injected, thus minimizing the
size of the incision required to insert the lenses, will be
developed.
Accessory Instruments and Disposables. Both the
Precisionist and Photon(trademark) laser cataract surgical systems utilize
accessory instruments and disposables, some of which are
proprietary to the Company. These include replacement ultrasound
and laser probes, disposable vitrectomy cutters, diathermy probes
and sundry tips, fluidic cassette packs and tubing sets and other
disposable accessories.
Marketing and Sales
General. Cataract surgery is currently the most common
ophthalmic surgical procedure and is performed on approximately
3.7 million patients worldwide each year. In the United States,
industry analysts predict that the number of cataract surgeries
will increase modestly over the next few years, with such modest
growth due to changes and uncertainties in the health care and
insurance industries. However, by the early 2000's, analysts
predict strong growth in the number of cataract surgeries as the
health care industry stabilizes, the baby boomer population
matures and the elderly population expands. A primary objective
of cataract surgery is to remove the opacified (cataractous) lens
through an incision that is as small as possible. Currently,
there are two primary methods of cataract extraction: manual
ECCE (extracapsular cataract extraction) and ultrasound
phacoemulsification-aspiration (phaco). The manual ECCE method
consists of forcing the cataractous lens out of the eye and
generally requires an incision measuring 9 to 11 millimeters
long. The ultrasound phaco method, on the other hand, involves
only a 3 to 6 millimeter incision to achieve the same result, but
can be a difficult procedure to perform and is accompanied by
potential risks, including inadvertent perforation of the
posterior capsule and damage to the cornea, iris and surrounding
tissue.
According to the Healthcare Blue Book there are
approximately 6,800 hospitals and 1,800 ambulatory outpatient
surgery centers in the United States. The Company estimates that
there are an additional 22,000 hospitals and 3,500 ambulatory
outpatient surgery centers worldwide (there are 1,200 hospitals
in Canada alone). It is the Company's belief through its
participation in the ophthalmic surgical market that an excess of
80% of hospitals and surgery centers offer cataract removal
surgery to their patients.
Medical Laser Insight reports that there are approximately
44,000 ophthalmologists in the world and 16,000 ophthalmologists
in the United States. Frost and Sullivan report that 83% of
United States cataract surgeries were performed using ultrasonic
phaco in 1993. Internationally, trade publications have reported
the use of ultrasonic phaco to be approximately 20% of all
cataract surgeries. Notwithstanding this high acceptance of the
technology, ultrasonic phaco can present limitations and
difficulties to the surgeon. The August 15, 1993 issue of
Ophthalmology Times reported that 42% of ophthalmologists
surveyed from the American Society of Cataract and Refractive
Surgery anticipated using a laser system for cataract removal by
the year 2000. The Company believes that a significant
population of domestic and international ophthalmologists
anticipate, and will embrace, the laser technology for cataract
removal, thereby replacing a technology that was introduced in
the early 1970's.
Ophthalmologists are mainly office-based and perform their
surgeries in local hospitals or surgical centers that provide the
necessary surgical equipment and supplies. Ophthalmologists are
generally involved in decisions relating to the purchase of
equipment and consumables for their independent ambulatory
surgical centers and for the hospitals with which they are
affiliated. This provides the opportunity for direct, targeted,
personal selling, responsive high quality customer service and
short buying cycles to achieve a product sale in the office or
hospital. Hospitals also comprise a significant market as recent
demand for ultrasonic surgery technology has put pressure on the
ophthalmologist, who in turn persuades the hospital to install
the latest technology system so that they can offer this
procedure to their patients and the community. The Company
believes this is or will become a worldwide phenomena.
Industry analysts report that the United States ophthalmic
surgical device market has been characterized by slower growth in
recent years. This has apparently been caused by the uncertainty
and potential reforms associated with the health care industry.
Further, hospitals have been inclined to keep their older phaco
machines longer than expected as they have been forced to mind
budgets more carefully and have become less willing to invest in
capital equipment until more information on health care reform
becomes available. However, analysts predict that the ophthalmic
surgical device market will see renewed growth in the coming
years as the health care environment stabilizes and as the
growing elderly population produces an increased number of
cataract surgeries. As a consequence of these factors, the
market should see a greater rate of replacement of older machines
that hospitals and surgeons have been postponing for longer than
usual.
The Company believes that the ophthalmic surgical device
market will see increased growth during the next several years.
Further, the Company believes that the international market is
maturing and thus provides a large market for both replacement
and original cataract removal devices. However, there is no
assurance that the Company's industry or markets will continue to
grow or that health care reforms will not have a material
adverse effect on the market for the Company's products.
Current Market Acceptance and Potential. As of November
30, 1996, the Company had distributed 83 Precisionist(trademark) phaco
systems since the system was introduced in mid-1992. The
principal purchasers have been ophthalmologists and clinics
throughout the world. The Company currently has orders for 95
laser systems, including 61 orders from purchasers in 21
countries, including Argentina, Austria, Brazil, Cyprus, Egypt,
England, Greece, India, Indonesia, Iran, Italy, Korea, Mexico,
Oman, Pakistan, Peru, Spain, Taiwan, Thailand, Turkey, and the
United States. As of November 30, 1996, the aggregate purchase
price for these orders exceeds $6,000,000.
The Company believes that the market for its products is
being driven by: (i) the aging of the population, which is
evidenced by the domestic and international cataract surgery
volume growth trend over the past 10 years, (ii) the entry by
emerging countries (including China, Russia, and other countries
in Asia, Eastern Europe and Africa) into advanced technology
medical care for their populations, (iii) increased awareness
worldwide of the benefits of the minimally invasive phaco
cataract procedure and (iv) the introduction of technology
improvements such as the Company's laser system.
The Company believes that the market for cataract surgical
systems will continue to grow as current systems are replaced
with newer, advanced, lower cost systems, as ophthalmologists in
emerging countries adopt the procedure and as surgeons migrate
from hospital-based surgical practices to outpatient surgery
centers. The number of surgeons performing phaco cataract
removal has grown dramatically in the United States since 1988.
The Company believes that the generally more conservative
international market will follow this growth pattern. A summary
of the ophthalmic surgeons using the phaco method follows:
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
United States 19% 40% 57% 69% 71% 81%
International 5% 7% 10% 12% 15% 20%
</TABLE>
During 1993, the United States ophthalmic surgical device
market generated $631.2 million in revenues. The Company
estimates that the United States' ophthalmic surgical device
market generated at least the same amount of revenue in 1994.
The Company estimates that thousands of hospitals internationally
will replace or install cataract removal systems in the next five
years. Because of recent uncertainty and change in the health
care industry, including health care reform and Government
reimbursement programs, facilities have been hesitant to replace
their current phaco systems in the United States because of the
substantial cost involved. However, as the United States
population grows older and as the industry stabilizes, industry
analysts predict that increased numbers of cataract and other eye
disorder surgeries and industry stability will motivate a large
number of system replacements, especially since many facilities
currently are not replacing or upgrading the systems they have
been using for several years. The Company believes that this
environment will provide substantial marketing opportunities to
sell both its phaco laser systems as a replacement to the older
and outdated phaco systems still being used.
Marketing Strategy. The Company typically markets its
products internationally through a network of dealers and
domestically through manufacturer's representatives. As of
November 30, 1996, the Company had three direct domestic sales
representatives and 16 manufacturer's representatives in the
United States and 32 foreign dealers. All of these sales
representatives are assigned exclusive territories and have
entered into contracts with the Company that contain performance
quotas. The Company also markets its products by identifying
customers through internal market research, trade shows, and
customer networking. In addition, the Company utilizes a
Clinical Advisory Board comprised of leading ophthalmic surgeons
in the United States and Europe who speak at conventions, train
ophthalmologists and visit foreign doctors and dealers to promote
the Company's products.
To garner sales from the introduction of its laser system,
the Company is marketing its products through a unique strategy.
The Company offers the ultrasonic Precisionist(trademark) system with an
unconditional arrangement under which the customer may upgrade to
a Photon(trademark) laser cataract system when that system receives final
FDA approval and systems become available. Under this
arrangement, the customer receives full credit for the purchase
price of the Precisionist(trademark) system against the price of the new
Photon(trademark) laser cataract system. As of November 30, 1996, the
Company had distributed 83 Precisionist(trademark) systems since the first
system was introduced in mid-1992. The principal purchasers have
been international ophthalmologists who purchased the system
through Surgidev Corporation in Goleta, California, a
manufacturer and distributor of IOL implants. Surgidev
Corporation purchased those systems at wholesale from the Company
for resale to their international dealer-customers. After the
contract with Surgidev Corporation expired in 1994, the Company
increased sales by reducing its dependence on Surgidev
Corporation and by selling directly through local international
dealers in 32 different countries. The Company hired two direct
sales representatives in the United States in December 1994 and
a third sales representative in October 1996. The domestic
direct sales force is intended to increase the Company's domestic
market coverage.
A key advantage the Company has over other competitive
producers of phaco systems is the ability to upgrade the
ultrasound Precisionist(trademark) system to a laser system at a future
date. The Company began marketing a trade-up program in early
1994 to allow any purchaser of one of the Company's ultrasound
systems to upgrade, by paying the price difference, to a Photon(trademark)
laser cataract system when those systems become available. To
the Company's knowledge, no other ultrasound system or laser
company has the ability to offer an upgrade program.
Product advertising is focused in the three industry trade
newspapers, Ocular Surgery News, Ophthalmology Times and Eyecare
Technology. Most of the ophthalmologists in the United States
receive these three magazines through professional subscription
programs. Product publicity for the Company's laser surgical
system is ongoing. The media has shown strong interest in the
Company's technology and products, as evidenced by several recent
front page articles in these publications.
Manufacturing and Raw Materials. Currently, the Company
has a small manufacturing and warehousing facility. All
components and the finished surgical systems are manufactured
under subcontracting arrangements. All subcontractors are
located within the United States. None of these companies
manufacture products that compete with the Company's products.
All component and systems manufacturing is performed under a
system of quality control and testing. As a condition to such
contracting, each subcontractor's manufacturing facilities and
personnel must comply with the Good Manufacturing Practices (GMP)
guidelines established by the FDA, as well as similar guidelines
established by foreign governments.
The Company subcontracts the manufacturing of some of its
ancillary instruments, accessories and consumables through
specified vendors in the United States. These products are
contracted in quantities and at costs consistent with the
Company's financial capabilities and pricing needs.
The Company currently sub-contracts the manufacture of its
Precisionist(trademark) and Photon(trademark) laser cataract systems
to one of its shareholders, Zevex International, Inc. ("Zevex"), which is
located in Salt Lake City, Utah. On September 23, 1996, the
Company entered into a Design, Engineering and Manufacturing
Agreement with Zevex for the engineering and manufacture of the
Photon(trademark) laser cataract system, except for the laser cavity and
unique surgical probes. Under the terms of the agreement, the
Company will pay Zevex a total of $1,000,000 in the form of
periodic milestone payments for engineering and design services
relating to the completion of a prototype of the Company's Photon
laser cataract system and 19 other such systems. To receive the
final milestone payments, including a $140,000 incentive bonus,
Zevex must deliver the prototype and 19 other systems to the
Company fully assembled and operational by March 31, 1997. In
addition, the system must be validated according to IEC 601
standards by June 15, 1997. The Company agrees to purchase each
completed system from Zevex at a cost equal to the lesser of
$19,000 or the actual cost for Zevex to manufacture the system,
plus 30%. The term of the agreement is for three years.
However, the agreement can be terminated at any time by the
Company if Zevex fails for two consecutive quarters to timely
fulfill the Company's purchase orders, or by Zevex if the Company
fails to timely make the payments required by the agreement after
having received a 20-day notice from Zevex demanding payment.
Zevex is also under an exclusive contract with the Company, which
expires September 23, 1999, that prohibits Zevex from
manufacturing complete ultrasound or laser surgical systems for
any other company, without permission from the Company.
The laser cavity, optical train and power source for the
Photon(trademark) laser cataract system are supplied by Sunrise
Technologies, Inc. in Fremont, California ("Sunrise") under a
separate manufacturing agreement which expired June 1, 1996. The
Company is negotiating with Sunrise to renew the agreement. The
President and Chief Executive Officer of Sunrise is currently on
the Company's Board of Directors. The Company is in the process
of establishing an internal laser cataract probe manufacturing
facility and plans all probe production in Salt Lake City. The
remaining operating elements of the Photon(trademark) laser cataract
system, the computer controller, fluidics and ancillary surgical
modalities, are developed through Zevex. Although substantial
reliance is currently placed with Zevex and Sunrise, the Company
believes it would be able to find alternative manufacturers for
its products currently manufactured by these two sources. The
Company also believes that there are multiple sources of raw
materials that are used or could be used in its products.
Installation, Service and Training. The Company installs
and maintains its products through its international dealers or
representatives and domestic direct sales force. Service for the
Company's products is overseen from its Salt Lake City, Utah
headquarters and is augmented by its international dealer
network, which dealers also provide technical service and repair.
Installation, on-site training and a 12 to 18 month warranty are
included as the standard terms of sale. The Company provides
distributors with replacement parts at no charge during the
warranty period. To date, the Company has incurred minimal
expenses under this warranty program. International distributors
are responsible for installation, repair and other customer
service to installed systems in their territory. All system
parts are modular sub-components that are easily removed and
replaced. The Company maintains an adequate parts inventory and
provides 24 hour replacement parts shipment to its dealers.
After the warranty period expires, the Company offers one year
service contracts to its domestic customers and will continue to
sell parts to international dealers who in turn create their own
service plans with their customers. As of the date of this
prospectus, the Company has not sold any one year service
contracts.
Third-Party Reimbursement. It is expected that the
Company's laser systems will generally be purchased by
ophthalmologists and hospitals which will then bill various
third-party payors for the health care services provided to their
patients. These payors include Medicare, Medicaid and private
insurers. Government agencies generally reimburse at a fixed
rate based on the procedure performed. Some of the potential
procedures for which the Photon(trademark) laser cataract systems may be
used, may be determined to be elective in nature, and third-party
reimbursement may not be available for such procedures, even if
approved by the FDA. In addition, third-party payors may deny
reimbursement if they determine that the procedure was
unnecessary, inappropriate, not cost-effective, experimental or
used for a non-approved indication. There can be no assurance
that reimbursement from third-party payors will be available, or
if available, that reimbursement will not be limited, thereby
materially adversely affecting the Company's ability to develop
new products on a profitable basis.
Research and Development
The Company's primary product development strategy is to
commercialize its core technology for participation in the
cataract surgery market. Further, the Company believes that its
laser systems may potentially have broader ophthalmic
applications, as well as non-ophthalmic medical and dental
applications. Consequently, the Company believes that a strong
research and development capability is important for the
Company's future. The Company, therefore, has contacted several
recognized and respected consultants and other technical
personnel to act in technical and medical advisory capacities.
Several of these consultants have been organized to form a
Clinical Advisory Board which provides the Company with expert
and technical support for current and proposed products, programs
and services.
The Company also believes its research and development
capabilities provides it with the ability to respond to
regulatory developments that may, from time to time, require the
Company to effectively deal with U.S. and foreign government
entities who oversee the Company's products. The Company intends
to continue investing in research and development and strengthen
its ability to enhance existing products and develop new
products. The Company spent $207,451 on research and development
in fiscal year 1994, $236,043 in fiscal year 1995 and $192,917 in
fiscal year 1996.
Competition
General. The Company is subject to competition from two
principal sources: (i) manufacturers of competing ultrasound
systems for performing cataract treatments and (ii) developing
technologies for cataract and ophthalmic surgical treatment. The
cataract surgical equipment industry is dominated by a few large
companies who are well established in the marketplace, have
experienced management, are well financed and have well
recognized trade names and product lines. The Company believes
that the combined sales of five entities account for over 90% of
the Company's market. The remaining market is fragmented among
emerging smaller companies, some of which are foreign.
Most major competitors either entered or expanded into the
market through the acquisition of smaller, entrepreneurial
high-technology manufacturing companies. Therefore, because
existing competitors or other entities desiring to enter the
market could conceivably acquire current entrepreneurial
enterprises with small market activity, their products cannot be
ignored even though, under current circumstances, they may not
appear to be formidable competitors.
The Cataract Surgical System Industry. Presently, products
currently in use are offered by the major manufacturers utilizing
ultrasonic technology. Additionally, those systems rely on
accessories including single-use cassette packs and other
ancillary surgical disposables such as saline solution, sutures
and intraocular lens for their profits. The cassette packs are
required for fluid and tissue collection during the surgical
procedure. The cassette packs are generally unique and
proprietary to their respective systems and represent a barrier
to entry for third-party, lower cost after-market suppliers.
While there is growing market resistance in the United States and
internationally to single-use cassettes, the Company anticipates
that manufacturers of ultrasound equipment will continue to
develop and enhance their present ultrasound products in order to
protect their investments in system and cassette technology and
to protect their profits from sales of these cassettes and
accessories. The Company's Precisionist(trademark) ultrasonic phaco system
has the ability to use either reusable or single-use disposable
components. The Photon(trademark) laser cataract system utilizes probes
and cassette packs designed for single-use and semi-disposable
instruments priced at a level consistent with the demands of
health care cost containment. This will allow the health care
providers a substantial measure of cost containment, while
providing the Company the quality control and income capability
from cassette sales.
The typical list price of a competitive advanced ultrasonic
system ranges from approximately $60,000 to $100,000. Lower cost
models generally have a list price ranging from approximately
$30,000 to $60,000. The list price for the Company's
Precisionist(trademark) Phaco System, which is comparable to advanced
ultrasonic systems, is $45,500. The list price for the
Precisionist(trademark) Thirty Thousand ocular surgery system is $89,900.
The Company's Photon(trademark) Laser Phaco(trademark) will be sold at a
price of approximately $119,000. The international market, with
significantly lower medical budgets, has not been able to justify
the expense of using disposable components. Budgetary
constraints have limited current manufacturers from gaining a
significant share of the international ultrasound equipment
market, and has provided a niche for the emerging smaller
companies discussed above.
Ultrasound Equipment Manufacturers. As a relatively recent
entrant into the cataract surgical equipment market with a newer
equipment line, the Company is establishing itself and, as yet,
does not hold a significant share of the market. The Company
currently recognizes Alcon Laboratories/Surgical Division, Storz
Instruments, Allergan Medical Optics and Chiron Vision as its
primary competitors in the ultrasound phaco cataract removal
market.
Laser Equipment Manufacturers. Ophthalmic surgical
equipment offered, or being readied for market, in the United
States is typically presented or displayed at the American
Academy of Ophthalmology held each year in November. Prior to
1993, no fully operational laser-assisted cataract surgery system
was ever present or displayed as a commercial product. In
November 1993, October 1995 and October 1996, however, the
Company presented the Photon(trademark) laser cataract system at the
American Academy of Ophthalmology meeting.
To the Company's knowledge, only four other companies have
attempted to develop laser equipment for cataract surgery. Based
on the information currently available to the Company, these
competitive laser companies appear to offer a less viable means
of treating cataracts using laser technology. Based on the
Company's opinion that the Photon(trademark) laser cataract system
is not only operational, but also meets many of the market's
requirements for immediate commercialization, the Company
believes that, at least for the immediate future, there is no
directly competing laser-assisted cataract surgical system
available to the market. The Company also believes that its
product is sufficiently distinctive and, if properly marketed,
can capture a significant share of the cataract surgical device
market. However, there are always substantial risks in
undertaking a new venture in an established and already highly
competitive industry. In the short-term, the Company is seeking
to exploit these opportunities. Depending upon further
developments, the Company may ultimately exploit those
opportunities through a merger with a stronger entity already
established or one that desires to enter the medical industry.
The Company believes that its ability to compete
successfully will depend on its capability to create and maintain
advanced technology, develop proprietary products, attract and
retain scientific personnel, obtain patent or other proprietary
protection for its products and technologies, obtain required
regulatory approvals and manufacture, assemble and successfully
market products either alone or through other parties.
Intellectual Property Protection
The Company's cataract surgical products are proprietary in
design, engineering and performance. The Company's ultrasonic
products have not been patented to date because the primary
technology for ultrasonic tissue fragmentation, as available to
all competitors in the market, is mainly in the public domain.
The Company intends, however, to file patents on its proprietary
cassette system utilized in both the ultrasonic Precisionist(trademark)
Thirty Thousand system and in its Photon(trademark) laser cataract system.
Such patents will be filed prior to product shipments being made
internationally and in the United States.
The Photon(trademark) laser cataract system is protected under a
United States patent issued in 1987 to Daniel M. Eichenbaum, M.D.
(U.S. Patent Number 4,694,828) for the utility and methods of
laser ablation, aspiration and irrigation of tissue through a
hand-held probe of a unique design. The Company secured the
exclusive worldwide right to this patent shortly after its issue,
and to the international patents pending, from Dr. Eichenbaum by
means of a license agreement that entitled Dr. Eichenbaum to a
royalty payment equal to 1% of the proceeds from the net
commercial sales of the Photon(trademark) laser cataract system and
accessories in all medical specialties. The Royalty Agreement
terminates July 7, 2003. The Company has also entered into a
Consulting Agreement with Dr. Eichenbaum which provides him with
consulting fees equal to $25,000 per year through July 7, 2003.
Dr. Eichenbaum is also the Company's lead technical engineering
and clinical investigator for the Photon(trademark) laser cataract system
and is a member of the Company's Clinical Advisory Board.
The Company has filed for a United States patent on an
innovative corneal surgery system to treat nearsightedness,
farsightedness and astigmatism. This device utilizes the
Company's core ultrasound technology. This device presents a
novel means of reducing or eliminating corneal refractive surgery
complications and improving the post-operative outcome for radial
keratotomy refractive surgery. It is designed to be an
alternative to expensive corneal refractive lasers. The Company
intends to continue its development of patentable technology
products for manufacture and sale, or for licensing to strategic
partners in ophthalmology and other medical specialties.
Although the Company's trademarks are important to its
business, it is not the Company's policy to pursue trademark
registrations for its trademarks associated with its products.
Consequently, the Company relies on common law trademark rights
to protect its unregistered trademarks, although common law
trademark rights do not provide the Company with the same level
of protection as would U.S. federal registered trademarks.
Common law trademark rights only extend to the geographical area
in which the trademark is actually used while U.S. federal
registration prohibits the use of the trademark by any party
anywhere in the United States.
The Company also relies on trade secret law to protect some
aspects of its intellectual property. All of the Company's key
employees, consultants and advisors are required to enter into a
confidentiality agreement with the Company. Most of the
Company's third-party manufacturers and formulators are also
bound by confidentiality agreements with the Company.
Regulation
The Company's surgical systems are regulated as medical
devices by the FDA under the FDC Act. As such, these devices
require premarket clearance or premarket approval by the FDA
prior to commercialization. Such clearance or approval is
premised on the production of evidence sufficient for the Company
to show reasonable assurance of safety and effectiveness
regarding its products. Pursuant to the FDC Act, the FDA
regulates the manufacture, distribution and production of medical
devices in the United States and the export of medical devices
from the United States. Noncompliance with applicable
requirements can result in fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of
production, denial of premarket clearance or approval for
devices, recommendations by the FDA that the Company not be
allowed to enter into government contracts, and criminal
prosecution.
Following the enactment of the Medical Device Amendments to
the FDC Act in May 1976, the FDA began classifying medical
devices in commercial distribution into one of three classes:
Class I, II or III. This classification is based on the controls
that are perceived to be necessary to reasonably ensure the
safety and effectiveness of medical devices. Class I devices are
those devices, the safety and effectiveness of which can
reasonably be ensured through general controls, such as adequate
labeling, advertising, premarket notification and adherence to
the FDA's Good Manufacturing Practice ("GMP") regulations. Some
Class I devices are exempt from some of the general controls.
Class II devices are those devices the safety and effectiveness
of which can reasonably be assured through the use of special
controls, such as performance standards, postmarket surveillance,
patient registries and FDA guidelines. Class III devices are
devices that must receive premarket approval by the FDA to ensure
their safety and effectiveness. Generally, Class III devices are
limited to life-sustaining, life-supporting or implantable
devices, or to new devices that have been found not to be
substantially equivalent to legally marketed devices.
There are two principal methods by which FDA approval may
be obtained. One route is to seek FDA approval through a
premarket notification filing under Section 510(k) of the FDC
Act. If a manufacturer or distributor of a medical device can
establish that a proposed device is "substantially equivalent" to
a legally marketed Class I or Class II medical device or to a
pre-1976 Class III medical device for which the FDA has not
called for a pre-marketing approval ("PMA"), the manufacturer or
distributor may seek FDA 510(k) premarket clearance for the
device by filing a 510(k) premarket notification. The 510(k)
notification and the claim of substantial equivalence will likely
have to be supported by various types of data and materials,
possibly including clinical testing results, obtained under an
Investigational Device Exemption ("IDE") granted by the FDA. The
manufacturer or distributor may not place the device into
interstate commerce until an order is issued by the FDA granting
premarket clearance for the device. By regulation, the FDA has
no specific time limit by which it must respond to a 510(k)
notification. The FDA has recently been requiring more rigorous
demonstrations of substantial equivalence in connection with
510(k) notifications and in many cases, the time periods required
for product approvals have increased. There can be no assurance
that the Company will obtain 510(k) premarket clearance for any
of the future devices for which the Company seeks such clearance.
The FDA may determine that the device is "substantially
equivalent" to another legally marketed Class I, Class II or
pre-1976 Class III device for which the FDA has not called for a
PMA, and allow the proposed device to be marketed in the United
States. The FDA may determine, however, that the proposed device
is not substantially equivalent, or may require further
information, such as additional test data, before the FDA is able
to make a determination regarding substantial equivalence. A
"not substantially equivalent" determination or a request for
additional information could delay the Company's market
introduction of its products and could have a material adverse
effect on the Company's continued operations.
The alternate method to seek approval is to obtain
premarket approval from the FDA. If a manufacturer or
distributor of a medical device cannot establish that a proposed
device is substantially equivalent to another legally marketed
device, whether or not the FDA has made a determination in
response to a 510(k) notification, the manufacturer or
distributor will have to seek premarket approval for the proposed
device. A PMA application would have to be submitted and be
supported by extensive data, including preclinical and clinical
trial data to prove the safety and efficacy of the device. If
human clinical trials of a proposed device are required and the
device presents a "significant risk," the manufacturer or the
distributor of the device will have to file an IDE application
with the FDA prior to commencing human clinical trials. The IDE
application must be supported by data, typically including the
results of animal and mechanical testing. If the IDE application
is approved, human clinical trials may begin at a specific number
of investigational sites, and the approval letter could include
the number of patients approved by the FDA. An IDE clinical
trial can be divided into several parts or phases. Sometimes, a
company will conduct a feasibility study to confirm that a device
functions according to its design and operating parameters. This
is usually done with a limited number of patients at one clinical
trial site. If the results of the first study phase are
promising, the sponsor may, with the FDA's permission, expand the
number of clinical trial sites and the number of patients to be
treated to assure reasonable stability of clinical results.
Phase II studies are performed to confirm predictability of
results and the absence of adverse reactions. The company may,
upon receipt of the FDA's authorization, subsequently expand the
study to a third phase with a larger number of clinical trial
sites and a greater number of patients. This involves longer
patient follow-up times and the collection of more patient data.
Product claims, labeling and core data for the PMA are derived
primarily from this portion of the clinical trial. The company
may also, upon receipt of the FDA's permission, consolidate one
or more of such portions of the study. Sponsors of clinical
trials are permitted to sell those devices distributed in the
course of the study, provided such compensation does not exceed
recovery of the costs of manufacture, research, development and
handling. Although both approval methods may require clinical
testing of the device in question under an approved IDE, the
premarket approval procedure is more complex and time consuming.
Upon receipt of the PMA application, the FDA makes a
threshold determination whether the application is sufficiently
complete to permit a substantive review. If the FDA determines
that the PMA is sufficiently complete to permit a substantive
review, the FDA will "file" the application. Once the submission
is filed, the FDA has by regulation 90 days to review it;
however, the review time is often extended significantly by the
FDA asking for more information or clarification of information
already provided in the submission. During the review period, an
advisory committee may also evaluate the application and provide
recommendations to the FDA as to whether the device should be
approved. In addition, the FDA will inspect the manufacturing
facility to ensure compliance with the FDA's GMP requirements
prior to approval of a PMA. While the FDA has responded to PMA
applications within the allotted time period, PMA reviews
generally take approximately 12 to 18 months or more from the
date of filing to approval. The PMA process is a lengthy and
expensive one, and there can be no assurance that such approval
will be obtained for any of the Company's products determined to
be subject to such requirements. A number of devices for which
PMA approval has been sought by other companies have never been
approved for marketing.
Any products manufactured or distributed by the Company
pursuant to a premarket clearance notification or PMA are or will
be subject to pervasive and continuing regulation by the FDA.
The FDA Act also requires that the Company's products be
manufactured in registered establishments and in accordance with
GMP regulations. Labeling, advertising and promotional
activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. The export of
medical devices is also subject to regulation in certain
instances. In addition, the use of the Company's products may be
regulated by various state agencies.
All lasers manufactured for the Company are subject to the
Radiation Control for Health and Safety Act administered by the
Center for Devices and Radiological Health of the FDA. The law
requires laser manufacturers to file new product and annual
reports and to maintain quality control, product testing and
sales records, to incorporate certain design and operating
features in lasers sold to end users pursuant to a performance
standard, and to comply with labeling and certification
requirements. Various warning labels must be affixed to the
laser, depending on the class of the product under the
performance standard.
Although the Company believes that it and its manufacturers
currently comply and will continue to comply with all applicable
regulations regarding the manufacture and sale of medical
devices, such regulations are always subject to change and depend
heavily on administrative interpretations. There can be no
assurance that future changes in review guidelines, regulations
or administrative interpretations by the FDA or other regulatory
bodies, with possible retroactive effect, will not materially
adversely affect the Company. In addition to the foregoing, the
Company is subject to numerous federal, state and local laws
relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous
substances. There can be no assurance that the Company will not
be required to incur significant costs to comply with such laws
and regulations and that such compliance will not have a material
adverse effect upon the Company's ability to conduct business.
The Company and the manufacturers of the Company's products
may be inspected on a routine basis by both the FDA and
individual states for compliance with current GMP regulations and
other requirements.
Congress has considered several comprehensive federal
health care programs designed to broaden coverage and reduce the
costs of existing government and private insurance programs.
These programs have been the subject of criticism within Congress
and the health care industry, and many alternative programs and
features of programs have been proposed and discussed.
Therefore, the Company cannot predict the content of any federal
health care program, if any is passed by Congress, or its effect
on Company and its business. Some measures that have been
suggested as possible elements of a new program, such as
government price ceilings on nonreimbursable procedures and
spending limitations on hospitals and other healthcare providers
for new equipment, could have an adverse effect on the Company's
profitability. Uncertainty concerning the features of any health
care program considered by the Congress, its adoption by the
Congress and the effect of the program on the Company's business
could result in volatility of the market price of the Company's
Common Stock.
Furthermore, the introduction of the Company's products in
foreign countries may require the Company to obtain foreign
regulatory clearances. The Company believes that only a limited
number of foreign countries have extensive regulatory
requirements, including France, Germany, Korea and Japan. The
time involved for regulatory approval in foreign countries varies
and can take a number of years. During the period in which the
Company will be attempting to obtain the necessary regulatory
approvals in these countries, the Company also expects to market
its products on a limited basis in certain European, Latin
American and Asian countries where its products satisfy
applicable regulatory standards. There is no assurance that the
Company's products will be approved by the FDA or other
governmental agencies for intended applications in the United
States and targeted foreign markets, nor is there any assurance
that the FDA will approve the export of the Company's products,
which approval is required on a country-by-country basis for
applications not yet approved in the United States.
A number of European and other economically advanced
countries, including Italy, Spain and Scandinavia, have not
developed a regulatory agency for intensive supervision of such
devices. Instead, they generally have been willing to accept the
approval of the FDA. Therefore, a PMA, 510(k) or approved IDE
from the FDA is tantamount to approval in those countries. These
countries and most third world countries have simply deferred
direct discretion to the licensed practicing surgeons themselves
to determine, along with other professional discretion, the
nature of devices that they will use in medical procedures. Both
the Precisionist(trademark) system (the Company's ultrasonic system) and
the Photon(trademark) laser cataract system (the Company's laser-assisted
system) are devices requiring such approval. Therefore, a
significant aspect of the acceptance of the devices in the market
is, in large part, the effectiveness of the Company in obtaining
the necessary approvals. Having an approved IDE will allow the
Company, once adequate funding is available, to obtain export
rights to manufacture and ship over $6 million in backlog orders
it has received from international dealers.
Regulatory Status of Products
The Precisionist(trademark) and the Precisionist(trademark)
Thirty Thousand Ocular Surgery Systems. Pursuant to Section 510(k)
of the Food Drug and Cosmetic Act ("FD&C"), the FDA granted market
clearance for the commercialization of the Precisionist(trademark)
system in 1990 and the Precisionist(trademark) Thirty Thousand system
in 1995, thereby allowing the Company to sell these devices in the
United States for their intended use as cataract surgical systems. That
clearance, in turn, has allowed for similar approvals in several
foreign countries, allowing sales to be undertaken in all of
those countries. Because no approvals are required in many third
world countries, including several countries in the Middle East
and Latin America, those areas are open for sales.
Applications for approval in other western countries,
including Germany and France, are currently pending. Under
present circumstances, although there is no assurance, approval
of the German application is expected. Because France places
substantial credence in German approvals, it is expected that
approval in France will follow sometime thereafter. In Japan and
Korea, the Company has provided the Precisionist(trademark) system to
established dealers that have applied for approval in those
respective countries.
The Photon(trademark) laser cataract. The Company has acquired
permission from the FDA to manufacture the device, and export
approval from the United States is pending. The Company expects
to have systems available for delivery outside the United States
by March 1997. Photon(trademark) laser cataract sales may commence in
foreign markets as soon as the Company has devices available for
delivery. Orders can also be delivered to dealers and
manufacturer's representatives in such countries as Japan and
Korea where the dealers will make applications for approval.
With regard to the United States, although the Photon(trademark)
laser cataract system is uniquely configured in an original and
proprietary manner, its distinctive component is the laser system
it employs. The laser system, a Nd:YAG laser, is not proprietary
to the device or the Company and is widely used in the medical
industry and other industries as well. Of particular
significance is the fact that this particular component has
received previous market clearance from the FDA for other
ophthalmic and medical applications. Also of significance is the
Company's belief that the surgical treatment method used with the
Photon(trademark) laser cataract is similar to the current ultrasound
cataract treatment employed by ophthalmologists.
The Company submitted its Premarket Notification under
Section 510(k) of the FD&C Act for the Photon(trademark) laser cataract
system in September 1993. The FDA requested clinical support
data for claims made in the 510(k) Premarket Notification, and in
October 1994 the Company submitted an IDE application to provide
for a "modest clinical study" in order to collect the data
required by the FDA for clearance of the Photon(trademark) laser cataract
system. The FDA granted this IDE in May 1995. The Company began
human clinical trials in April 1996 and successfully completed
the clinical surgeries in December 1996. The Company has also
provided the FDA with other operational, clinical and safety data
and results that the Company believes qualifies the Photon(trademark) laser
cataract system for "substantial equivalence" to medical devices
previously cleared for commercialization. The Company received
its documentation for Export of Unapproved Devices from the FDA
as soon as the IDE was granted and is now completing this
documentation. With permission to export, the Company can
manufacture the Photon(trademark) laser cataract system in the United
States and export against its international customer backlog.
Employees
As of December 20, 1996, the Company had 15 full-time
employees. This number does not include the Company's 16
manufacturer's representatives who are independent contractors
rather than employees of the Company. The Company also utilizes
13 consultants and advisors. There can be no assurance that the
Company will be successful in recruiting or retaining key
personnel. None of the Company's employees is a member of a
labor union and the Company has never experienced any business
interruption as a result of any labor disputes. The Company
considers its relations with its employees to be good.
Item 2. Description of Properties
The Company's executive offices are currently located at
1772 West 2300 South, Salt Lake City, Utah. This facility
consists of approximately 5,400 square feet of leased office
space under a one year lease that will expire on December 31,
1997. The facility is leased from Tri-Cox, L.C., a Utah limited
liability company at a base monthly rate of $2,972 plus a monthly
common maintenance area fee of $354. Pursuant to the lease, the
Company pays all insurance on the premises. The Company believes
it will be able to either enter into a new lease after the
current lease expires or find new space to lease. The Company
believes that this facility is adequate and satisfies its needs
for the foreseeable future.
Item 3. Legal Proceedings
On November 25, 1996, the Company was served with a Summons
and Complaint in an action commenced in the United States
District Court for the Southern District of New York against the
Company by Federman Associates, Inc. ("Federman Associates"), a
New York based investment banking company, and its principal
officer, Hyman L. Federman ("Federman"). The action is based
upon a March 31, 1995, agreement between Federman Associates and
the Company (the "Agreement") in which Federman Associates agreed
to obtain $5,000,000 to $8,000,000 in capitalization for the
Company prior to December 31, 1995 in exchange for the right to
purchase a five percent (5%) equity position in the Company for
$25,000 and the payment of $3,000 per month for a period of 36
months. The action is also based upon the additional services
Federman Associates alleges it performed for the Company.
Federman and Federman Associates assert in their first
claim for relief that they fully performed the Agreement and are
therefore entitled to 256,780 shares of the Company's common
stock and $3,000 per month for a period of 36 months commencing
July 1996. In their second claim for relief, Federman and
Federman Associates claim that they "were ready, able and willing
to perform" the Agreement, but were prevented from performing the
Agreement by the Company not filing a Registration Statement with
the Securities and Exchange Commission (the "Commission") within
the requisite time period. In the final claim for relief,
Federman claims he is personally owed 100,000 shares of Common
Stock for the additional services he claims to have performed.
It should be noted that Federman passed away during the
last week of November, 1996. The lawsuit will be therefore be
turned over to Federman's estate. The Company believes the
Complaint brought by Federman Associates and Federman is without
merit as Federman Associates did not obtain the required
capitalization for the Company prior to December 31, 1995 and
there was no agreement between Federman and the Company for the
payment of services performed by Federman. The Company intends
to vigorously defend the action. Nevertheless, in the event the
Company does not prevail in its defenses, the lawsuit could have
a material adverse impact on the Company's financial condition
and could result in dilution to the Company's shareholders.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock, Class A Warrants and Units
(each Unit consisting of one share of Common Stock and one Class
A Warrant) trade on the Nasdaq SmallCap Market under the
respective symbols of "PMED", "PMEDW" and "PMEDU". Prior to July
22, 1996, there was no public market for the Common Stock. The
following are the high and low sales prices for the Common Stock
as reported by Nasdaq.
<TABLE>
<CAPTION>
Period (Calendar Year) Price Range
---------------------- -----------
High Low
---- ---
<S> <C> <C>
1996
Third Quarter
(since July 22, 1996) . . . . 6 2
Fourth Quarter
(through December 20, 1996). . 5-5/8
</TABLE>
The Company's Series A Preferred Stock and Series B
Preferred Stock are not traded.
The Company has never paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. The Company must pay
cash dividends to holders of its Series A Preferred and Series B
Preferred before it can pay any cash dividend to holders of its
Common Stock. Dividends paid in cash pursuant to outstanding
shares of the Company's Series A and Series B Preferred Stock are
only payable from surplus earnings of the Company and are
non-cumulative and therefore, no deficiencies in dividend
payments from one year will be carried forward to the next. The
Company currently intends to retain future earnings, if any, to
fund the development and growth of the Company's proposed
business and operations. Any payment of cash dividends in the
future on the Common Stock will be dependent upon the Company's
financial condition, results of operations, current and
anticipated cash requirements, plans for expansion, restrictions,
if any, under any debt obligations, as well as other factors that
the Company's Board of Directors deems relevant. The Company
issued 6,764 shares of its Series A Preferred and 6,017 shares of
its Series B Preferred on January 8, 1996 as a stock dividend to
Series A and Series B shareholders of record as of December 31,
1994.
As of December 20, 1996, there were 612 record holders of
Common Stock, 21 record holders of Series A Preferred Stock and
36 record holders of Series B Preferred Stock.
Item 6. Management's Discussion and Analysis or Plan of Operation
General
The following discussion and analysis of the Company's
financial condition and results of operations should be read in
conjunction with the Financial Statements (including the notes
thereto), and the other information included elsewhere herein.
The Company's fiscal year runs from October 1 to and including
September 30.
The Company is engaged in the development, manufacture and
sale of ophthalmic surgical devices designed to perform minimally
invasive cataract removal surgery. Paradigm's activities for
fiscal years ending September 30, 1994, 1995 and 1996 include
international and domestic sales of the Precisionist Phaco
system, research and development for the Photon(trademark) laser cataract
system and primary research for other new products and
businesses.
Results of Operations
Fiscal Year Ended September 30, 1996 Compared to Fiscal
Year Ended September 30, 1995.
Sales decreased by $255,450, or 50%, to $252,134 in fiscal
1996 from $507,584 for the comparable period in 1995. This
decrease was a result of a reduction in the sales of the
Precisionist Phaco System resulting from the Company focusing its
limited financial resources on the public offering. Cost of
sales decreased $86,338, or 32%, to $180,010 in fiscal 1996 from
$266,348 for the comparable period in 1995, as a result of the
reduced sales. The gross margin in fiscal 1996 of 29% is down
from the gross margin for the comparable period in 1995 of 48%
because sales in 1996 included more parts and accessories which
have a lower gross margin.
Marketing and selling expenses decreased by $212,137, or
50%, to $216,128 in fiscal 1996 from $428,265 for the comparable
period in 1995. The decrease was a result of the Company
focusing its limited financial resources on the public offering.
The Company expects to increase its marketing and selling
activities now that the public offering has been completed.
General and administrative expenses increased by $415,388,
or 102%, to $823,191 in fiscal 1996 from $407,803 for the
comparable period in 1995. This increase was the result of the
increased administrative costs related to preparation for the
public offering of the Company's Common Stock. The Company
expects to increase its staff significantly to support the
activities associated with the introduction of the Photon(trademark)
laser cataract system.
Research and development expenses increased by $52,811, or
22%, to $288,854 in fiscal 1996 from $236,043 for the comparable
period in 1995. The Company expects the amount spent on research
and development for the Photon(trademark) laser cataract system and other
new products to increase in fiscal 1997.
In fiscal 1996, the Company incurred $179,000 of expenses
in connection with obtaining the relinquishment of certain
anti-dilution rights. See "Item 13. Certain Relationships and
Related Transactions."
Fiscal Year Ended September 30, 1995 Compared to Fiscal
Year Ended September 30, 1994.
Sales increased by $39,703, or 8%, to $507,584 in fiscal
1995 from $467,881 in fiscal 1994. This increase was primarily
due to increased sales of the Company's Precisionist Phaco System
and the sale of one prototype Photon(trademark) laser cataract system.
Cost of sales decreased $42,098, or 14%, to $266,348 in fiscal
1995 from $308,446 in fiscal 1994. Cost of sales decreased as a
percentage of net revenues to 52% in 1995 as compared to 66% in
1994. The reduction in cost of sales as a percentage of net
revenues was the result of increased unit sales in 1995 at higher
retail prices through a direct sales force in the United States
and a reduction in cost of sales on a per unit basis resulting
from lower component and accessory prices in 1995.
Marketing and selling expenses increased by $77,483, or
22%, to $428,265 in fiscal 1995 from $350,782 in fiscal 1994.
This increase was primarily due to expanded marketing,
advertising and publicity activities related to the FDA approval
of the laser-ready Precisionist Thirty Thousand ocular surgery
system, the Company's laser upgrade sales program, expanded
convention activities including symposiums, live demonstrations
of the laser system, expanded training courses and attendance at
the European Society of Cataract and Refractive Surgery meeting
to expand international distribution and backlog.
General and administrative expenses increased by $70,518,
or 21%, to $407,803 in fiscal 1995 from $337,285 in fiscal 1994.
This increase was the result of increased administrative costs
related to preparation for the planned public offering of the
Company's Common Stock and the expansion of sales activities.
The Company anticipates increasing its staff significantly to
support the activities associated with the introduction of the
Photon(trademark) laser cataract system.
Research and development expenses increased by $28,592, or
14%, to $236,043 in fiscal 1995 from $207,451 in fiscal 1994.
This increase was due to the continued development of the Photon(trademark)
laser cataract System, including costs associated with
development, submission and management of the premarket
notification and investigational clinical trial plan through the
FDA. The Company expects the amount spent on research and
development for the Photon(trademark) laser cataract system and new
products to increase in fiscal 1996.
Liquidity and Capital Resources
The Company used cash in operating activities of $1,315,399
in fiscal 1996 compared to $979,848 for the comparable period in
1995. The increase in cash used in fiscal 1996 was a result of
the higher loss during that period. The Company used cash in
investing activities of $590,921 in fiscal 1996 compared to
$40,681 for the comparable period in 1995. These operating and
investing cash outflows were financed primarily from the proceeds
of private placements of the Company's preferred stock and Bridge
Notes and the public offering.
The Company generated $6,250,000 from the public offering
of its Common Stock before deducting expenses totaling
$1,509,569. The Company generated $575,000 from the private
placement of Bridge Notes in fiscal 1996. In fiscal 1996, the
Company made $611,256 in principal and interest payments to
retire the Bridge Notes and $61,829 in principal payments on
long-term debt. During fiscal 1995, the Company received
proceeds from the private placement of its Series B Convertible
Preferred Stock in the net amount of $1,469,650. During fiscal
1995, the Company made $143,261 in principal payments on
long-term debt.
The Company used cash in operating activities of $979,848
in fiscal 1995, compared to cash used in operating activities of
$794,528 in fiscal 1994. The increase in cash used was a direct
result of the increase in operating expenses, which was only
partially offset by increased gross profit from product sales.
The Company used cash in investing activities of $40,681 in
fiscal 1995, compared to cash used in investing activities of
$12,112 in fiscal 1994. The increase in cash used in fiscal 1995
is primarily a result of the Company's purchase of an automobile
using proceeds from a bank loan. These operating and investing
cash outflows were financed primarily from the proceeds of
private placements of the Company's preferred and common stock.
From May 1994 to September 1995, the Company raised a total
of $1,972,000 from a private placement of its Series B
Convertible Preferred Stock. In fiscal 1994 the net proceeds
from this private placement were approximately $183,470 after
deducting commissions and expenses totaling $59,530, and in
fiscal 1995 the net proceeds were $1,469,650 after deducting
commissions and expenses totaling $259,350. Through April 1994
the Company raised a total of $464,000 from a private placement
of its Series A Convertible Preferred Stock. The net proceeds
from this private placement were $403,680 after deducting
commissions and expenses totaling $60,320. During fiscal 1994
the Company also raised $108,225 from the issuance of its common
stock. Such proceeds were for working capital purposes,
including general and administrative expenses, research and
development related to the Company's present and new products and
to repay $12,807 of long-term debt in fiscal 1994 and $143,260 of
long-term debt in fiscal 1995.
In March 1993, the Company obtained a loan from the Utah
Technology Finance Corporation ("UTFC") in the amount of $50,000.
The loan bears interest at a rate of 4% above the prime rate per
annum. In September 1993, the Company obtained a second loan
from UTFC in the amount of $40,000. The loan bears interest at
a rate of 4% above the prime rate per annum. The proceeds from
both loans were used for working capital purposes, including
general and administrative expenses and research and development
related to the Company's present and new products. The UTFC
loans were paid off from the proceeds of the Company's public
offering. In September 1995, the Company obtained a 9.95% loan
from a bank to purchase an automobile.
The Company expects that the net proceeds of the public
offering will enable it to meet its liquidity and capital
requirements for approximately 12 months following the completion
of the offering in July 1996. There can be no assurance that the
Company can generate sufficient revenues from product sales to
satisfy its working capital requirements after such time. The
Company's working capital requirements will depend upon numerous
factors, including progress of the Company's research and
development program for the development of new products and new
applications for its present core product, the success of its
regulatory programs with domestic and foreign agencies for its
new products, the levels of resources devoted by the Company to
the development of manufacturing and marketing capabilities,
technological advances, the status of competitors and the success
or lack thereof of the Company's marketing efforts. To meet its
short-term and long-term requirements, including research and
development activities, the Company may be required to obtain
additional financing. The Company currently has a $600,000 line
of credit with Key Bank related to accounts receivable and
inventory financing. The Company may seek funding to meet its
working capital requirements through collaborative arrangements
and strategic alliances, additional public offerings and/or
private placements of its securities, or bank borrowings. There
can be no assurance, however, that additional funds, if required,
will be available from any of the foregoing or other sources on
favorable terms, if at all.
At September 30, 1996, the Company had net operating loss
carryforwards (NOLs) of approximately $3,300,000 and research and
development tax credit carryforwards of approximately $47,700.
These carryforwards are available to offset future taxable
income, if any, and expire in the years 2005 through 2011.
Because the Company has yet to recognize significant revenue from
the sale of its Photon(trademark) laser cataract System, a valuation
allowance has been provided in full for these deferred tax
assets. The Company's ability to use its NOLs to offset future
income may be subject to restrictions enacted in the United
States Internal Revenue Code of 1986, as amended. These
restrictions could limit the Company's future use of its NOLs if
there is a cumulative ownership change of more than 50%, which
would include the changes of ownership related to the offering.
Effect of Inflation and Foreign Currency Exchange
The Company has not realized a reduction in the selling
price of the Precisionist phaco system as a result of domestic
inflation. Nor has the Company experienced unfavorable profit
reductions due to currency exchange fluctuations or inflation
with its foreign customers.
Impact of New Accounting Pronouncements
The Company intends to adopt the disclosure approach
provided for in Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock Based Compensation, with
respect to options and warrants granted to employees. Because
the Company has only a minimal investment in long-lived assets,
the adoption of SFAS 121, Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of, and which will occur October
1, 1996, is not expected to have an impact on the Company.
<PAGE>
Item 7. Financial Statements and Supplementary Data
Report of Independent Accountants . . . . . . . . F-2
Balance Sheet . . . . . . . . . . . . . . . . . . F-3
Statements of Operations. . . . . . . . . . . . . F-4
Statements of Changes in Stockholders' Equity . . F-5 to F-7
Statements of Cash Flows. . . . . . . . . . . . . F-8 to F-9
Notes to Financial Statements . . . . . . . . . . .F10 to F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Paradigm Medical Industries, Inc.:
We have audited the accompanying balance sheet of Paradigm
Medical Industries, Inc. (the Company) as of September 30, 1996,
and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended
September 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Paradigm Medical Industries, Inc. as of September 30, 1996,
and the results of its operations and its cash flows for the
years ended September 30, 1996 and 1995 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Salt Lake City, Utah
November 8, 1996
<PAGE>
Paradigm Medical Industries, Inc.
<TABLE>
<CAPTION>
BALANCE SHEET
as of September 30, 1996
--------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 3,040,152
Marketable debt securities,
available-for-sale 486,039
Trade accounts receivable 55,454
Inventories 369,045
Prepaid expenses 18,361
-----------
Total current assets 3,969,051
Deferred charges 100,000
Property and equipment, net 123,544
-----------
Total assets $ 4,192,595
===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Accounts payable $ 38,656
Accrued liabilities 118,359
Note payable to bank-current 3,198
------------
Total current liabilities 160,213
Note payable, less current portion 16,455
------------
Total liabilities 176,668
------------
Commitments (Notes 4, 10 and 11)
Stockholders' equity:
Preferred stock, Authorized:
5,000,000 $.001 par value shares
Series A, Authorized: 500,000 shares;
issued and outstanding: 122,764 $.001
par value shares (aggregate liquidation
preference of $122,764) 123
Series B, Authorized: 500,000 shares;
issued and outstanding: 466,055 $.001
par value shares (aggregate liquidation
preference of $1,864,220) 466
Additional paid-in capital, preferred stock 1,975,487
Common stock, Authorized: 20,000,000 shares;
Issued: 3,174,198 shares; Outstanding:
3,171,598 shares; $.001 par value 3,172
Additional paid-in capital, common stock 6,186,251
Treasury stock, 2,600 shares, at cost (3,777)
Unearned compensation (82,083)
Accumulated deficit (4,050,009)
Unrealized loss on marketable debt
securities, available-for-sale (13,703)
------------
Total stockholders' equity 4,015,927
------------
Total liabilities and
stockholders' equity $ 4,192,595
===========
</TABLE>
The accompanying notes are an integral
part of the financial statements
F - 3
<PAGE>
Paradigm Medical Industries, Inc.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
for the years ended September 30, 1996 and 1995
1996 1995
---- ----
<S> <C> <C>
Sales $ 252,134 $ 507,584
Cost of sales 180,010 266,348
----------- ----------
Gross profit 72,124 241,236
----------- ----------
Operating expenses:
Marketing and selling 216,128 428,265
General and administrative 823,191 407,803
Research and development 288,854 236,043
----------- ----------
Total operating expenses 1,328,173 1,072,111
----------- ----------
Operating loss (1,256,049) (830,875)
----------- ----------
Other income (expense):
Stock issued for relinquishment
of anti-dilution rights (179,000) (3,425)
Interest income 42,859 10,124
Interest expense (56,829) (8,381)
---------- ----------
(192,970) (1,682)
---------- ----------
Net loss (1,449,019) (832,557)
Preferred stock dividend on 6%
Series A and 12% Series B
Preferred Stock (51,124)
Return of stock dividend on 12%
Series B Preferred Stock 848
---------- ----------
Net loss attributable to common
shareholders $(1,448,171) $ (883,681)
=========== ==========
Net loss per common share $(.61) $(.38)
=========== ==========
Shares used in computing net loss
per common share 2,379,121 2,352,031
=========== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements
F - 4
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Preferred Stock
-------------------------------------------
Series A Series B
------------------- --------------------
No. of
Shares Amount Shares Amount
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Balance at
September 30,
1994 116,000 $403,680 60,750 $ 183,470
Issuance of
12% Series B
Preferred Stock
(net of
offering
costs of
$259,350) 432,250 1,469,650
6% Series
A Preferred
Stock committed
to be issued
as a stock
dividend
12% Series B
Preferred Stock
committed to
be issued as a
stock dividend
------- -------- ------- ---------
Balance at
September 30,
1995 116,000 403,680 493,000 1,653,120
Issuance of 6%
Series A
Preferred Stock
dividend 6,764 27,056
Issuance of
12% Series B
Preferred Stock
dividend 6,017 24,068
Conversion of
no par value
preferred shares
to $.001 par
value preferred
shares upon
reincorporation
in Delaware (430,613) (1,676,689)
Redemption of
recision offer
of Series B
Preferred Stock (32,962) (33)
-------- -------- -------- ---------
Balance at
September 30,
1996 122,764 $ 123 466,055 $ 466
======== ======= ======= ========
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
for the years ended Septembesr 30, 1996 and 1995
<TABLE>
<CAPTION>
Preferred Stock
-----------------------------------------------------
Series A Series B Additional
Committed to be issued Committed to be issued Paid in
---------------------- ---------------------- Capital,
No. of No. of Preferred
Shares Amount Shares Amount Stock
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Balance at
September 30,
1994
Issuance of
12% Series B
Preferred Stock
(net of offering
costs of
$259,350)
6% Series A
Preferred Stock
committed to
be issued as a
stock dividend 6,764 27,056
12% Series B
Preferred Stock
committed to be
issued as a
stock dividend 6,017 $ 24,068
-------- -------- ------ -------- --------
Balance at
September 30,
1995 6,764 27,056 6,017 24,068
Issuance of
6% Series A
Preferred
Stock dividend (6,764) (27,056)
Issuance of
12% Series B
Preferred
Stock dividend (6,017) (24,068)
Conversion of
no par value
preferred
shares to
$.001 par
value preferred
shares upon
reincorporation
in Delaware $2,107,302
Redemption of
recision offer
of Series B
Preferred
Stock (131,815)
--------- -------- -------- ------- ---------
Balance at
September
30, 1996 $ $ $1,975,487
========= ======== ========= ======= ==========
</TABLE>
- Continued-
The accompanying notes are an integral
part of the financial statements
F - 5
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, Continued
for the years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Treasury Stock
-------------------- Additional ------------------
No. of Paid-in-capital, No. of
Shares Amount Common Stock Shares Amount
--------- --------- --------------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at
September 30,
1994 1,982,148 $ 976,953 2,600 $(3,777)
Issuance of
common stock
for relin-
quishment of
anti-dilution
rights 3,425 3,425
1995 net loss
Preferred stock
dividend on 6%
Series A and
12% Series B
Preferred Stock
--------- --------- -------- --------
Balance at
September 30,
1995 1,985,573 980,378 2,600 (3,777)
Issuance of
common stock
previously accrued
as a liability
for services
rendered in
connection
with Series B
Preferred
Stock offering 25,000 10,251
Issuance of
common stock
for relinquish-
ment of anti-
dilution rights 20,000 30,000
Transfer of
common stock
from Company
officers for
relinquishment
of anti-dilution
rights $ 149,000
Issuance of
common stock
for future
services 101,025 151,538
Amortization
of unearned
compensation
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
for the years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Net Unrealized
Loss on
Unearned Accumulated Debt Securities,
Compensation Deficit Available-for-Sale
------------ ----------- ------------------
<S> <C> <C> <C>
Balance at
September 30, 1994 $(1,717,309)
Issuance of common
stock for relinquish-
ment of anti-dilution
rights
1995 net loss (832,557)
Preferred stock
dividend on 6%
Series A and 12%
Series B Preferred
Stock (51,124)
-----------
Balance at September
30, 1995 (2,600,990)
Issuance of common
stock previously
accrued as a
liability for
services rendered
in connection with
Series B Preferred
Stock offering
Issuance of common
stock for relinquish-
ment of anti-dilution
rights
Transfer of common
stock from Company
officers for
relinquishment of
anti-dilution
rights
Issuance of common
stock for future
services $(151,538)
Amortization of
unearned
compensation 69,455
</TABLE>
- Continued -
The accompanying notes are an integral
part of the financial statements
F - 6
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, Continued
for the years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Treasury Stock
-------------------- Additional ------------------
No. of Paid-in-capital No. of
Shares Amount Common Stock Shares Amount
--------- --------- --------------- -------- --------
<S> <C> <C> <C> <C> <C>
Issuance of
warrants in
connection
with private
placement of
notes (net
of offering
costs of
$2,175) $ 27,825
Conversion
of no par
value common
shares to
$.001 par
value common
shares upon
reincorpora-
tion in
Delaware $(1,170,035) 1,170,035
Issuance
of common
stock for
initial
public
offering
(net of
offering
costs of
$1,509,569) 1,000,000 1,000 4,739,431
Issuance
of common
stock 40,000 40 99,960
Unrealized
loss on
marketable
debt
securities,
available-
for-sale
1996 net
loss
--------- --------- ------------- -------- --------
Balance at
September
30, 1996 3,171,598 $ 3,172 $6,186,251 2,600 $(3,777)
========= ========= ============ ======= ========
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
for the years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Net Unrealized
Loss on
Unearned Accumulated Debt Securities,
Compensation Deficit Available-for-sale
------------ ----------- ------------------
<S> <C> <C> <C>
Issuance of warrants
in connection with
private placement of
notes (net of offering
costs of $2,175)
Conversion of no par
value common shares to
$.001 par value common
shares upon reincorp-
oration in Delaware
Issuance of common
stock for initial
public offering (net
of offering costs of
$1,509,569)
Issuance of common
stock
Unrealized loss on
marketable debt
securities, available-
for-sale $(13,703)
1996 net loss $(1,449,019)
------------ ------------- ------------
Balance at
September 30, 1996 $(82,083) $(4,050,009) $(13,703)
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of the financial statements
F - 7
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
for the years ended September 30, 1996 and 1995
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from
operating activities:
Net loss $(1,449,019) $ (832,557)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation 17,771 5,518
Issuance of common stock
for services and
relinquishment of anti-
dilution rights 179,000 3,425
Amortization of unearned
compensation 69,455
Amortization of debt
offering costs 41,325
Issuance of bridge note
and warrants for services 25,000
Increase (decrease) from
changes in:
Trade accounts receivable 49,445 86,458
Inventories 31,855 (378,645)
Prepaid expenses 3,282 (6,043)
Deferred charges (100,000)
Accounts payable (255,791) 144,091
Accrued liabilities 72,278 (2,095)
-------- -------
Net cash used in
operating activities (1,315,399) (979,848)
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (91,179) (40,681)
Purchase of marketable debt
securities, available-for-sale (499,742)
---------- --------
Net cash used in investing
activities (590,921) (40,681)
---------- --------
Cash flows from financing activities:
Proceeds from issuance of promissory
notes and warrants 575,000
Debt offering costs (41,325)
Proceeds from other notes payable 22,549
Principal payments on notes payable (631,829) (143,260)
Proceeds from issuance of common
stock 6,350,000
Issuance costs - common stock (1,509,569)
Proceeds from issuance of preferred
stock 1,729,000
Issuance costs - preferred stock (259,350)
Payments for recision offer of
Series B preferred stock (131,848)
Issuance costs - warrants (2,175)
--------- ----------
Net cash provided by
financing activities 4,608,254 1,348,939
--------- ---------
Net increase in cash and
cash equivalents 2,701,934 328,410
Cash and cash equivalents
at beginning of period 338,218 9,808
---------- ---------
Cash and cash equivalents
at end of period $ 3,040,152 $ 338,218
=========== =========
</TABLE>
- Continued -
The accompanying notes are an integral
part of the financial statements
F - 8
<PAGE>
PARADIGM MEDICAL INDUSTRIES
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS, Continued
for the years ended September 30, 1996 and 1995
1996 1995
--------- ----------
<S> <C> <C>
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 56,829 $ 8,895
Supplemental disclosure of
noncash investing and
financing activities:
Preferred stock dividend on
6% Series A and 12%
Series B Preferred Stock $ 51,124
Issuance of common stock for
services rendered in connection
with preferred stock offering $ 10,251
Common stock issued for
future services $ 151,538
</TABLE>
The accompanying notes are an integral
part of the financial statements
F - 9
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies:
------------------------------------------------
Organization
------------
Effective May 5, 1993, French Bar Industries, Inc. (French
Bar) entered into a merger agreement with Paradigm Medical, Inc.
(Paradigm) a California Corporation incorporated in October 1989.
The agreement merged French Bar and Paradigm Medical, Inc. into
a single public corporation under the name of Paradigm Medical
Industries, Inc. (the Company). For accounting purposes the
merger was accounted for as a purchase with Paradigm treated as
the acquirer because the shareholders of Paradigm obtained
control of the Company.
Since its inception in October 1989, the Company has been
engaged in marketing and selling advanced surgical systems for
cataracts, various attachments and disposable accessories. The
Company is in the process of introducing a proprietary
laser-based surgical machine which is expected to become its core
business.
The Company is dependent upon a single product line
targeted towards minimally invasive cataract surgery devices.
Revenues recognized to date primarily represent revenues from the
sale of the Company's conventional ultrasound cataract surgery
machine (the Precisionist). The Company has recognized minimal
revenue from the sale of its proprietary laser-based product, the
Photon LaserPhaco System (the Photon). In May, 1995 the Company
received regulatory approval to manufacture the Photon in limited
quantities and conduct clinical trials in the U.S. on a limited
basis. Clinical trials of the Photon commenced in April, 1996.
The Company's ability to achieve profitability depends upon its
ability to obtain the regulatory approvals required to
manufacture and market the Photon on an unlimited scale.
Change in Fiscal Year
---------------------
In August 1996, the Company decided to change its fiscal
year from September 30 to December 31 beginning with the period
subsequent to September 30, 1996.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of cash, money market
funds and highly liquid investments with original maturities of
three months or less. Essentially all of the cash and cash
equivalents balance is not covered by FDIC insurance.
Inventories
-----------
Inventories are stated at the lower of cost or market, with
cost determined using the weighted average method. Inventories
consist of finished goods of $273,900 and components of $95,147
for the Precisionist and the Photon at September 30, 1996.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Replacement
and major improvements are capitalized and maintenance and
repairs are charged to expense as incurred. The cost
and related accumulated depreciation of assets sold or otherwise
disposed of are removed from the accounts and any resulting gain
or loss is charged to operations.
Depreciation of property and equipment is computed using
the straight-line method over the estimated useful lives of the
related assets, which range from five to seven years.
Debt Offering Costs
-------------------
Debt offering costs related to the private placement of
promissory notes were amortized on a straight-line basis (which
approximates the interest method) over the one year term of the
notes.
Deferred Charges
----------------
Deferred charges represent the deferral of payments to a
manufacturer for engineering services (see Note 10) and will be
amortized using the units of production method once the
manufacturing of the product begins in 1997.
Income Taxes
------------
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting For Income Taxes. Deferred income taxes
are provided for differences between the financial statement and
tax bases of assets and liabilities using enacted future tax
rates.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Revenue Recognition
-------------------
Revenues are recognized when a product is shipped.
Research and Development
------------------------
Costs incurred in connection with research and development
activities are expensed as incurred. These costs consist of
direct and indirect costs associated with specific projects as
well as fees paid to various entities that perform certain
research on behalf of the Company.
Net Loss Per Share
------------------
Net loss per common share is computed on the weighted
average number of common and common equivalent shares outstanding
during each period. Common stock equivalents consist of
convertible preferred stock, common stock options and warrants.
Common equivalent shares are excluded from the computation when
their effect is anti-dilutive, except common stock equivalents
related to common stock, stock options and warrants issued within
one year prior to the July 1996 initial public offering, which
have been included as if they were outstanding for all periods
presented. Other common stock equivalents have not been included
in loss years because they are anti-dilutive.
Concentrations of Risk
----------------------
The market for ophthalmic lasers is subject to rapid
technological change, including advances in laser and other
technologies and the potential development of alternative
surgical techniques or new pharmaceutical products. Development
by others of new or improved products, processes or technologies
may make products developed by the Company obsolete or less
competitive.
The high technology product line requires the Company to
deal with suppliers and subcontractors supplying highly
specialized parts, operating highly sophisticated and narrow
tolerance equipment and performing highly technical calculations
and tasks. The Company relies on related party suppliers for
parts and equipment. In addition, substantially all of the
Company's current products are manufactured and assembled by two
companies who are related parties (see Note 10). Although there
are a limited number of suppliers and manufacturers that meet the
standards required of a regulated medical device, management
believes that other suppliers and manufacturers could provide
similar components and services. A change in supplier or
manufacturer, however, could cause a delay in manufacturing and
a possible loss of sales, which would affect operating results
adversely. In addition, since the supplier and manufacturer are
related parties, there can be no assurance that comparable terms
could be obtained.
The nature of the Company's business exposes it to risk
from product liability claims. The Company maintains product
liability insurance providing coverage up to $1 million per claim
with an aggregate policy limit of $1 million. Any losses that
the Company may suffer from any product liability litigation
could have a material adverse effect on the Company.
A significant portion of the Company's product sales are in
foreign countries. The economic and political instability of
some foreign countries may affect the ability of medical
personnel to purchase the Company's products and the ability of
the customers to pay for the procedures for which the Company's
products are used. Such circumstances could cause a possible
loss of sales, which would affect operating results adversely.
Accounts receivable are due from medical distributors,
surgery centers, hospitals and ophthalmologists located
throughout the U.S. and a number of foreign countries. The
receivables are generally due within thirty days for domestic
customers and sixty days for international customers. Credit
losses historically have not been significant.
2. Investment in Marketable Debt Securities:
----------------------------------------
The Company's investment in marketable debt securities is
classified as available-for-sale and carried at market value,
with the unrealized loss, net of deferred taxes, reflected as a
separate component of stockholders' equity. There were no sales
of available-for-sale securities.
The cost and estimated market values of marketable debt
securities available-for-sale at September 30, 1996, are as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Corporate
bonds $499,742 - $13,703 $486,039
</TABLE>
The marketable debt securities available-for-sale are due
in one year or less.
3. Property and Equipment:
----------------------
<TABLE>
<CAPTION>
Property and equipment consist of the following:
<S> <C>
Automobile $ 26,099
Office equipment 83,541
Furniture and fixtures 10,170
Computer equipment 30,709
----------
150,519
Accumulated depreciation (26,975)
----------
$123,544
==========
</TABLE>
<TABLE>
<CAPTION>
4. Note Payable:
------------
<S> <C>
Note payable to bank,
collateralized by an
automobile, bearing
interest at 9.95%,
payable in monthly
installments of $418,
final payment due
September, 2001. $ 19,653
Less current portion (3,198)
--------
$ 16,455
========
</TABLE>
<TABLE>
<CAPTION>
The Company's note payable has scheduled maturities for
years ending September 30 as follows:
<S> <C>
1997 $ 3,198
1998 3,531
1999 3,899
2000 4,305
2001 4,720
--------
$19,653
========
</TABLE>
Rates currently available to the Company for loans with
similar terms and maturities are used to estimate the fair value
of notes payable. At June 30, 1996, the carrying value of the
note payable approximates fair value.
In May 1996, the Company established a one year $600,000
line of credit with a bank which bears interest at 3% above the
prime rate (8 1/4% at September 30, 1996) through November 1996,
after which the interest rate is 1 1/2% above the prime rate.
Interest is due monthly with principal due May 1997. The line of
credit is guaranteed by a shareholder of the Company.
5. Income Taxes:
------------
At September 30, 1996, the Company has net operating loss
carryforwards for income tax purposes of approximately $3,300,000
and research and development tax credit carryforwards of
approximately $47,700. These carryforwards are available to
offset future taxable income, if any, and expire in the years
2005 through 2011.
<TABLE>
<CAPTION>
The components of the net deferred tax asset as of
September 30, 1996 are as follows:
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,244,000
Research and development tax
credit carryforwards 47,700
Other 3,200
Valuation allowance (1,294,900)
-----------
Net deferred tax asset $ -
===========
</TABLE>
The Company recognized no income tax benefit from the
losses generated in the years ended September 30, 1996 and 1995.
The valuation allowance increased by approximately $577,100
during fiscal 1996 primarily as a result of the increases in
deferred tax assets related to net operating losses and research
and development tax credits. SFAS No. 109 requires that a
valuation allowance be provided if it is more likely than not
that some portion or all of a deferred tax asset will not be
realized. The Company's ability to realize the benefit of its
deferred tax asset will depend on the generation of future
taxable income. Because the Company has yet to recognize
significant revenue from the sale of its laser-based Photon, the
Company believes that a full valuation allowance should be
provided.
6. Capital Stock:
-------------
In November 1995, the Company obtained the necessary
director and shareholder approvals to reincorporate in Delaware.
In conjunction with the reincorporation, which was finalized in
February 1996, the Company established three series of preferred
stock with a total of 5,000,000 authorized shares with a par
value of $.001, including two series with rights and privileges
similar to the previously issued Series A and B preferred stock,
and one series of common stock with a par value of $.001 and a
total of 20,000,000 authorized shares. All outstanding shares of
the Company were converted on a one-for-one basis into shares in
the new Delaware Corporation.
In November 1995, the Company granted 50,512 and 50,513
shares of common stock to two individuals who are officers and
directors of the Company. The shares will be forfeited in the
event either individual resigns or is removed for cause as an
officer and director of the Company within two years from the
date of grant. The value assigned by the Company's investment
banker of $1.50 per share is being charged to compensation
expense ratably over two years.
During fiscal year 1996, the Company participated in a
private placement of $600,000 of units of its securities. Each
unit consisted of a $25,000 promissory note with a stated rate of
12% and warrants to purchase 12,500 shares of the Company's
common stock at a price of $3.33 per share. The value assigned
by the Company's investment banker to the warrants was $.10 per
warrant. The notes bear interest at an imputed rate of 18% and
were due the earlier of the Company raising at least $4,000,000
through a public offering or December 31, 1996. The warrants are
exercisable beginning on the date the note is issued and expiring
on December 1, 2000, and are redeemable by the Company under
certain conditions at a price of $.05 per warrant. The Company
sold 23 units for cash proceeds of $575,000. An additional
$25,000 unit was issued for services, which amount is included in
operating expenses. These notes were paid in July 1996 upon the
Company raising $4.7 million through their public offering.
In December 1995, the Company entered into an agreement
with a significant shareholder which terminated certain
previously granted anti-dilution rights which provided this
shareholder a 5% fixed equity position in the Company. Under the
terms of the agreement, two of the Company's officers sold a
total of 100,000 shares of their common stock to this shareholder
for $1,000 and the Company issued 20,000 shares to this
shareholder. Based on the value assigned by the Company's
investment banker of $1.50 per share, the Company recognized
$30,000 of expense for the 20,000 shares issued by the Company
and $149,000 of expense and additional paid-in-capital for the
100,000 shares sold by the officers.
In July 1996, the Company closed an initial public offering
(the "Offering") of their securities selling 1,000,000 units at
a price of $6.25 per unit. Each unit consists of one share of
common stock and one warrant to purchase one share of common
stock (see Note 9). The net proceeds to the Company from the
Offering were approximately $4.7 million.
In August 1996, the Company granted 40,000 restricted
shares of common stock to a consultant as compensation for
services and patent licensing rights. The shares were valued at
the trading price at date of commitment and charged to
compensation expense.
7. Preferred Stock:
---------------
On September 1, 1993 the Company established a series of
non-voting preferred shares designated as the 6% Series A
Preferred Stock, consisting of 500,000 shares with no par value,
of which 116,000 shares were issued and outstanding as of
September 30, 1995 and 122,764 issued and outstanding as of
September 30, 1996. This series is part of the Company's
5,000,000 authorized shares of non-voting preferred stock. The
Series A Preferred Stock has the following rights and privileges:
1. The holders of the shares are entitled to dividends
at the rate of twenty-four cents ($.24) per share per annum,
payable in cash only from surplus earnings of the Company or in
additional shares of Series A Preferred Stock. The dividends are
non-cumulative and therefore deficiencies in dividend payments
from one year are not carried forward to the next year.
2. Upon the liquidation of the Company, the holders of
the Series A Preferred Stock are entitled to receive, prior to
any distribution of any assets or surplus funds to the holders of
shares of common stock or any other stock, an amount equal to
$1.00 per share, plus any accrued and unpaid dividends related to
the fiscal year in which such liquidation occurs.
3. The shares are convertible at the option of the
holder at any time into common shares, based on an initial
conversion rate of one share of Series A Preferred Stock for 1.2
common shares.
4. The holders of the shares have no voting rights.
5. The Company may, at its option, redeem all of the
then outstanding shares of the Series A Preferred Stock at a
price of $4.50 per share, plus accrued and unpaid dividends
related to the fiscal year in which such redemption occurs.
On April 21, 1995, the Company declared a 6% preferred
stock dividend in the amount of $27,056 to all shareholders of
record as of December 31, 1994, which was paid through the
issuance of 6,764 shares of Series A Preferred Stock on January
8, 1996.
On May 9, 1994, the Company established a series of
non-voting preferred shares designated as the 12% Series B
Preferred Stock, consisting of 500,000 shares with no par value,
of which 493,000 shares were issued and outstanding as of
September 30, 1995 and 466,055 shares were issued and outstanding
as of September 30, 1996. This series is also part of the
Company's 5,000,000 authorized shares of non-voting preferred
stock. The Series B Preferred Stock have the following rights
and privileges:
1. The holders of the shares are entitled to dividends
at the rate of forty-eight cents ($.48) per share per annum,
payable in cash only from surplus earnings of the Company or in
additional shares of Series B Preferred Stock. The dividends are
non-cumulative and therefore deficiencies in dividend payments
from one year are not carried forward to the next year.
2. Upon the liquidation of the Company, the holders of
the Series B Preferred Stock are entitled to receive, prior to
any distribution of any assets or surplus funds to the holders of
shares of common stock or any other stock, an amount equal to
$4.00 per share, plus any accrued and unpaid dividends related to
the fiscal year in which such liquidation occurs. Such right,
however, is subordinate to the right of the holders of Series A
Preferred Stock to receive a distribution of $1.00 per share plus
accrued and unpaid dividends.
3. The shares are convertible at the option of the
holder at any time into common shares, based on an initial
conversion rate of one share of Series B Preferred Stock for 1.2
common shares.
4. The holders of the shares have no voting rights.
5. The Company may, at its option, redeem all of the
then outstanding shares of the Series B Preferred Stock at a
price of $4.50 per share, plus accrued and unpaid dividends
related to the fiscal year in which such redemption occurs.
On April 21, 1995, the Company declared a 12% preferred
stock dividend in the amount of $24,068 to all shareholders of
record as of December 31, 1994, which was paid through the
issuance of 6,017 shares of Series B Preferred Stock on January
8, 1996.
In structuring and proceeding with the private offering of
Series B Preferred Stock, the Company may not have complied with
certain aspects of California corporate law and federal and state
securities laws. The Company decided that, in order to
effectively proceed with its initial public offering, it would
provide its holders of Series B Preferred Stock a rescission
offer. The rescission offer was designed to reduce any type of
contingent liability the Company may be subject to in connection
with the sale of the Series B Preferred Stock. The rescission
offer, however, may not fully relieve the Company from exposure
to contingent liability under federal or state securities laws.
Two shareholders owning a combined total of 32,750 shares
accepted the Recision Offer. These shareholders were paid $4.00
per share plus interest from the date the Rescission shares were
purchased to July 25, 1996, the date these shareholders were
paid. In addition, the shareholders returned 212 shares which
had been issued due to the 12% preferred stock dividend.
8. 1995 Stock Option Plan:
----------------------
In November, 1995, the Company's Board of Directors and
shareholders approved the Company's 1995 Stock Option Plan (the
Option Plan) which reserved 300,000 shares of the Company's
authorized but unissued common stock for the granting of stock
options. In February 1996, 300,000 options to purchase shares of
the Company's common stock at $5.00 per share were granted, of
which 2,000 were returned to the Company and 500 have expired.
As of September 30, 1996, 259,174 options are exercisable and no
options have been exercised.
The Option Plan provides for the grant of incentive stock
options within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended, and non-qualified stock options to
employees and non-employee directors of the Company. Incentive
stock options may be granted only to employees. The Option Plan
is administered by the Board of Directors or a Compensation
Committee, which determines the terms of options granted
including the exercise price, the number of shares subject to the
option, and the exercisability of the option.
9. Warrants:
--------
The Company, in conjunction with the $600,000 private
placement (see Note 6), issued warrants to purchase 300,000
shares of the Company's common stock at a price of $3.33 per
share. These warrants are exercisable and expire on December 1,
2000, and are redeemable by the Company under certain conditions
at a price of $.05 per warrant. Subsequent to September 30,
1996, warrants were exercised for 12,500 shares of common stock.
The Company issued warrants to purchase 25,000 shares of
the Company's common stock at a price of $3.33 per share to a law
firm, of which a director of the Company is a shareholder, as
consideration for legal services. The warrants are exercisable
beginning March 15, 1997, expire on December 1, 2000, and are
redeemable by the Company under certain conditions at a price of
$.05 per warrant.
In conjunction with the Offering, the Company issued Class
A warrants to purchase 1,000,000 shares of the Company's common
stock at a price of $7.50 per share. These warrants are
currently exercisable and expire on July 10, 2001. These
warrants are subject to redemption by the Company beginning May
17, 1997 at a price of $.05 per warrant, if the closing bid price
of the Company's common stock averages in excess of $8.50 per
share for 30 consecutive business days ending within 15 days of
the date of redemption.
The Company issued to the Underwriter's of the Offering
warrants to purchase 100,000 shares of the Company's common stock
at a price of $7.50 per share. These warrants are exercisable on
or after July 10, 1998 and expire on July 10, 2001. These
warrants are subject to redemption by the Company beginning on
July 10, 1998 at a price of $.05 per warrant, if the Company's
common stock has been trading at a price equal to or above $10.00
per share for 30 consecutive business days ending within 15 days
of the date of redemption.
In conjunction with its Series A Preferred private
placement, the Company issued warrants to purchase 11,600 shares
of the Company's Series A Preferred Stock at a price of $4.00 per
share at any time prior to May 8, 1999. These warrants are
subject to redemption by the Company beginning on July 9, 1997 at
a price of $.05 per warrant if the Company redeems all of the
then outstanding shares of Series A stock or the Company's common
stock has been trading at a price equal to or above $7.50 per
share for 20 consecutive business days ending within 15 days of
the date of redemption.
In connection with its Series B Preferred private
placement, the Company issued warrants to purchase 21,525 shares
of the Company's Common Stock at a price of $3.00 per share.
These warrants are currently exercisable and expire on December
31, 1999.
10. Related Party Transactions:
--------------------------
The Company has subcontracted the manufacturing of its
Precisionist and Photon LaserPhaco systems to a company (the
"Manufacturer") that is a shareholder. During fiscal 1996 and
1995, the Company purchased design and manufacturing services
from this company in the amount of $353,949 and $509,837,
respectively.
In September 1996, the Company entered into an exclusive
three year design, engineering and manufacturing agreement (the
"Agreement") for its Photon laser cataract system with the
Manufacturer. Under the provisions of the Agreement, the Company
agrees to pay a total of $1,000,000 to the Manufacturer at
various milestone dates through approximately March 1997 for
engineering and design services. The first payment of $100,000
was made in September 1996.
In addition, the Company will pay the actual cost of
tooling, plus a two percent mark-up, which is not expected to be
significant. All items for tooling purposes will belong to the
Company. The Agreement establishes the purchase price of the
systems at the lessor of a fixed purchase price of the actual
cost of manufacturing plus a markup. The Agreement requires the
Manufacturer to deliver 19 complete systems on or about March 31,
1997.
The Agreement prohibits the Manufacturer from participating
in any activities, including manufacturing, related to laser
surgical systems for any other company for a period of two years
beyond the term or any renewed term of the Agreement. The
Agreement includes certain termination provisions, which include
the event that the Company is unable to obtain governmental or
regulatory approvals. The Agreement is renewable for successive
one year additional terms.
The Company has contracted with a company, of which one of
the Company's directors serves as President and Chief Executive
Officer, to purchase certain components for the Photon. During
fiscal 1996 and 1995, the Company purchased $5,284 and $263,000,
respectively, of materials from this company.
In 1988, the Company signed an exclusive patent license
agreement with a company which owns the patent for the
laser-based Photon machine. This company is owned by a
shareholder of the Company. The agreement provides for the
payment of a 1% royalty on all sales proceeds related directly or
indirectly, to the Photon machine. The agreement terminates on
July 7, 2003. Through September 30, 1996, no significant
royalties have been earned under this agreement. The Company has
also entered into a consulting agreement with this individual
which provides for annual consulting fees of $25,000 through July
7, 2003.
A law firm, of which a director of the Company is a
shareholder, has rendered legal services to the Company. During
fiscal 1996 and 1995, the Company paid this firm $234,504 and
$7,500, respectively, for legal services, and as of September 30,
1996, owed this firm $18,816, which is included in accounts
payable.
11. Leases:
------
Total lease expense for fiscal 1995 and 1996 was $22,880
and $28,954, respectively. In November 1995, the Company renewed
its lease for office space through November 30, 1996 at a monthly
rent of $1,436. In December 1996, the Company renewed its lease
through December 1997 at a monthly rent of $2,972. The lease is
subject to renegotiation at that time.
12. Export Sales:
------------
<TABLE>
<CAPTION>
Total sales for fiscal 1995 and 1996 include the following
export sales by major geographic area:
<S> <C> <C>
Geographic Area 1995 1996
--------------- -------- ---------
Europe $105,142 $107,161
Far East 122,032 46,270
Middle East 56,690 72,691
-------- --------
$283,864 $226,122
======== ========
</TABLE>
13. Employment Agreements:
---------------------
Effective February 1, 1996, the Company entered into
employee agreements with three officers which expire on February
1, 2001. The agreements provide for aggregate annual
compensation of $380,000 effective upon completion of the
Offering. On February 16, 1996 the officers were granted options
to acquire 190,000 shares of common stock at a price of $5.00
under the Company's 1995 Stock Option Plan.
14. Profit Sharing Plan:
-------------------
In February 1996, the Company adopted a profit sharing plan
pursuant to which an amount equal to 10% of the pretax profits of
the Company will be set aside for the benefit of the Company's
officers and key employees. This amount will only be paid if the
Company's qualified pretax profits exceed $10,000,000 for any
fiscal year beginning October 1, 1996 and ending September 30,
2001.
15. Legal Proceedings:
-----------------
On March 31, 1995, the Company entered into an agreement
with an investment banking company to obtain capitalization
through a public offering. The agreement was deemed terminated
if the required capitalization was not obtained by December 31,
1995. In a complaint filed in November 1996, the investment
banking company and its principal officer requested 356,780
shares of the Company's common stock, along with monthly payments
of $3,000 for three years, as compensation under the agreement.
The Company believes the complaint is without merit and intends
to vigorously defend the action. Nevertheless, in the event the
Company does not prevail in its defenses, the lawsuit could have
a material adverse impact on the Company's financial condition
and could result in dilution to the Company's existing
shareholders.
16. Subsequent Events:
-----------------
Savings Plan
------------
In November 1996, the Company established a 401(k)
Retirement Savings Plan for the Company's officers and employees.
The Plan provisions include eligibility after six months of
service, a three year vesting provision and 100% matching
contribution by the Company of up to 3% of a participant's
compensation.
Preferred Stock Conversions
---------------------------
Subsequent to September 30, 1996, 1,060 shares of Series A
Preferred Stock and 24,032 shares of Series B Preferred Stock
were converted into 1,272 and 28,838 shares, respectively, of the
Company's common stock.
17. New Accounting Pronouncements:
-----------------------------
The Company intends to adopt the disclosure approach
provided for in Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock Based Compensation", with
respect to options and warrants granted to employees. Because
the Company has only a minimal investment in long-lived assets,
the adoption of SFAS No. 121, "Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of", is not expected to have
an impact on the Company.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
<TABLE>
<CAPTION>
The executive officers and directors of the Company, their
ages and their positions are set forth below:
<S> <C> <C>
Name Age Position
---- --- --------
Thomas F. Motter 48 Chairman of the Board,
President and Chief
Executive Officer
Robert W. Millar 39 Vice President and Director
John W. Hemmer 69 Treasurer, Chief Financial
Officer and Director
Randall A. Mackey 51 Secretary and Director
Michael C. Stelzer 49 Director
William C. Fitzhugh 47 Director
David W. Light 50 Director
David M. Silver 55 Director
</TABLE>
Thomas F. Motter has served as Chief Executive Officer and
a director of the Company since April 1993 and will serve as
Chief Executive Officer and director until a new officer and
director, respectively, are duly elected and qualified. Mr.
Motter may be elected to successive terms of office. From June
1989 to April 1993, Mr. Motter served as Chief Executive Officer
of Paradigm Medical, Inc. which merged with the Company in May
1994. From September 1990 to April 1992, he was employed by HGM
Medical Laser Systems as General Manager of their International
Division. From October 1978 to June 1989, Mr. Motter was
employed by SmithKline Beckman's Humphrey Instruments Division,
a company engaged in the development of advanced ophthalmic
diagnostic instruments, serving last as its National Sales
Manager overseeing all domestic sales in its ophthalmic computer
division. Mr. Motter received a Bachelors of Arts degree in
English from Stephen's College in 1970 and a Master of Business
Administration from Pepperdine University in 1975. Mr. Motter
has a five-year employment contract with the Company which
expires on February 1, 2001.
Robert W. Millar has served as Vice President of the
Company since August 1995 and a director of the Company since
April 1993 and will serve as Vice President and director until a
new officer and director, respectively, are duly elected and
qualified. Mr. Millar may be elected to successive terms of
office. From January 1991 to April 1993, Mr Millar was employed
as President by Paradigm Medical, Inc. which merged with the
Company in May 1994. From January 1990 to January 1991, Mr.
Millar was employed by HGM Medical Laser Systems, serving as
Director of Marketing and Product Management for all ophthalmic
and surgical markets. From October 1988 to December 1989, Mr.
Millar was employed by Esselte Pendaflex Corporation, a company
engaged in the business of manufacturing and distributing office
supply products. He served as group product manager for the
customer products division. From July 1986 to February 1988, Mr.
Millar was employed by TechnaVision Inc. a company engaged in the
manufacture of diagnostic and other equipment. From February
1980 to July 1986, he was employed by Pogue McJunkin &
Associates, a professional industrial design firm. Mr. Millar
received a Bachelors of Science degree in Industrial Design from
the College of Design in Detroit, Michigan in 1979. Mr. Millar
has a five-year employment contract with the Company which
expires on February 1, 2001.
John W. Hemmer has been Treasurer, Chief Financial Officer
and a director of the Company since November 1995 and will serve
as Treasurer, Chief Financial Officer and director until a new
officer and director, respectively, are duly elected and
qualified. Mr. Hemmer may be elected to successive terms of
office. Since October 1989, Mr. Hemmer has served as a director
and consultant for Sea Pride Industries, Inc., and subsidiaries
in Gulf Breeze, Florida, which developed the first offshore
marine production system licensed and permitted for use in the
Gulf of Mexico. From March 1992 to July 1994, Mr. Hemmer was
employed as the Secretary and Vice President of Finance of
Advance Electronics, Inc., Kendall Park, New York, which is
engaged in the retail distribution of health and beauty products.
From May 1989 to October 1991, Mr. Hemmer was employed as the
Chief Financial Officer and a director of Innovative Designer
Products, Inc., engaged in the manufacture of personal beauty
care appliances, located in Kendall Park, New Jersey. From
November 1991 to December 1994, Mr. Hemmer was employed as the
Secretary and Treasurer of Belize Agro Industrial Development,
Ltd. which established a Free Trade Zone in Belize engaged in the
production and export of seafood. He was the President and Chief
Executive Officer of John W. Hemmer, Inc., a registered
broker/dealer firm from May 1987 to May 1989 which subsequently
changed its name to Westfalia Investments Inc., but retained his
registered representative status until March 1995. Prior
thereto, he was Vice President of Bankers Trust Company in charge
of venture capital and a member of the research and investment
management committees. Mr. Hemmer was Vice President of
corporate finance at Dempsey, Tegler & Company, Inc., a Senior
Analyst at Lazard Freres & Company and an Investment Officer of
The Chase Manhattan Bank. Mr. Hemmer received a Bachelors of
Arts degree in Economics from Queens College in 1951 and a Master
of Science degree in Banking and Finance from Columbia University
Graduate School of Business in 1952. Mr. Hemmer has a five-year
employment contract with the Company which expires on February 1,
2001.
Randall A. Mackey has been Secretary and a director of the
Company since November 1995 and will serve as Secretary and
director until a new officer and director, respectively, are duly
elected and qualified. Mr. Mackey may be elected to successive
terms of office. Since 1989, Mr. Mackey has been a shareholder
of the Salt Lake City law firm Mackey Price & Williams and its
predecessor firms. From 1979 to 1989, he practiced law with the
Salt Lake City law firm of Fabian & Clendenin, where he was a
shareholder and a director of the firm from 1982 to 1989. From
1977 to 1979, Mr. Mackey was associated with the Washington D.C.
law firm of Hogan and Hartson. Mr. Mackey received a Bachelor of
Science degree in Economics from the University of Utah in 1968,
a Master of Business Administration degree from Harvard
University in 1970, a Juris Doctor degree from Columbia
University in 1975 and a Bachelor of Civil Law degree from Oxford
University in 1977.
Michael C. Stelzer joined the Company's Board of Directors
in April 1993 to serve as a director until the Company's next
annual shareholders' meeting at which time Mr. Stelzer may be
elected to successive terms of office. From June 1989 to April
1993, Mr. Stelzer served as a director of Paradigm Medical, Inc.
which merged with the Company in May 1994. Mr. Stelzer is
presently Executive Vice President and General Counsel of Rhino
Marketing, Inc. and has practiced law in California since 1980.
From March 1972 to January 1980, Mr. Stelzer was Comptroller of
Ponderosa Telephone Company. Mr. Stelzer received a Bachelor of
Science degree in Business Administration from the University of
California, Davis in 1970 and a Juris Doctorate from Humphreys
College in 1979.
William C. Fitzhugh, M.D. joined the Company's Board of
Directors in November 1995 to serve as a director until the
Company's next annual shareholders' meeting at which time Dr.
Fitzhugh may be elected to successive terms of office. Dr.
Fitzhugh has operated a private ophthalmology practice in Twin
Falls, Idaho since 1980 and is the past president of the Idaho
Society of Ophthalmology. Dr. Fitzhugh received a Bachelor of
Science degree in pre-medicine from the University of Idaho in
1971 and a Medical Degree from the University of Oregon Medical
School in 1976.
David W. Light joined the Company's Board of Directors in
November 1995 to serve as a director until the Company's next
annual shareholders' meeting at which time Mr. Light may be
elected to successive terms of office. Mr. Light is currently
Chief Executive Officer of Sunrise Technologies, Inc., a medical
laser manufacturer located in Fremont, California. From 1986 to
1994, Mr. Light was employed by Advanced Polymer Systems, Inc.
("APS"), a public company involved in the development and
manufacture of polymer based delivery systems for the controlled
release of active ingredients and therapeutic agents. Mr. Light
served as Vice President, Operations of APS from 1989 to 1994 and
as the Chief Financial Officer of APS from 1986 to 1989. Mr.
Light received a Bachelor of Arts degree in Accounting from Boise
State University and is a Certified Public Accountant.
David M. Silver, Ph.D joined the Company's Board of
Directors in November 1995 to serve as a director until the
Company's next annual shareholders' meeting at which time Dr.
Silver may be elected to successive terms of office. Dr. Silver
currently is a member of the Principal Staff of The Johns Hopkins
University Applied Physics Laboratory. He received a B.S. degree
in Chemistry from the Illinois Institute of Technology in 1962,
an M.A. degree from The Johns Hopkins University in 1964 and a
Ph.D. degree from Iowa State University in 1968. After a
postdoctoral fellowship at Harvard University and a visiting
scientist position at the University of Paris, Dr. Silver
returned to The Johns Hopkins University in 1970. Currently, he
is Senior Scientist in the Milton S. Eisenhower Research Center
at The Johns Hopkins University Applied Physics Laboratory.
Technical and Medical Advisory Personnel
The Company utilizes an informal Clinical Advisory Board of
recognized practicing ophthalmic surgeons in technical and
medical advisory capacities. Outside consultants are generally
used on an ad hoc basis and such individuals do not meet together
as a group and are not compensated. The Members of the
Company's Clinical Advisory Board are as follows:
Paul L. Archambeau, M.D. -- Dr. Archambeau is an
ophthalmologist in Santa Rosa, California and a faculty member at
the University of California at San Francisco. He received his
medical degree at the University of Buffalo Medical School in
1959 and performed his residency at the Mayo Clinic in Rochester,
Minnesota.
Daniele S. Aron-Rosa, Ph.D, M.D. -- Dr. Aron-Rosa is a
faculty member at the Rothschild Eye Institute in Paris, France.
She received a doctorate degree in physics from the University of
Paris in 1957 and received her medical degree there in 1962 and
performed her residency at the University of Paris Hospital.
David C. Brown, III, M.D. -- Dr. Brown is an
ophthalmologist in Fort Myers, Florida. He received his medical
degree at the University of Florida in 1963 and also performed
his residency at that facility.
Alan S. Crandall, M.D. -- Dr. Crandall is an ophthalmologist
in Salt Lake City, Utah. He received his medical degree at the
University of Utah in 1973 and performed his residency at the
University of Pennsylvania.
Daniel M. Eichenbaum, M.D. -- Dr. Eichenbaum is an
ophthalmologist practicing in Murphy, North Carolina. He
received his medical degree from the Yale School of Medicine in
1969 and performed his residency at the Bascom Palmer Eye
Institute in Miami, Florida. The Company licenses a patent held
by Dr. Eichenbaum for use in its laser technology.
Bruce L. Erickson, M.D. -- Dr. Erickson is an
ophthalmologist in Great Falls, Montana. He received his medical
degree at the University of Minnesota in 1979 and performed his
residency at the University of Minnesota.
I. Howard Fine, M.D. -- Dr. Fine is an ophthalmologist
practicing in Eugene, Oregon and a member of the Oregon Health
Sciences University faculty. Dr. Fine received his medical
degree at Boston University in 1966 and also performed his
residency at that facility.
Stephane P. Ganem, M.D. -- Dr. Ganem is chairman of the
ophthalmology department at the Rothschild Eye Institute in
Paris, France.
Frederic B. Kremer, M.D. -- Dr. Kremer is an ophthalmologist
in Radnor, Pennsylvania. He received his medical degree at the
Jefferson Medical Center in 1976 and performed his residency at
the Wills Eye Hospital in Philadelphia, Pennsylvania.
Doyle Leslie, M.D. -- Dr. Leslie is an ophthalmologist in
Austin, Texas. He received his medical degree at the University
of Texas, Dallas in 1964, and performed his residency at the
University of Texas, San Antonio.
Francis A. L'Esperance, M.D. -- Dr. L'Esperance is
President of the American Board of Laser Surgery and a faculty
member at the Columbia College of Physicians and Surgeons. He
received his medical degree from Harvard Medical School in 1956
and performed his residency at the Massachusetts Eye and Ear
Infirmary.
Michael B. Limberg, M.D. -- Dr. Limberg is an
ophthalmologist practicing in San Luis Obispo, California. He
received his medical degree at the University of Utah Medical
School in 1982 and performed his residency at Louisiana State
University.
Marc A. Michelson M.D. -- Dr. Michelson is an
ophthalmologist in Birmingham, Alabama. He received his medical
degree at the University of Alabama in 1975, and performed his
residency at the Eye Foundation Hospital in Birmingham, Alabama.
Lawrence E. Noble M.D. -- Dr. Noble is an ophthalmologist
in Provo, Utah. He received his medical degree at the University
of Oregon in 1964, and performed his residency at the Good
Samaritan Hospital.
Jaswant Singh Pannu, M.D. -- Dr. Pannu is an
ophthalmologist in Lauderdale Lakes, Florida. He received his
medical degree at the University of Miami in 1967 and performed
his residency at the Milwaukee, Wisconsin Veterans Administration
Hospital and at Evanston Hospital in Evanston, Illinois.
David M. Schneider, M.D. -- Dr. Schneider is an
ophthalmologist in Cincinnati, Ohio. He received his medical
degree at the University of Cincinnati in 1975, and performed his
residency at the University of Cincinnati.
David M. Silver, Ph.D. -- Dr. Silver is the Senior
Scientist in the Milton S. Eisenhower Research Center at The
Johns Hopkins University Applied Physics Laboratory. He received
his Ph.D. from the Iowa State University in 1968, and finished
his postdoctoral fellowship at Harvard University and held a
scientist position at the University of Paris.
Jeffrey G. Straus, M.D. -- Dr. Straus is an ophthalmologist
in Metairie, Louisiana. He received his medical degree at State
University of New York at Buffalo in 1984 and performed his
residency at Ochsner Foundation Hospital and Clinic in New
Orleans, Louisiana.
Gerald Zelman, M.D. -- Dr. Zelman is a Ophthalmologist in
Manhasset, New York. He received his medical degree at the
University of Lausanne in 1964, and performed his residency at
the Brooklyn Eye and Ear facility in Brooklyn, New York.
Board Meetings and Committees
The Board of Directors held a total of five meetings during
the fiscal year ended September 30, 1996. The Audit Committee of
the Board of Directors consisting of directors John Hemmer, Dr.
David Light, Randall Mackey and Michael Stelzer was formed on
October 27, 1996 and, as a consequence, did not meet during the
1996 fiscal year. The Audit Committee is primarily responsible
for reviewing the services performed by the Company's independent
public accountants and internal audit department and evaluating
the Company's accounting principles and its system of internal
accounting controls. The Compensation Committee of the Board of
Directors consisting of directors John Hemmer, Dr. David Light,
Randall Mackey and Michael Stelzer was also formed on October 27,
1996 and, as a consequence, did not meet during the 1996 fiscal
year. The Compensation Committee is primarily responsible for
reviewing compensation of executive officers and overseeing the
granting of stock options. No director attended fewer than 75%
of all meetings of the Board of Directors during the 1996 fiscal
year.
Compliance with Section 16(a) of the Securities and Exchange Act
of 1934
Effective May 1, 1991, the Securities and Exchange
Commission adopted revised rules regarding reporting of
beneficial ownership of securities by officers, directors and
owners of more than 10% of any class of a company's equity
securities. During fiscal 1996 the Company's officers and
directors holding shares of the Company's Common Stock, through
an oversight, filed late Form 3 reports.
Item 10. Executive Compensation
The following table contains information regarding
compensation to the Company's Chairman of the Board, President
and Chief Executive Officer and its Vice President for services
in all capacities to the Company for the fiscal years listed. No
other executive officer of the Company earned compensation in
excess of $100,000.
<TABLE>
<CAPTION>
Annual Compensation Awards
----------------------------- ------------
Securities
Fiscal Underlying
Year Salary Bonus Options/SARs($)
------- -------- ------- ---------------
<S> <C> <C> <C> <C>
Thomas F. Motter,
Chairman of the
Board, President
and Chief Executive
Officer 1996 $111,042 $1,000 0<F1>
1995 72,000<F1> 300 0
1994 68,352 0 0
Robert W. Millar,
Vice President 1996 $ 99,792 $1,000 0<F1>
1995 60,265 300 0
1994 42,500 0 0
________________
<FN>
<F1>
On February 16, 1996, the Company granted Mr. Motter and
Mr. Millar options to purchase 106,000 and 84,000 shares,
respectively, of the Company's Common Stock at an exercise price
of $5.00 per share. Such options expire on February 15, 2001.
</TABLE>
Director Compensation
Outside directors receive cash compensation in the amount
of $10,000 per year for their services as members of the Board of
Directors and are reimbursed for their expenses in attending
Board and committee meetings. Directors are not precluded from
serving the Company in any other capacity and receiving
compensation therefor.
Employee 401(k) Plan
In October 1996, the Company's Board of Directors adopted
a 401(k) Retirement Savings Plan. Under the terms of the 401(k)
plan, effective as of November 1, 1996, the Company may make
discretionary employer matching contributions to its employees
who choose to participate in the plan. The plan allows the Board
to determine the amount of the contribution at the beginning of
each year. The Board adopted a contribution formula specifying
that such discretionary employer matching contributions would
equal 100% of the participating employee's contribution to the
plan up to a maximum discretionary employee contribution of 3% of
a participating employee's compensation, as defined by the plan.
All persons who have completed at least six months' service with
the Company and satisfy other plan requirements are eligible to
participate in the 401(k) plan.
1995 Stock Option Plan
The Company has adopted a 1995 Stock Option Plan (the
"Plan"), for officers, employees, directors and consultants of
the Company, which became effective on February 16, 1996. The
Plan authorized the granting of stock options ("Plan Options") to
purchase an aggregate of not more than 300,000 shares of the
Company's Common Stock. Prior to March 31, 1996, options for all
300,000 shares had been granted. On May 20, 1996, however, when
an employee terminated her employment with the Company, 2,000
options were returned to the Plan. Accordingly, there are
presently 2,000 options to be granted under the Plan. No Plan
Options have been exercised. The following table contains
information regarding the Plan Options granted to the Company's
executive officers as of the date of this Prospectus:
<TABLE>
<CAPTION>
Option/SAR Grants to Executive Officers in the
Current Fiscal Year
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Number of $ of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date
____ ------------ ------------ ----------- ----------
Thomas F.
Motter,
Chairman of
the Board,
President and
Chief Executive
Officer . . . 106,000 35% $5.00 February
15, 2001
Robert W.
Millar, Vice
President and
Director . . . 84,000 28% $5.00 February
15, 2001
</TABLE>
Plan Options have also been granted to Jack A. Whiteside
and Corinne Powell, who were each given the right to purchase
50,000 shares of Common Stock at an exercise price of $5.00 per
share. Mr. Whiteside is the Company's Eastern Sales Manager and
Ms. Powell is the Company's Western Sales Manager and
International Sales Manager. Of the options granted to Mr.
Whiteside and Ms. Powell, 33,337 options are fully vested to each
of them as of February 16, 1996, with the balance of the options,
or 16,667 options to each of them, to be vested as follows:
16,667 to Mr. Whiteside on December 7, 1996; and 16,667 to Ms.
Powell on December 1, 1996.
Finally, Plan Options were also granted to Jason A. Jahn,
Leslie A. Nunley and Jennifer Kotowski on February 16, 1996, to
purchase 5,000, 2,500 and 2,500 shares of Common Stock,
respectively, at an exercise price of $5.00 per share. Of the
options granted to Mr. Jahn, 1,000 are fully vested as of
February 16, 1996, with the balance of the options, or 4,000
options, to be vested as follows: 1,000 on January 30, 1997,
1,000 on January 30, 1998, 1,000 on January 30, 1999 and 1,000 on
January 30, 2000. Of the options granted to Ms. Nunley, 1,000
are fully vested as of February 16, 1996, with the balance of the
options, or 1,500 options, to be vested as follows: 500 on March
16, 1996, 500 on March 16, 1997 and 500 on March 16, 1998. Of
the options granted to Ms. Kotowski, 500 are fully vested as of
February 16, 1996. The balance of Ms. Kotowski's options, or
2,000 options, have been returned to the Plan since Ms. Kotowski
terminated her employment with the Company on May 20, 1996.
Unless properly exercised on or before August 18, 1996, Ms.
Kotowski's 500 vested options shall terminate and be returned to
the Plan. Mr. Jahn is the Company's Comptroller, Ms. Nunley is
the Company's Customer Sales Manager and Ms. Kotowski was an
accounting clerk of the Company.
The Plan is administered by the Board of Directors or a
Compensation Committee of not less than two disinterested members
of the Board of Directors. In general, the Board of Directors or
the Compensation Committee, as the case may be, will select the
person to whom options will be granted and will determine,
subject to the terms of the Plan, the number, exercise, and other
provisions of such options. Options granted under the Plan will
become exercisable at such times as may be determined by the
Board of Directors or the Compensation Committee, as the case may
be.
Plan Options may be either incentive stock options
("ISOs"), as such term is defined in the Internal Revenue Code,
or non-ISOs. ISOs may only be granted to persons who are
employees of the Company. Non-ISOs may be granted to any person,
including, but not limited to, employees of the Company,
independent agents, consultants, as the Board of Directors or the
Compensation Committee, as the case may be, believes has
contributed, or will contribute, to the success of the Company.
The Board of Directors or the Compensation Committee as the case
may be, shall determine the exercise price of options granted
under the Plan, provided that, in the case of ISOs, such price
may not be less than 100% (110% in the case of ISOs granted to
holders of 10% of voting power of the Company's stock) of the
fair market value (as defined in the Plan) of the Common Stock on
the date of grant. The aggregate fair market value (determined
at the time of option grant) of stock with respect to which ISOs
become exercisable for the first time in any year cannot exceed
$100,000.
Plan Options are evidenced by written agreement containing
in the terms described above which are applicable and such other
terms and conditions consistent with the Plan as the Board of
Directors or the Compensation Committee, as the case may be, may
impose. The term of each Plan Option shall not be more than 10
years (five years in the case of ISOs granted to holders of 10%
of the voting power of the Company's stock) from the date of
grant. The Board of Directors has a right to amend, suspend or
terminate the Plan at any time; provided, however, that unless
ratified by the Company stockholders, no amendment or change in
the Plan will be effective which would increase the total number
of shares which may be issued under the Plan, materially increase
the benefits accruing to persons granted under the Plan or
materially modify the requirements as to eligibility and
participation in the Plan. No amendment, supervision or
termination of the Plan shall, without the consent of an employee
to whom an option shall heretofore have been granted, affect the
rights of such employee under such option.
All Plan Options were granted on February 16, 1996 to award
certain officers and key employees who have been employed by the
Company for a number of years and to help the Company retain
these officers and key employees by providing them with
additional incentives to contribute to the success of the
Company.
Employment Agreements
The Company has entered into employment agreements with
each of Thomas F. Motter, Robert W. Millar and Jack W. Hemmer,
which expire on February 1, 2001. The agreements require each
employee to devote substantially all of his working time to the
Company, provide that each of them may be terminated for "cause"
(as provided in the agreements) and prohibit each of them from
competing with the Company for two years following the
termination of his Employment Agreement. The agreements provide
for the payment of an initial base salary of $135,000 to Mr.
Motter, $125,000 to Mr. Millar and $120,000 to Mr. Hemmer,
effective upon the completion of the offering. Messrs. Motter
and Millar also each received a grant by the Company of Employee
incentive stock options to purchase 106,000 and 84,000 shares,
respectively, of the Company's Common Stock at a price of $5.00
per share under the Company's Option Plan. The agreements
provide for salary increases and bonuses as shall be determined
at the discretion of the Board of Directors.
Profit Sharing Plan
On February 16, 1996, the Company adopted a Profit Sharing
Plan, pursuant to which an amount equal to 10% of the pretax
profits of the Company will be set aside for the benefit of the
Company's officers and key employees. This funding will be paid
to the Company's officers and key employees as follows: Thomas
W. Motter, the Company's President and Chief Executive
Officer--30%; Robert W. Millar, the Company's Vice
President--25%; John W. Hemmer, the Company's Chief Financial
Officer and Treasurer--20%; and a pool of 25% to be allocated
among the other officers and key employees as determined by the
Compensation Committee and approved by the Board of Directors.
This funding will only be paid if the Company's qualified pretax
profits exceed $10,000,000 for any fiscal year beginning October
1, 1996 and ending September 30, 2001. If the Company's pretax
profits reach $10,000,000 for any fiscal year, the entire pretax
profits for that year will qualify for the funding. The plan
expires at the end of its fifth fiscal year on September 30,
2001.
Limitation of Liability and Indemnification
The Company reincorporated in Delaware in February 1996, in
part, to take advantage of certain provisions in Delaware's
corporate law relating to limitations on liability of corporate
officers and directors. The Company believes that the
reincorporation into Delaware, the provisions of its Certificate
of Incorporation and Bylaws and the separate indemnification
agreements outlined below are necessary to attract and retain
qualified persons as directors and officers. The Company's
Certificate of Incorporation limits the liability of directors to
the maximum extent permitted by Delaware law. This provision is
intended to allow the Company's directors the benefit of Delaware
General Corporation Law which provides that directors of Delaware
corporations may be relieved of monetary liabilities for breach
of their fiduciary duties as directors, except under certain
circumstances, including breach of their duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct
or a knowing violation of law, unlawful payments of dividends or
unlawful stock repurchases or redemptions or any transaction from
which the director derived an improper personal benefit. The
Company's Bylaws provide that the Company shall indemnify its
officers and directors to the fullest extent provided by Delaware
law. The Bylaws authorize the use of indemnification agreements
and the Company has entered into such agreements with each of its
directors and executive officers.
There is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company as to
which indemnification is being sought, nor is the Company aware
of any threatened litigation that may result in claims for
indemnification by any director, officer, employee or other
agent.
Insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information with
respect to beneficial ownership of the Company's Common Stock as
of December 20, 1996 for (i) each executive officer of the
Company (ii) each director of the Company (iii) each person known
to the Company to be the beneficial owner of more than 5% of the
outstanding shares, and (iv) all directors and officers as a
group.
<TABLE>
<CAPTION>
Percent of
Name and Address<F1> Number of Shares Ownership<F2>
- ------------------- ---------------- --------------
<S> <C> <C>
Thomas F. Motter<F3> 588,666 18.6%
Douglas MacLeod 418,451 13.2%
Robert W. Millar<F4> 374,605 11.8%
William C. Fitzhugh 63,071 2.0%
Michael Stelzer 59,071 1.9%
John W. Hemmer 50,513 1.6%
Randall A. Mackey 50,512 1.6%
David W. Light -- *
David M. Silver 1,000 *
Executive officers and
directors as a group 1,187,438 37.4%
_______________
* Less than 1%.
<FN>
<F1>
The address for Mr. Motter and Mr. Millar is c/o Paradigm
Medical Industries, Inc., 1772 West 2300 South, Salt Lake City,
Utah 84119. The address for Mr. MacLeod is 1002 South 10th
Street, Tacoma, Washington 98405. The address for Mr. Stelzer is
2811 Airpark Drive, Santa Maria, California 93455. The address
for Mr. Fitzhugh is 589 Sharp Avenue West, Twin Falls, Idaho
83301. The address for Mr. Hemmer is 88 Meadow Road, Briarcliff
Manor, New York 10510. The address for Mr. Mackey is 170 South
Main Street, Suite 900, Salt Lake City, Utah 84101. The address
for Mr. Light is 724 Laurel Avenue, Number 511, San Mateo,
California 94401. The address for Mr. Silver is 17 Avalon Court,
Bethesda, Maryland 20816.
<F2>
Assumes no exercise of the Class A Warrants, the Note
Holders' warrants and the Attorney's Warrants, and no conversion
of shares of the Company's Series A and Series B Preferred Stock
into Common Stock.
<F3>
Does not include 106,000 options granted to Mr. Motter
under the Company's 1995 Option Plan.
<F4>
Includes 2,000 shares held by William E. Millar, Mr.
Millar's father, 1,000 shares held by Michael S. Millar, Mr.
Millar's brother, and 100 shares to Nathan Glynn, Mr. Millar's
nephew. Mr. Millar disclaims beneficial ownership of these 3,100
shares. Does not include 84,000 options granted to Mr. Millar
under the Company's 1995 Option Plan.
</TABLE>
Item 12. Certain Relationships and Related Transactions
The information set forth herein describes certain
transactions between the Company and certain affiliated parties.
Future transactions, if any, will be approved by a majority of
the disinterested members of the Company and will be on terms no
less favorable to the Company than those that could be obtained
from unaffiliated parties.
The Company purchases the laser cavity, optical train and
power source for the Photon(trademark) laser cataract system from Sunrise
Technologies, Inc. ("Sunrise") of which one of the Company's
directors, David Light, serves as Chief Executive Officer. These
materials are purchased pursuant to a Manufacturing Agreement
entered into by Sunrise and the Company before Mr. Light joined
the Company's Board of Directors, which expired on June 1, 1996.
The Company is currently negotiating with Sunrise for a renewal
of this agreement. For the fiscal years ended September 30, 1995
and 1996, the Company paid Sunrise $263,000 and $5,284,
respectively, for materials purchased.
The Company subcontracts the manufacture of its
Precisionist(trademark) and Photon(trademark) laser cataract systems
to one of its shareholders, Zevex, Inc. ("Zevex") which is located
in Salt Lake City, Utah. On September 22, 1996, the Company entered
into a Design, Engineering and Manufacturing Agreement with Zevex for
the engineering and manufacture of the Photon(trademark) laser cataract
system, except for the laser cavity and surgical probes. The
agreement prohibits Zevex from manufacturing invasive ophthalmic
medical lasers for any other company until September 21, 2001.
For the fiscal year ended September 30, 1995 and 1996, the
Company purchased design and manufacturing services in the
amounts of $509,837 and $353,949, respectively, from Zevex.
On December 19, 1995, the Company entered into a settlement
and release agreement (the "Settlement Agreement") with Douglas
A. MacLeod, a significant shareholder of the Company. Pursuant
to this agreement, Mr. MacLeod agreed to terminate certain
anti-dilution rights granted to him by the Company. Under the
terms of this Settlement Agreement, Mr. MacLeod agreed to
terminate his anti-dilution rights in consideration for the
following: (i) Mr. Motter agreeing to sell to Mr. MacLeod from
his personal holdings 61,111 shares of the Company's Common Stock
at a purchase price of $611.11, (ii) Mr. Millar agreeing to sell
to Mr. MacLeod from his personal holdings 38,889 shares of the
Company's Common Stock at a purchase price of $388.89, and (iii)
the Company agreeing to issue to MacLeod an additional 20,000
shares of Common Stock. Based on the value assigned by the
Company's investment banker, Kenneth Jerome & Company, Inc., of
$1.50 per share, the Company recognized $30,000 of expense for
the 20,000 shares issued by the Company and $149,000 of expense
and additional paid-in-capital for the 100,000 shares sold by Mr.
Motter and Mr. Millar. The Company represented in the Settlement
Agreement that a public offering of the Company's securities
would be completed by June 1, 1996. On May 24, 1996, the Company
and Mr. MacLeod amended the Settlement Agreement to indicate that
a public offering of the Company's securities would be completed
by July 15, 1996. By order dated July 10, 1996, the Securities
and Exchange Commission declared the Company's Registration
Statement to be effective and following the sale of the Company's
securities, the closing of the public offering occurred on July
25, 1996.
Mr. Mackey, a director of the Company since September 1995,
is President and a shareholder of the law firm of Mackey Price &
Williams, which has rendered legal services to the Company since
February 1995 in connection with this public stock offering and
other corporate matters. Legal fees and expenses paid to Mackey
Price & Williams for the fiscal year ended September 30, 1995 and
1996 totaled $7,500 and $234,504, respectively, which was
primarily for legal services related to the public stock
offering. The Company also granted Mackey Price & Williams
Warrants to purchase 25,000 shares of Common Stock at $3.33 per
share in partial payment for legal services relating to the
public stock offering.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
The following Exhibits are filed herewith pursuant to Rule
601 of Regulation S-B or are incorporated by reference to
previous filings.
<TABLE>
<CAPTION>
Table No. Document
- --------- --------
<S> <C>
2.1 Amended Agreement and Plan of Merger between Paradigm
Medical Industries, Inc., a California corporation
and Paradigm Medical Industries, Inc., a Delaware
corporation*
3.1 Certificate of Incorporation*
3.2 Bylaws*
4.1 Warrant Agency Agreement with Continental Stock
Transfer & Trust Company
4.2 Specimen Common Stock Certificate **
4.3 Specimen Class A Warrant Certificate**
4.4 Form of Class A Warrant Agreement**
4.5 Underwriter's Warrant with Kenneth Jerome & Co., Inc.
4.6 Attorney's Warrant with Mackey Price & Williams*
10.1 Exclusive Patent License Agreement with Photomed*
10.2 Consulting Agreement with Dr. Daniel M. Eichenbaum*
10.3 Confidential Disclosure Agreement with Zevex, Inc.*
10.4 Indemnity Agreement with Zevex International, Inc.*
10.5 Manufacturing Agreement with Sunrise Technologies,
Inc.*
10.6 Royalty Agreement dated January 30, 1992, with Dennis
L. Oberkamp Design Services*
10.7 Indemnity Agreement dated January 30, 1992, with
Dennis L. Oberkamp Design Services*
10.8 Royalty Agreement (for Ultrasonic Phaco Handpiece)
with Dennis L. Oberkamp Design Services*
10.9 Commercial Office Lease with Tri-Cox, L.C.
10.10 Settlement and Release Agreement with Douglas A.
MacLeod*
10.11 Form of Indemnification Agreement*
10.12 1995 Stock Option Plan and forms of Stock Option
Grant Agreements*
10.13 Form of Promissory Note between the Company and third
parties*
10.14 Form of Warrant to Purchase Common Stock between the
Company and third parties*
10.15 Employee's Lock-Up Agreement
10.16 Registering Shareholders Lock-Up Agreement
10.17 Employment Agreement with Thomas F. Motter*
10.18 Employment Agreement with Robert W. Millar*
10.19 Employment Agreement with Jack W. Hemmer*
10.20 Amendment of Settlement and Release Agreement with
Douglas A. MacLeod***
10.21 Design, Engineering and Manufacturing Agreement with
Zevex, Inc.
11.1 Statement regarding Computation of Net (Loss) Per
Share
23.1 Consent of Medical Laser Insight ***
23.2 Consent of Frost & Sullivan ***
23.3 Consent of Ophthalmologists Times ***
27 Financial Data Schedule
* Incorporated by reference from Registration Statement
on Form SB-2, as filed on March 19, 1996.
** Incorporated by reference from Amendment No. 1 to
Registration Statement on Form SB-2, as filed on May
14, 1996.
*** Incorporated by reference from Amendment No. 2 to
Registration Statement on Form SB-2, as filed on June
13, 1996.
**** Incorporated by reference from Amendment No. 3 to
Registration Statement on Form SB-2, as filed on June
28, 1996.
</TABLE>
(b) Reports on Form 8-K
On August 26, 1996, the Company filed a report on Form 8-K
regarding the change in the Company's fiscal year from September
30 to December 31.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PARADIGM MEDICAL INDUSTRIES, INC.
Dated: December 30, 1996 By: Thomas F. Motter
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed by the following persons in
counterpart on behalf of the Company on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Thomas F. Motter Chairman of the
Board, President
and Chief Executive
Officer (Principal
Executive Officer) December
30, 1996
Robert W. Millar Vice President and
Director December
30, 1996
John W. Hemmer Treasurer, Chief
Financial Officer
and Director
(Principal Financial
and Accounting Officer) December
30, 1996
Randall A. Mackey Secretary and Director December
30, 1996
- -------------------- Director December
William C. Fitzhugh __, 1996
- -------------------- Director December
David W. Light __, 1996
David M. Silver Director December
30, 1996
- -------------------- Director December
Michael W. Stelzer __, 1996
</TABLE>
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY, WARRANT AGENT
WARRANT AGENCY AGREEMENT
Dated as of July 22, 1996
WARRANT AGENCY AGREEMENT dated as of July 22, 1996, between
PARADIGM MEDICAL INDUSTRIES, INC., 1772 West 2300 South, Salt
Lake City, Utah 84119 (the "Company") and CONTINENTAL STOCK
TRANSFER & TRUST COMPANY of Jersey City, New Jersey, as warrant
agent (the "Warrant Agent").
WHEREAS, the Company proposes to issue and sell in a public
offering (the "Public Offering") 1,000,000 Units (the "Units"),
each Unit consisting of one share of common stock (together with
the stock of any other class to which such shares may hereafter
have been changed, the "Common Stock"), and one Class A warrant
(the "Warrant"). Each Warrant entitles the registered holder
thereof to purchase one share of Common Stock.
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to
act, in connection with the issuance, registration, transfer,
exchange and exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereto agree as
follows:
Section 1. Appointment of Warrant Agent. The Company
hereby appoints the Warrant Agent to act as agent for the Company
in accordance with the instructions hereinafter set forth in this
Agreement, and the Warrant Agent hereby accepts such appointment.
Section 2. Form of Warrant. The text of the Warrants and
of the form of election to purchase shares on the reverse thereof
shall be substantially as set forth in Exhibit "A" attached
hereto and made a part hereof. The per share warrant exercise
price and the number of shares issuable upon exercise of the
Warrants are subject to adjustment upon the occurrence of certain
events, all as set forth in the text of the Warrants. The
Warrants shall be executed on behalf of the Company by the manual
or facsimile signature of the present or any future Chairman of
the Board, President or Vice President of the Company, attested
by the manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of the Company. Warrants shall
be dated as of the date of issuance by the Warrant Agent either
upon initial issuance or upon transfer or exchange.
Section 3. Countersignature and Registration. The Warrant
Agent shall maintain books for the transfer and registration of
the Warrants. Upon the initial issuance of the Warrants in the
names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or
by an successor to the Warrant Agent then acting as warrant agent
under this Agreement) and shall not be valid for any purpose
unless so countersigned. Warrants may be so countersigned,
however, by the Warrant Agent (or by its successor as warrant
agent) and be delivered by the Warrant Agent, notwithstanding
that the persons whose manual or facsimile signatures appear
thereon as proper officers of the Company shall have ceased to be
such officers at the time of such countersignature or delivery.
Section 4. Transfers and Exchanges. The Warrant Agent
shall transfer, from time to time, the outstanding Warrants upon
the books to be maintained by the Warrant Agent for that purpose,
upon surrender thereof for transfer properly endorsed or
accompanied by appropriate instructions for transfer. Upon any
such transfer, a new Warrant shall be issued to the transferee
and the surrendered Warrant shall be canceled by the Warrant
Agent. Warrants so canceled shall be delivered by the Warrant
Agent to the company from time to time upon request. Warrants
may be exchanged at the option of the holder thereof, when
surrendered at the office of the Warrant Agent, for another
Warrant, or other Warrants of different denominations, of like
tenor and representing in the aggregate the right to purchase a
like number of shares of Common Stock.
Section 5. Exercise of Warrants. Subject to the
provisions of this Agreement and prior to the fifth anniversary
of the date of the Prospectus (the "Expiration Date"), each
registered holder of Warrants shall have the right to purchase
from the Company (and the Company shall issue and sell to such
registered holder of Warrants) the number of fully paid and
non-assessable shares of Common Stock, upon surrender to the
Company at the office of the Warrant Agent of such Warrants, with
the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Company of the
Warrant Price, as defined and determined in accordance with the
provisions of Sections 9 and 10 of this Agreement, for the
securities in respect of which such Warrants are then exercised.
Payment of such Warrant Price shall be made in cash or by
certified check or bank draft to the order of the Company. No
adjustment shall be made for any cash dividends on any shares of
Common Stock issuable upon exercise of a Warrant. Subject to
Section 6 hereof, upon such surrender of Warrants, and payment of
the Warrant Price as aforesaid, a certificate or certificates for
the number of full shares of Common Stock so purchased upon the
exercise of such Warrants shall be issued to the registered
holder of such Warrants or, upon the written order of such
registered holder, in such name or names as such registered
holder may designate. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of record
of such securities as of the date of the surrender of such
Warrants and payment of such Warrant Price as aforesaid;
provided, however, that if at the date of surrender of such
Warrants and payment of such Warrant Price, the transfer books
for the shares of Common Stock or other class of securities
purchasable upon the exercise of such Warrant shall be closed,
the certificates for the shares of Common Stock, if any, in
respect of which such Warrants are then exercised shall be
issuable as of the date on which such books shall be opened
(whether before, on or after, 5:00 P.M. Eastern Time on the
Expiration Date), and until such date the Company shall be under
no duty to deliver any certificate for such securities; provided,
further, however, that such transfer books, unless otherwise
required by law or by applicable rule of any national securities
exchange, shall not be closed at any one time for a period longer
than 20 days. The rights of purchase represented by the Warrants
shall be exercisable, at the election of the registered holders
thereof, either as an entirety or from time to time for part only
of the securities specified therein and, in the event that any
Warrant is exercised in respect of less than all of the
securities specified therein at any time prior to the date of
expiration of the Warrant, a new Warrant or Warrants will be
issued to such registered holder for the remaining number of
securities specified in the Warrant so surrendered, and the
Warrant Agent is hereby irrevocably authorized to countersign and
to deliver the required new Warrants pursuant to the provisions
of this Section 5 and of Section 3 hereof, and the Company,
whenever requested by the Warrant Agent, will supply the Warrant
Agent with Warrants duly executed on behalf of the Company for
such purpose. The Common Stock and Warrants comprising the Units
will be immediately detachable and separately transferable upon
issuance.
Section 6. Payment of Taxes. The Company will pay any
documentary stamp taxes attributable to the initial issuance of
securities issuable upon the exercise of the Warrants; provided,
however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in
the issue or delivery of any certificates for securities in a
name other than that of the registered holder of Warrants in
respect of which such securities are issued, and in such case
neither the Company nor the Warrant Agent shall be required to
issue or deliver any certificate for securities or any Warrant
until the person requesting the same has paid to the Company the
amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
Section 7. Mutilated or Missing Warrants. In case any of
the Warrants shall be mutilated, lost, stolen, or destroyed, the
Company may in its discretion issue and the Warrant Agent shall
countersign and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant, or in lieu of and
substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence satisfactory to the
Company and the Warrant Agent of such loss, theft or destruction
of such Warrant and, in the case of a lost, stolen or destroyed
Warranty indemnity, if requested, also satisfactory to them.
Applicants for such substitute Warrants shall also comply with
such other reasonable regulations and pay such reasonable charges
as the Company or the Warrant Agent may prescribe.
Section 8. Reservation of Common Stock. There have been
reserved and the Company shall at all times keep reserved, out of
the Company's authorized and unissued shares of Common Stock, a
number of shares sufficient to provide for the exercise of the
rights of purchase represented by the Warrants, and the Transfer
Agent for the shares of Common Stock and every subsequent
transfer agent for the shares of the Company's capital stock
issuable upon the exercise of any of the rights of purchase
aforesaid are hereby irrevocably authorized and directed at all
times to reserve such number of authorized and unissued shares as
shall be required for such purpose. The Company agrees that all
shares of Common Stock issued upon exercise of the Warrants shall
be, at the time of delivery of the certificates for such shares
of Common Stock, validly issued and outstanding, fully paid and
non-assessable and shall be listed on any national securities
exchange, including Nasdaq National Market System or Nasdaq
SmallCap National Market System, upon which the other shares of
Common Stock are then listed. The Company will keep a copy of
this Agreement on file with the Transfer Agent for the shares of
Common Stock and with every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise
of the rights of purchase represented by the Warrants. The
Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent stock certificates
required to honor outstanding Warrants. The Company will supply
such Transfer Agent with duly executed stock certificates for
such purpose. All Warrants surrendered in the exercise of the
rights thereby evidenced shall be canceled by the Warrant Agent
and shall thereafter be delivered to the Company, and such
canceled Warrants shall constitute sufficient evidence of the
number of shares of Common Stock and other securities which have
been issued upon the exercise of such Warrants. Promptly after
the date of expiration of the Warrants, the Warrant Agent shall
certify to the Company the total aggregate amount of
unexercisable Warrants then outstanding, and thereafter no shares
of Common Stock shall be subject to reservation in respect to
such Warrants which shall have expired.
Section 9. Warrant Price. The Warrant price (the "Warrant
Price") at which Common Stock shall be purchasable pursuant to
the Warrants shall be $7.50 per share. After the Expiration
Date, any warrants which have not been exercised will be void.
Section 10. Adjustments. Subject and pursuant to the
provisions of this Section 10, the Warrant Price, number and kind
of securities purchasable upon exercise of the Warrants shall be
subject to adjustment from time to time if any of the following
circumstances shall occur after the initial issuance of the
Units, all as hereinafter set forth:
(a) If the Company shall at any time subdivide its
outstanding shares of Common Stock by recapitalization,
reclassification or split-up thereof, or if the Company shall
declare a stock dividend or distribute shares of Common Stock to
its stockholders, the number of shares of Common Stock
purchasable upon exercise of the Warrants immediately prior to
such subdivision shall be proportionately increased in each
instance, and if the Company shall at any time combine the
outstanding shares of Common Stock by recapitalization,
reclassification or combination thereof, the number of shares of
Common Stock purchasable upon exercise of the Warrants
immediately prior to such combination shall be proportionately
decreased in each instance. Any such adjustment to the Warrant
Price pursuant to Section 10(c) herein shall be effective at the
close of business on the effective date of such subdivision or
combination or, if any adjustment is the result of a stock
dividend or distribution, then the effective date for such
adjustment based thereon shall be the record date therefor.
(b) If the Company after the date hereof shall
distribute to all of the holders of its shares of Common Stock
securities (except as provided in the preceding paragraph of this
Section 10) or other assets (other than a distribution made as a
dividend payable out of earnings or out of any earned surplus
legally available for dividends under the laws of the
jurisdiction of incorporation of the Company), the Board of
Directors shall be required to make such equitable adjustment in
the Warrant Price, in the securities issuable thereunder, or
both, as in effect immediately prior to the second date of such
distribution as may be necessary to preserve to the holders of
the Warrants rights substantially proportionate to those enjoyed
hereunder by such holder immediately prior to the happening of
such distribution. Any such adjustment shall become effective as
of the day following the record date for such distribution.
(c) Whenever the number of shares of Common Stock
purchasable upon the exercise of any of the Warrants is required
to be adjusted as provided in Section 10(a), the Warrant Price
shall be adjusted (to the nearest cent) in each instance by
multiplying such Warrant Price immediately prior to such
adjustment by a fraction (i) the numerator of which shall be the
number of shares of Common Stock purchasable upon the exercise of
the Warrants, immediately prior to such adjustment, and (ii) the
denominator of which shall be the number of shares of Common
Stock so purchasable immediately thereafter.
(d) In case of any reclassification of the
outstanding shares of Common Stock, other than a change covered
by Section 10(a) hereof or which solely affects the par value of
such shares of Common Stock, or in the case of any merger or
consolidation of the Company with or into the Corporation (other
than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any
reclassification or capital reorganization of the outstanding
shares of Common Stock), or in the case of any sale or conveyance
to another corporation of the property of the Company as an
entirety or substantially as an entirety in connection with which
the Company is dissolved, the holders of the Warrants shall have
the right thereafter (until the expiration of the rights of
exercise of the Warrants) to receive hereunder immediately prior
to such event, the kind and amount of shares of stock or other
securities or property receivable upon such reclassification,
capital reorganization, merger or consolidation, or upon the
dissolution following any sale or other transfer, which a holder
of the number of shares of Common Stock of the Company would
obtain upon exercise of the Warrants immediately prior to such
event; and if any reclassification also results in a change in
shares of Common Stock covered by Section 10(a) herein, then such
adjustment shall be made pursuant to both Section 10(a) herein
and this Section 10(d). The provisions of this Section 10(d)
shall similarly apply to successive reclassifications, or capital
reorganizations, mergers or consolidations, sales or other
transfers.
(e) In case of the dissolution, liquidation or
winding-up of the Company, all rights under any of the Warrants
not redeemed or expired by their terms shall terminate on a date
fixed by the Company, such date so fixed to be not earlier than
the date of the commencement of the proceedings for such
dissolution, liquidation or winding-up and not later than 30 days
after such commencement date. Notice of such termination of
purchase rights shall be given to the registered holders of the
Warrants as the same shall appear on the books of the company
maintained by the Warrant Agent, by registered mail at least 30
days prior to such termination date.
(f) In case the Company shall, at any time prior to
the Expiration Date of the Warrants, and prior to the exercise
thereof, offers to the holders of its Common Stock any rights to
subscribe for additional shares of any class of the Company, then
the Company shall give written notice thereof to the registered
holders of the Warrants not less than 30 days prior to the date
on which the books of the Company are closed or a record date
fixed for the determination of stockholders entitled to such
subscription rights. Such notice shall specify the date as to
which the books shall be closed or record date be fixed with
respect to such offer or subscription, and the right of the
holders to participate in such offer or subscription shall
terminate if the Warrants shall not be exercised on or before the
date of such closing of the books or such record date.
(g) If the Company after the date hereof shall take
any action affecting the shares of its Common Stock, other than
action described in this Section 10, which, in the opinion of the
Board of Directors of the Company, would materially affect the
rights of the holders of the Warrants, the Warrant Price, and the
number of shares of Common Stock purchasable upon exercise of the
Warrants shall be adjusted in each instance and at such time as
the Board of Directors of the Company, in good faith, may
determine to be equitable under the circumstances.
(h) The form of Warrants need not be changed
because of any change pursuant to this Section 10, and Warrants
issued after any such change may state the same nominal Warrant
Price and the same number of shares as is stated in the Warrants
initially issued pursuant to this Agreement, without altering the
rights of registered holders of the Warrants to claim the benefit
of changes pursuant to this Section 10. However, the Company may
at any time in its sole discretion (which shall be conclusive)
make any change in the form of Warrants that the Company may deem
appropriate and that does not affect the substance thereof; and
any Warrants thereafter issued or countersigned, whether in
exchange or substitution for an outstanding Warrant or otherwise,
may be in the form as so changed.
Section 11. Fractional Interest. The Company shall
not be required to issue fractions of shares of Common Stock on
the exercise of Warrants. Final fractions of shares amounting to
less than one-half of a share shall be disregarded. Final
fractions of a share amounting to one-half a share or more shall
be rounded upward to the nearest whole share.
Section 12.Notices to Warrantholders.
(a) Upon any adjustment of the Warrant Price and
the number of shares issuable on exercise of a Warrant, then and
in each such case the Company shall give written notice thereof
to the Warrant Agent, which notice shall state the Warrant Price
resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the
exercise of a Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation
is based.
(b) In case at any time:
(i) the Company shall pay any dividends
payable in stock upon its Common Stock or make any distribution
(other than regular cash dividends) including any distribution of
assets as a liquidating or partial liquidating dividend to the
holders of its Common Stock;
(ii) the Company shall offer for subscription
pro rata to the holders of its Common Stock any additional shares
of stock of any class or other rights;
(iii) there shall be any capital reorganization
or any stock split, stock distribution, combination or
reclassification of the capital stock of the Company, or any
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up or the Company;
then, in any one or more such cases, the Company shall give
written notice to each registered holder of Warrants, and
publish the same in the manner set forth in this Section 12, of
the date on which (i) the books of the Company shall close or a
record shall be taken for purposes of any such dividend,
distribution, stock split, or subscription rights, or (ii) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up shall take place, as the
case may be. Such notice shall also specify the date as of
which the holders of Common Stock of record shall date as of
which the holders of Common Stock of record shall participate in
such dividend, distribution, or subscription rights, or shall be
entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or
winding-up as the case may be. Such notice shall be given at
least 30 days prior to the action in question and not less than
30 days prior to the record date or the date on which the
Company's transfer books are closed in respect thereof. Failure
to give such notice, or any defect therein, shall not affect the
legality or validity of any of the matters set forth in this
Section 12 inclusive.
(c) The Company shall cause copies of all financial
statements and reports, proxy statements and other documents as
it shall send to its stockholders to be sent by first-class mail,
postage prepaid, on the date of mailing to such stockholders, to
each registered holder of Warrants at his address appearing on
the Warrant register as of the record date for the determination
of the stockholders entitled to such documents.
Section 13. Disposition of Proceeds on Exercise of
Warrants.
(a) The Warrant Agent shall promptly forward to the
Company all monies received by the Warrant Agent for the purchase
of shares of Common Stock through the exercise of the Warrants.
(b) The Warrant Agent shall keep copies of this
Agreement available for inspection by holders of Warrants during
normal business hours.
Section 14. Redemption of Warrants. The Warrants are
redeemable by the Company beginning one year from the date of the
Prospectus and prior to the Expiration Date upon 30 days' written
notice, at a redemption price of $.05 per Warrant, provided that
prior to the redemption the market price for the Common Stock
issuable upon exercise of a Warrant shall equal or exceed $8.50
per share for 30 consecutive business days ending within 15 days
prior to the date on which the notice of redemption is given.
Market price for the purpose of this Section 14 shall mean the
average of the highest bid and lowest ask prices as reported by
the National Quotation Bureau, Inc., or the average of closing
bid and ask prices, as reported by Nasdaq, if the Common Stock is
quoted on Nasdaq, or, if the Common Stock is listed on a national
securities exchange or on the Nasdaq National Market System,
shall be determined by the closing sales price on the primary
exchange on which the Common Stock is traded or on the National
Market System. Prior to redeeming the Warrants, the Company
shall furnish a certificate to the Warrant Agent, signed by an
executive officer, certifying as to fulfillment of the aforesaid
condition. If the Company shall elect to redeem Warrants as
permitted by this Section 14, notice of redemption shall be given
to the holders of all outstanding Warrants to whom the redemption
shall apply by mailing by first-class mail a notice of such
redemption, not less than 30 nor more than 60 days prior to the
date fixed for redemption, to their last addresses as they shall
appear upon the registry books, but failure to give such notice
by mailing to the holder of any Warrant, or any defect therein,
shall not affect the legality or validity of the proceedings for
the redemption of any other Warrants. The notice of redemption
to each holder of Warrants shall specify the date fixed for
redemption and the redemption price at which Warrants are to be
redeemed, and shall state that payment of the redemption price of
the Warrants will be made at the office of the Warrant Agent upon
presentation and surrender of such Warrants, and shall also state
that the right to exercise the Warrants so redeemed will
terminate as provided in this Agreement (stating the date of such
termination) and shall state the then current Warrant Price. If
the giving of notice of redemption shall have been completed as
above provided, and if funds sufficient for the redemption of the
Warrants shall have been deposited with the Warrant Agent for
such purpose, the right to exercise the Warrants shall terminate
at the close of business on the business day preceding the date
fixed for redemption, and the holder of each Warrant shall
thereafter be entitled upon surrender of his Warrant only to
receive the redemption price thereof, without interest.
Section 15. Merger or Consolidation or Change of Name of
Warrant Agent. Any corporation or company which may succeed to
the business of the Warrant Agent by any merger or consolidation
or otherwise to which the Warrant Agent shall be a party, or any
corporation or company succeeding to the corporate trust business
of the Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided
that such corporation would be eligible for appointment as a
successor Warrant Agent under the provisions of Section 17
hereof. In case, at the time such successor to the Warrant Agent
shall succeed to the agency created by this Agreement, any of the
Warrants shall have been countersigned but not delivered, any
such successor to the Warrant Agent may adopt the
counter-signature of the original Warrant Agent and deliver such
Warrants so countersigned; and in case at that time any of the
Warrants shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrants; and in all such
cases such Warrants shall have the full force provided in the
Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrants shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignature under its prior name and deliver Warrants so
countersigned; and in case at that time any of the Warrants shall
have been countersigned, the Warrant Agent may countersign such
Warrants either in its prior name or in its changed name; and in
all such cases such Warrants shall have the full force provided
in the Warrants and in this Agreement.
Section 16. Duties of Warrant Agent. The Warrant Agent
undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, by all of which the
Company and the holders of Warrants, by their acceptance hereof,
shall be bound:
(a) The statements of fact and recitals contained
herein and in the Warrants shall be taken as statements of the
Company, and the Warrant Agent assumes no responsibility for the
correctness of any of the same except such as describe the
Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes responsibility with respect to the distribution of
the Warrants except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for
any failure of the Company to comply with any of the covenants
contained in this Agreement or in the Warrants to be complied
with by the Company.
(c) The Warrant Agent may consult at any time with
counsel satisfactory to it (who may be counsel for the Company)
and the Warrant Agent shall incur no liability or responsibility
to the Company or to any holder of any Warrant in respect of any
action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or with respect to any notice,
resolution, waiver, consent, order, certificate, or other paper,
document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent
reasonable compensation for all services rendered by the Warrant
Agent in the execution of this Agreement, to reimburse the
Warrant Agent for all expenses, taxes and governmental charges
and other charge of any kind and nature incurred by the Warrant
Agent in the execution of this Agreement, and to indemnify the
Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable counsel
fees, for anything done or omitted by the Warrant Agent in the
execution of this Agreement except as a result of the Warrant
Agent's negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation
to institute any action, suit or legal proceeding or to take any
other action likely to involve expenses unless the Company or one
or more registered holders of Warrants shall furnish the Warrant
Agent with reasonable security and indemnity for any Costs and
expenses which may be incurred, but this provision shall not
affect the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without any
such security or indemnity. All rights of action under this
Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or
the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by
the Warrant Agent shall be brought in its name as Warrant Agent,
and any recovery of judgment shall be for the ratable benefit of
the registered holders of the Warrants, as their respective
rights or interests may appear.
(g) The Warrant Agent and any stockholder,
director, officer, partner or employee of the Warrant Agent may
buy, sell or deal in any of the Warrants or other securities of
the Company or become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were
not Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as
agent and not in a ministerial capacity, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent
shall not be liable for anything which it may do or refrain from
doing in connection with this Agreement except for its own
negligence, willful misconduct or bad faith.
(i) The Warrant Agent may execute and exercise any
of the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys, agents or
employees, and the Warrant Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of such
attorneys, agents or employees or for any loss to the Company
resulting from such neglect or misconduct, provided reasonable
care has been exercised in the selection and continued employment
thereof.
(j) Any request, direction, election, order or
demand of the Company shall be sufficiently evidenced by an
instrument signed in the name of the Company by its Chairman of
the Board, President or a Vice President or its Secretary or an
Assistant Secretary or its Treasurer or an Assistant Treasurer
(unless other evidence in respect thereof be herein specifically
prescribed); and any resolution of the Board of Directors may be
evidenced to the Warrant Agent by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company.
Section 17. Change of Warrant Agent. The Warrant Agent
may resign and be discharged from its duties under this Agreement
by giving to the Company notice in writing, and to the holders of
the Warrant notice by mailing such notice to holders at their
addresses appearing on the Warrant register, of such resignation,
specifying a date when such resignation shall take effect. The
Warrant Agent may be removed by like notice to the Warrant Agent
from the Company and by like mailing of notice or be removed or
shall otherwise become incapable of acting, the Company shall
appoint a successor to the Warrant Agent. If the Company shall
fail to make such appointment within a period of 30 days after
such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated
Warrant Agent or by the registered holder of a Warrant (who
shall, with such notice, submit his Warrant for inspection by the
Company), then the registered holder of any Warrant may apply to
any court of competent jurisdiction for the appointment of a
successor to the Warrant Agent. Any successor warrant agent,
whether appointed by the Company or by a court, shall be a bank
or trust company, in good standing, incorporated under the laws
of any state or the United States of America. After appointment,
the successor warrant agent shall be vested with the same powers,
rights, duties an responsibilities as if it had been originally
named as Warrant Agent without further act or deed; but the
former Warrant Agent shall deliver and transfer to the successor
warrant agent all canceled Warrants, records and property at the
time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose.
Failure to file or mail any notice provided for in this Section,
however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or
the appointment of the successor warrant agent, as the case may
be.
Section 18. Identity of Transfer Agent. Forthwith upon
the appointment of any Transfer Agent for the shares of Common
Stock or of any subsequent transfer agent for shares of Common
Stock or other shares of the Company's capital stock issuable
upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a
statement setting forth the name and address of such Transfer
Agent.
Section 19. Notices. Any notice pursuant to this
Agreement to be given or made by the Warrant Agent or by the
registered holder of any Warrant to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by
the Company with the Warrant Agent) as follows:
Paradigm Medical Industries, Inc.
1772 West 2300 South
Salt Lake City, Utah 84119
Any notice pursuant to this Agreement to be given or made by the
Company or by the registered holder of any Warrant to or on the
Warrant Agent shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the
Company) as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Section 20.Supplements and Amendments. The Company and
the Warrant Agent may from time to time supplement or amend this
agreement in order to cure any ambiguity or correct or supplement
any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising
hereunder which the Company and the Warrant Agent may deem
necessary or desirable and which shall not be inconsistent with
the provisions of the Warrants and which shall not adversely
affect the interest of the holders of Warrants.
Section 21.Successors. All the covenants and provisions
of this Agreement by or for the benefit of the Company or the
Warrant Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 22.Utah Contract. This Agreement and each Warrant
issued hereunder shall be deemed to be a contract made under the
laws of the State of Utah and for all purposes shall be construed
in accordance with the laws of said State.
Section 23.Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation
other than the Company, the Warrant Agent and the registered
holders of the Warrants any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and
the registered holders of the Warrants.
Section 24. Counterparts. This Agreement may be executed
in any number of counterparts and each of such counterparts shall
for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above
written.
PARADIGM MEDICAL INDUSTRIES, INC.
By: Thomas F. Motter
Its: President & CEO
(Title)
Date: July 22, 1996
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By: Michael J. Nelson
Its: President
(Title)
Date: July 22, 1996
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT MADE UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT.
PARADIGM MEDICAL INDUSTRIES, INC.
UNDERWRITER'S WARRANT
Paradigm Medical Industries, Inc., a Delaware corporation
(the "Company") , hereby certifies that, for an aggregate
consideration of $100.00, Kenneth Jerome & Company, Inc.
("Holder") is entitled, subject to the terms set forth below, at
any time or from time to time but not earlier than twenty four
(24) months nor later than five (5) years from July 10, 1996 (the
"Issue Date"), to purchase from the Company one hundred thousand
(100,000) Units, each such Unit consisting of one share of Common
Stock ($.001 par value per share) of the Company and one
redeemable common stock purchase warrant, exercisable into one
share of Common Stock per warrant for a period of five years from
July 10, 1996, purchase from the Company of the Unit at the
purchase price per Unit of Eight Dollars and Twelve and one half
Cents ($8.125) (equal to 130% of the public offering price per
Unit) (the purchase price per unit, as adjusted from time to time
pursuant to the provisions hereunder set forth, being referred to
herein as the "Exercise Price") all as described in the
prospectus contained in the Company's Registration Statement on
Form SB-2 (File No.333-2496), as amended, which Registration
Statement was originally filed with the Securities and Exchange
Commission on or about March 19, 1996, 1996 (the "Registration
Statement"). The Issue Date shall be the same date as the
closing date of the public offering. Except as set forth herein,
the Units issuable upon exercise of this Underwriter's Warrant
have the same respective terms as the Units offered by the
Registration Statement. This Underwriter's Warrant and all
rights hereunder, to the extent such rights shall not have been
exercised, shall terminate and become null and void to the extent
the holder fails to exercise any portion of this Underwriter's
Warrant prior to 5:00 p.m., New Jersey time, on July 10, 2001, or
if the Transfer Agent (as defined in Section 4 below) shall not
regularly be open for business on that day, then on the next such
business day.
1. Registration.
a. The Company agrees for a period of three years
commencing two year after the Issue Date, that if during such
three-year period, no current registration statement by the
company is on file with the U.S. Securities and Exchange
Commission covering the securities underlying this underwriter's
Warrant, upon receipt of a demand for registration in the form of
a written request from the holder of this Underwriter's Warrant
or a majority of the securities issued or issuable hereunder, it
will prepare and file under the Act one registration statement or
Notification on Form 1-A, if then required, to permit a public
offering of this Underwriter's Warrant and the securities then
underlying this Underwriter's Warrant, and will use its best
efforts to cause such registration statement or notification to
become effective at the earliest possible date and to remain
effective for a period not to exceed 90 days. The Company will
bear the cost of such registration statement, including but not
limited to counsel fees of the Company and disbursements,
accountants' fees and printing costs, if any, but excluding the
fees of counsel and others hired by the holder. The foregoing
demand registration right by the Underwriter at the expense of
the Company shall be on a one-time request basis only.
b. Additionally, whenever during the three-year period
commencing two year after the Issue Date the Company or any
successor proposes to file a Notification on Form 1-A under the
Act or a registration statement relating to a public offering of
its equity securities under the Act (whether for its own benefit
or for the holders of any of its equity securities or otherwise),
but not including a registration on Form S-8, it shall offer,
upon 30 days' written notice to the holder of this Underwriter's
Warrant or the holders of the underlying securities (the
"Holders"), to include and shall include, at the Holders'
option(s), all or any portion of this Underwriter's Warrant and
the securities underlying this Underwriter's Warrant in such
registration statement at the expense of the Company, limited in
the case of a Regulation A Offering to the amount of the
available exemption.
c. In connection with any registration statement or
Notification on Form 1-A pursuant to subsection a or b of this
Section 1, the Company agrees that it will furnish to you the
representations and warranties and opinions of counsel to the
same effect as provided in Sections 1 and 5(b) of the
Underwriting Agreement entered into by the parties hereto on
July 22, 1996 (the "Underwriting Agreement"), to the extent then
applicable, except that such representations, warranties, and
opinions shall relate to the registration statement or
Notification on Form 1-A and to the securities which shall be
offered thereby. The Company and you further agree that as to
such registration statement or Notification on Form 1-A, the
provisions of Section 3 (but not including subsections (l), (m)
or (n)) of the Underwriting Agreement, shall apply. The Company
and you further agree that the provisions of section 8 of the
Underwriting Agreement shall apply, with the holder having the
rights and obligations afforded the Underwriter in that section,
and that such section shall apply with respect to that offering.
2. Exercise of Warrant.
a. This Underwriter's Warrant may be exercised in full
or from time to time in part by the holder by surrendering it,
with the form of subscription at the end hereof duly executed by
such holder, to the Company's transfer agent accompanied by
payment in full, in cash or by certified or official bank check,
of the Exercise Price payable in respect of all or part of this
Underwriter's Warrant being exercised.
b. Upon such surrender of this Underwriter's Warrant and
payment of such Exercise Price, the Company shall issue and cause
to be delivered to or upon the written order of the holder of
this Underwriter's Warrant and in such name or names as the
holder may designate a certificate or certificates for the number
of full Units so purchased, together with cash, as provided in
Section 3 hereof, in respect of any fractional Units otherwise
issuable upon such surrender. Such certificate or certificates
shall be deemed to have been issued and any person so designated
to be named therein shall be deemed to have become a holder of
record of such Units as of the date of surrender of this
Underwriter's Warrant and payment of such Exercise Price
notwithstanding that the certificate or certificates representing
such Units shall not actually have been delivered or that the
stock transfer books of the Company shall then be closed.
c. If less than the entire Underwriter's Warrant is
exercised, the Company shall, upon such exercise, execute and
deliver to the holder thereof a new warrant in the same form as
this Underwriter's Warrant evidencing that Underwriter's Warrant
to the extent not exercised.
d. The Company shall, at the time of any exercise of all
or part of this Underwriter's Warrant, upon the request of the
holder hereof, acknowledge in writing its continuing obligation
to afford to such holder any rights to which such holders shall
continue to be entitled after such exercise in accordance with
the provisions of this Underwriter's Warrant, provided that if
the holder of this Underwriter's Warrant shall fail to make any
such request, such failure shall not affect the continuing
obligations of the Company to afford to such holder any such
rights.
3. Fractional units. No fractional securities or scrip
representing fractional securities shall be issued upon the
exercise of this Underwriter's Warrant. With respect to any
fraction of a Unit called upon any such exercise hereof, the
Company shall pay to the holder an amount in cash equal to such
fraction multiplied by the current market value of such
fractional securities, determined as follows:
a. If the security is listed on a national securities
exchange or admitted to unlisted trading privileges on such
exchange, the current value shall be the last reported sale price
of the security on such exchange on the last business day prior
to the date of exercise of this Underwriter's Warrant, or if no
such sale is made on such day, the average closing bid and asked
prices for such day on such exchange; or
b. If the security is not listed or admitted to unlisted
trading privileges, the current value shall be the last reported
sale price or the mean of the last reported bid and asked prices
reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted an NASDAQ, by
the National Quotation Bureau, Inc.) on the last business day
prior to the date of the exercise of this Underwriter's Warrant;
or
c. If the security is not so listed or admitted to
unlisted trading privileges and prices are not reported on
NASDAQ, the current value shall be an amount, not less than the
book value, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
4. Exchange, Assignment, or Loss of Warrant.
a. This Underwriter's Warrant is exchangeable, without
expense, at the option of the holder, upon presentation and
surrender hereof to the transfer agent for other Underwriter's
Warrants of different denominations entitling the holder thereof
to purchase in the aggregate the same number of securities
purchased hereunder. This Underwriter's Warrant is restricted
from sale, transfer, assignment, or hypothecation except to the
officers, principals and successors of Kenneth Jerome & Co.,
Inc., and may be exercised in whole or in part at any time and
from time to time during the three (3) year period following the
expiration of two (2) year from the Issue Date. Any such
assignment shall be made by surrender of this Underwriter's
Warrant to Continental Stock Transfer and Trust Co. or any
successor transfer agent designated by the Company in writing
(the "Transfer Agent") with the Form of Assignment annexed hereto
duly executed and funds sufficient to pay any transfer tax,
whereupon the Transfer Agent shall, without charge, cause to be
executed and delivered a new Underwriter's Warrant in the name of
the assignee named in such instrument or assignment and this
Underwriter's Warrant shall promptly be canceled. This
Underwriter's Warrant may be divided or combined with other
Underwriter's Warrants that carry the same rights upon
presentation hereof to the office of the Transfer Agent together
with a written notice specifying the name and denomination in
which new Underwriter's Warrants are to be issued and signed by
the holder hereof. The term "Underwriter's Warrant" as used in
this Warrant includes any Underwriter's Warrants issued in
substitution for or replacement of this Underwriter's Warrant, or
into which this Underwriter's Warrant may be divided or
exchanged.
b. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this
Underwriter's Warrant, and, in the case of loss, theft or
destruction of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Underwriter's Warrant, if
mutilated, the Transfer Agent will cause to be executed and
delivered a new Underwriter's Warrant of like tenor and date.
Any such new Underwriter's Warrant executed and delivered shall
constitute an additional contractual obligation on the part of
the Company, whether or not this Underwriter's Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable
by anyone.
5. Rights of the Holder. The holder of this Underwriter's
Warrant shall not, by virtue hereof, be entitled to any rights of
a stockholder in the Company, either at law or equity, and the
rights of the holder are limited to those expressed in this
Underwriter's Warrant.
6. Adjustments.
a. In case the Company shall, while this Underwriter's
Warrant remains in force, effect a recapitalization of such
character that the securities covered hereby shall be changed
into or become exchangeable for a larger or smaller number of
such securities, then thereafter, the number of securities of the
Company which the holder of this Underwriter's Warrant shall be
entitled to purchase hereunder, shall be increased or decreased,
as the case may be, in direct proportion to the increase or
decrease in the number of shares of the Company, by reason of
such recapitalization, and the purchase price hereunder, per
Unit, shall in the case of an increase in the number of shares be
proportionately reduced, and in the case of a decrease in the
number of share be proportionately increased.
b. In case the Company shall, at any time prior to the
exercise of an underwriter's Warrant, consolidate or merge with,
or shall transfer its property as an entirety to, or
substantially as an entirety to, any other corporation, the
holder of an Underwriter's Warrant who thereafter exercises the
same as herein provided shall be entitled to receive, for the
purchase price per Unit stated in this Underwriter's Warrant,
that number of shares or other securities or property of the
corporation resulting from such consolidation or merger or
transfer to which each Unit deliverable upon exercise of this
Underwriter's Warrant would have been entitled, upon such
consolidation or merger or transfer, had the holder of such
Underwriter's Warrant exercised his right to purchase Units, and
had such holder exercised the redeemable common stock purchase
warrant comprising a part of the Unit, and had said shares or
other securities been issued and outstanding, and had such holder
been the holder of record of such shares or other securities at
the time of such consolidation or merger or transfer.
c. In case the Company shall at any time prior to the
exercise of an Underwriter's Warrant make any distribution of its
assets to holders of its Common Stock by liquidating or partial
liquidating dividend or by way of return of capital, or other
than as a dividend payable out of earnings or any surplus legally
available for dividends under the laws of the State of Delaware,
then the holder of an Underwriter's Warrant who thereafter
exercises the same as herein provided and the redeemable common
stock purchase warrant comprising a part of the Unit as therein
provided after the date of record for the determination of those
holders of Common Stock entitled to such distribution of assets,
shall be entitled to receive for the purchase price, in addition
to each Share, the amount of such assets (or at the option of the
Company a sum equal to the value thereof at the time of such
distribution to holders of Common Stock as such value is
determined by the Board of Directors of the Company in good
faith) which would have been payable to such holder had he been
the holder of record of such share receivable upon exercise of
such Underwriter's Warrant and redeemable common stock purchase
warrant on the record date for the determination of those
entitled to such distribution.
d. In case of the dissolution, liquidation or winding-up
of the Company, all rights under this Underwriter's Warrant and
the redeemable common stock purchase warrants shall terminate on
a date fixed by the Company, such date so fixed to be not earlier
than the date of the commencement of the proceedings for such
dissolution, liquidation or winding-up and not later than thirty
days after such commencement date. In any such case of
termination of purchase rights the Company shall give notice of
such termination date to the registered holder of this
Underwriter's Warrant.
e. Upon any adjustment of the purchase price and/or any
increase or decrease in the number of securities purchasable upon
the exercise of this Underwriters Warrant or the redeemable
common stock purchase warrant comprising a part of the Unit,
then, and in each case, the company, within 30 days thereafter,
shall give written notice thereof to the registered holder of
this Underwriter's Warrant, which notice shall state the adjusted
purchase price and/or the increased or decreased number of
securities purchasable upon the exercise of this Underwriter's
Warrant or the redeemable common stock purchase warrant, setting
forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
7. Notices of Record Dates, Etc. Upon the occurrence of any
of the events listed in subsections a to c below, the Company
shall mail or cause to be mailed (on the same date as the company
informs its stockholders of such event) to the holder of this
Underwriter's Warrant a notice specifying, as the case may be,
(i) the date on which a record is to be taken for the purpose of
such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, or (ii) the
date on which a record is to be taken for the purpose of voting
on or approving such reorganization, recapitalization,
reclassification, consolidation, merger, conveyance, dissolution,
liquidation or winding up and the date on which such event is to
take place and the time, if any is to be fixed, as of which the
holder of record of Common Stock (or any other securities at the
time deliverable on exercise of this Underwriter's Warrant) shall
be entitled to exchange its shares of Common Stock (or such other
securities) for securities or other property deliverable on such
reorganization, recapitalization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or
winding up.
a. The Company shall fix a record date of the holders of
Common Stock (or other securities at the time deliverable on
exercise of this Underwriter's Warrant) for the purpose of
entitling or enabling them to receive any dividends or other
distribution, or to receive any right to subscribe for or
purchase any shares of any class or any securities, or to receive
any other right contemplated by Section 6 or otherwise; or
b. Any reorganization or recapitalization of the
Company, any reclassification of the Capital stock of the
Company, any consolidation or merger of the Company with or into
another corporation or any transfer of all or substantially all
of the assets of the Company to another entity; or
c. The voluntary or involuntary dissolution, liquidation
or winding up of the Company.
8. Reservation of the Units and Shares. The Company shall at
all times reserve, and the Transfer Agent shall be irrevocably
authorized and directed at all times to reserve, for the purpose
of issuance on exercise of this Underwriter's Warrant, such
number of authorized Units and authorized shares of Common Stock
or such class or classes of capital stock or other securities as
shall from time to time be sufficient to comply with this
Underwriter's Warrant, and the Company shall promptly take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized and unissued Units and
authorized and unissued shares of Common Stock or such other
class or classes of capital stock or other securities to such
number as shall be sufficient for that purpose. The Company
shall keep a copy of this Underwriter's Warrant on file with the
Transfer Agent. The Company shall supply the Transfer Agent with
duly executed stock and other certificates, as appropriate, for
such purpose and shall provide or otherwise make available any
cash which may be payable as provided in Section 3 hereof.
9. Approvals. The Company shall from time to time use its
best efforts to obtain and continue in effect any and all
permits, consents, registrations, qualifications and approvals of
governmental agencies and authorities and to make all filings
under applicable securities laws that may be or become necessary
in connection with the issuance, sale, transfer and delivery of
this Underwriter's Warrant and the issuance of securities on any
exercise hereof, and if any such permits, consent,
qualifications, registrations, approvals or filings are not
obtained or continued in effect as required, the Company shall
immediately notify the holder thereof. Nothing contained in this
Section 9 shall in any way expand, alter or limit the rights of
the holder set forth in Section 1 hereof.
10. Survival. All agreements, covenants, representations and
warranties herein shall survive the execution and delivery of
this Underwriter's Warrant and any investigation at any time made
by or on behalf of any parties hereto and the exercise, sale and
purchase of this Underwriter's Warrant (and any other securities
or property) issuable on exercise hereof.
11. Remedies. The company agrees that the remedies at law of
the holder of this Underwriters Warrant, in the event of any
default or threatened default by the Company in the performance
of or compliance with any of the terms of this Underwriter's
Warrant, are not adequate and such terms may, in addition to and
not in lieu of any other remedy, be specifically enforced by a
decree of specific performance of any agreement contained herein
or by an injunction against a violation of any of the terms
hereof or otherwise.
12. Notices. All demands, notices, consents and other
communications to be given hereunder shall be in writing and
shall be deemed duly given when delivered personally or by
telecopier or five days after being mailed by first class mail,
postage prepaid, properly addressed, if to the holder of this
Underwriter's Warrant, to Kenneth Jerome & Co., Inc., 247
Columbia Turnpike, Florham Park, New Jersey 07932, (201) 966-6669
Fax: (201) 966-6319 Attention: Mr. Robert Kaplon, with a copy to
Roger Fidler, Esq., 400 Grove Street, Glen Rock, New Jersey
07452, (201) 445-8862 Fax: (201) 670-7218; if to the Company, to
Paradigm Medical Industries, Inc., 1772 West 2300 South, Salt
Lake City, Utah 84119 Attention: Thomas Motter, with a copy to:
Randall Mackey, Esq., Mackey Price & Williams, 900 First
Interstate Plaza, 170 South Main Street, Salt Lake City, Utah
84101-1655 (801) 575-5000, Fax (801) 575-5006. The Company and
each holder may change such address at any time or times by
notice hereunder to the other.
13. Amendments; Waivers; Terminations; Governing Law; Headings.
This Underwriter's Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change,
waiver, discharge or termination is sought. This Underwriter's
Warrant and any disputes arising hereunder shall be governed by
and construed and interpreted in accordance with the laws of the
State of Arizona. The headings in this Underwriter's Warrant are
for convenience of reference only and are not part of this
Underwriter's Warrant.
14. Payment of Taxes. The Company shall pay all taxes, if any,
attributable to the initial issuance of this Underwriter's
Warrant and the Units and the securities comprising the Units;
provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any secondary transfer
of this Underwriter's Warrant on the Units.
DATED: July 25, 1996
PARADIGM MEDICAL INDUSTRIES,
INC., a Delaware corporation
(CORPORATE SEAL)
By: Thomas F. Motter
President
ATTEST:
By: Randall A. Mackey
Corporate Secretary
FORM OF ASSIGNMENT
(To be executed upon transfer of Warrant)
FOR VALUE RECEIVED,
----------------------------------------
hereby sells, assigns and transfers to
-------------------------
the within Underwriter's
- ---------------------------------------
Warrant together with all rights, title and interest therein, and
does hereby irrevocably constitute and appoint attorney to
transfer such Underwriter's Warrant on the warrant register of
the within named Company, with full power of substitution.
Signature:
------------------------------
Dated:
------------------
Signature Guarantee:
-------------------------------
SUBSCRIPTION
(To be completed and signed only upon an exercise of
the Underwriter's Warrant in whole or in part)
To:
-------------------------------------------------------------
as Transfer Agent for Paradigm Medical Industries, Inc.
The undersigned, the Holder of the attached Underwriter's
Warrant, hereby irrevocably elects to exercise the purchase right
represented by the Underwriter's Warrant for, and to purchase
thereunder, Units (as such terms are defined in the
original Underwriter's Warrant dated July 25, 1996, from Paradigm
Medical Industries, Inc.), and herewith makes payment of
$ therefor in cash or by certified or
official bank check. The undersigned hereby requests that the
Certificate(s) for such securities be issued in the name(s) and
delivered to the addresses) as follows:
Name:
Address:
Deliver to:
Address:
(Attach additional sheets as necessary)
If the foregoing Subscription evidences an exercise of the
Underwriter's Warrant to purchase fewer than all of the Units (or
other securities or property) to which the undersigned is
entitled under such Underwriter's Warrant, please issue a new
Underwriter's Warrant, of like tenor, for the remaining Units (or
other securities or property) in the name(s), and deliver the
same to the addresses), as follows:
Name:
Address:
(Attach additional sheets as necessary)
DATED:
(Name of Holder)
(Signature of Holder or
Authorized Signatory)
(Social Security or Taxpayer
Identification Number of
Holder)
COMMERCIAL OFFICE LEASE
TRI COX, L. C.
and
PARADIGM MEDICAL INDUSTRIES, INC.
LEASE, between TRI-COX, L.C. a Utah limited liability
company, with its principal office at 1818 West 2300 South, West
Valley City, Utah, as "Landlord" and PARADIGM MEDICAL INDUSTRIES,
INC, a Delaware Corporation, with its principal office at 1772
West 2300 South, West Valley City, Utah as "Tenant."
1. DEFINITIONS - Each of the following terms shall have the
indicated meaning:
"Base Rent" means Two Thousand Nine Hundred Seventy
One Dollars Eighty Seven Cents ($2,971.87) per calendar month,
subject to adjustment pursuant to Paragraph 3.
"Buildings" means the office buildings located at
1772 West 2300 South and 1780 West 2300 South in the City of West
Valley, County of Salt Lake, State of Utah City, Utah.
"Commencement Date" means January 1, 1997.
"Development" means that certain real property known
as 1772 West 2300 South and 1780 West 2300 South, West Valley
City, Utah.
"Expiration Date" means the date which is twelve
months after the Commencement Date, plus any partial calendar
month occurring between the Commencement Date and the first day
of the first full calendar month following the Commencement Date,
if the Commencement Date does not occur on the first day of a
calendar month.
"Permitted Use" means office and component assembly
only, and no other purpose.
"Premises" means 1772 West 2300 South, 1774 West 2300
South, 1776 West 2300 South, and 1780 West 2300 South, West
Valley City, Utah, consisting of approximately 5,442 net rentable
square feet, shown on the attached Exhibit A, located in the
Buildings. The Premises does not include the foundation, roof
and structural portions of the Buildings. Tenant warrants that
it has measured the Premises and agrees that any payment based on
the square feet of the Premises will be calculated using 5,442
square feet throughout the Term.
"Tenant's Parking Allocation" means seventeen (17)
parking stalls at 1770-1776 West 2300 South, and six (6) parking
stalls at 1780 West 2300 South shown on the attached Exhibit B.
"Term" means the period commencing on the
Commencement Date and expiring on the Expiration Date, unless
this Lease is terminated earlier pursuant to the provisions of
this Lease.
2. AGREEMENT OF LEASE - Landlord leases the Premises to
Tenant and Tenant leases the Premises from Landlord for the Term,
together with such rights of pedestrian and vehicular ingress and
egress on, over and across the Common Areas as are reasonably
necessary for the use of the Premises, in accordance with the
provisions set forth in this Lease. In addition, Tenant shall
have the use of a number of parking stalls designated by Landlord
for Tenant's exclusive use equal to Tenant's Parking Allocation.
3. RENT - Tenant shall pay the minimum total rental of Thirty
Five Thousand Six Hundred Sixty Two Dollars Forty Four Cents
($35,662.44) and any additional rent assessed pursuant to the
terms of this Lease ("Additional Rent"). Such minimum total rent
and any Additional Rent shall be paid in monthly installments as
set forth below, which installments shall be paid in advance on
the first day of each and every month during the Term.
(A) Tenant covenants to pay to Landlord the Base Rent
and any Additional Rent at the address for Landlord set forth at
the outset of this Lease or at such other place as Landlord may
designate, in advance on or before the first day of each calendar
month during the Term, commencing on the Commencement Date. If
the Commencement Date is not the first day of a calendar month,
on or before the Commencement Date, the Base Rent shall be paid
for the initial fractional calendar month (prorated on a per diem
basis) and for the first full calendar month following the
Commencement Date. If this Lease expires or terminates on a day
other than the last day of a calendar month, the Base Rent for
such fractional month shall be prorated on a per diem basis.
(B) The Base Rent will be adjusted each January to the
proportionate increase in the Consumer Price Index for All Urban
Consumers, US City Average, All Items for the previous twelve
months. The revised Base Rent will be in effect for January's
lease payment. The first lease payment adjustment will begin
January 1998. In no event will an adjustment to the Base Rent
pursuant to this paragraph result in a Base Rent amount less than
$2,971.87.
(C) Each Base Rent payment shall be increased by the sum
of Ten Dollars ($10.00) for each day that the Base Rent payment
is later than the tenth (10th) day after which payment is due.
4. SECURITY - Tenant has deposited with Landlord $2,971.87 as
security for the faithful performance by Tenant of all the terms,
covenants and conditions of this Lease on Tenant's part to be
performed. Provided Tenant has fully and faithfully carried out
all of said terms, covenants and conditions on Tenant's part to
be performed, this security deposit shall be returned to Tenant
after the expiration of this Lease without interest.
(A) In the event of a bona fide sale, subject to this
Lease, Landlord shall have the right to transfer the security to
the buyer for the benefit of Tenant. Landlord, upon notice to
Tenant of such sale and assignment of the security deposit to the
buyer, shall be released from all liability for the return of
such security. Tenant agrees to look solely to the new Landlord
for the return of the said security, and it is agreed that this
shall apply to subsequent transfer or assignment of the security
to any new Landlord.
(B) The security deposited under this Lease shall not be
mortgaged, assigned or encumbered by the Tenant without the
written consent of the Landlord.
5. CARE OF PREMISES, ALTERATIONS, ETC. - Tenant shall take
good care of the Premises and any fixtures which are the property
of the Landlord which may be located or situated on, in or made
a part of the Premises and shall, at Tenant's own cost and
expense make all repairs to the Premises and fixtures other than
structural repairs. At the end of the Term, Tenant shall deliver
the Premises and any fixtures belonging to Landlord located,
situated on, or made a part of the Premises in good order and
condition, damages by the elements excepted.
(A) Tenant shall use the Premises for the Permitted Use
and no other. Tenant shall promptly execute and comply with all
statutes, ordinances, rules, restrictive covenants, orders,
regulations and requirements of any governmental or
quasi-governmental authority, including departments, bureaus and
the like, having jurisdiction applicable to the Premises, for the
correction, prevention, and abatement of violations, nuisances or
other grievances, in, upon, or connected with the Premises during
the Term, at the Tenant's sole cost and expense. Tenant shall
provide Landlord at Landlord's request evidence of compliance
with all legal obligations and inspection of any permits,
licenses, or other requirements of law.
(B) Tenant's, Tenant's successors, heirs, executors or
administrators shall not make any alterations to the Premises
without the Landlord's consent in writing, or occupy, or permit
or suffer the same to be occupied for any business or purpose
deemed disreputable or extra-hazardous on account of fire, under
the penalty of damages and forfeiture, and in the event of a
breach thereof, the Lease shall immediately cease and terminate,
at the option of the Landlord, as if it were the expiration of
the original Term.
(C) Tenant will not do anything in or to the Premises,
or bring anything into the Premises, or permit anything to be
done or brought into or kept in the Premises, which will in any
way increase the rate of fire insurance on said Premises, nor use
the Premises or any part thereof, nor allow or permit its use for
any business or purpose which would cause an increase in the rate
of fire insurance on said Buildings. Tenant agrees to pay as
Additional Rent the cost of any increase in fire insurance
resulting from Tenant's use of the Premises on demand by
Landlord.
(D) Tenant shall not use, produce, store, release,
dispose or handle in or about the Premises or transfer to or from
the Premises (or permit any other party to do such acts,
including, without limitation, Tenant's independent contractors)
any Hazardous Substance except in compliance with all applicable
Environmental Laws. Tenant shall not construct or use any
improvement, fixtures or equipment or engage in any act on or
about the Premises that would require the procurement of any
license or permit pursuant to any environmental law. Tenant shall
immediately notify Landlord of (i) the existence of any Hazardous
Substance on or about the Premises that may be in Violation of
any Environmental Law (regardless of whether Tenant is
responsible for the existence of such Hazardous Substance), (ii)
any proceeding or investigation by any governmental authority
regarding the presence of any Hazardous Substance on the Premises
or the migration thereof to or from any other property, (iii) all
claims made or threatened by any third party against Tenant
relating to any loss or injury resulting from any Hazardous
Substance, or (iv) Tenant's notification of the national Response
Center of any release of a reportable quantity of a Hazardous
Substance in or about the Premises. "Environmental Laws" shall
mean any federal, state of local statute, ordinance, rule,
regulation or guideline pertaining to health, industrial hygiene,
or the environment, including without limitation, the federal
Comprehensive Environmental Response, Compensation, and Liability
Act; "Hazardous Substance" shall mean all substances, materials
and wastes that are or become regulated, or classified as
hazardous or toxic, under any Environment Law.
If it is determined that any Hazardous Substance exists on
or about the Premises resulting from any act of Tenant or its
employees, agents, contractors, independent contractors,
licensees, subtenants or customers, Tenant shall, at Tenant's
sole cost and expense, immediately take necessary action to cause
the removal of said substance and shall remove such within ten
(10) days after discovery. Notwithstanding the above, if the
Hazardous Substance is of a nature that can not be reasonably
removed within ten (10) days Tenant shall not be in default if
Tenant has commenced to cause such removal and proceeds
diligently thereafter to complete removal, except that in all
cases, any Hazardous Substance must be removed within sixty (60)
days after discovery thereof. Furthermore, notwithstanding the
above, if in the good faith judgment of Landlord, the existence
of such Hazardous Substance creates an emergency or is of a
nature which may result in immediate physical danger to persons
at the Premises or the environment, Landlord may enter upon the
Premises and remove such Hazardous Substances and charge the cost
thereof to Tenant as Additional Rent owing hereunder.
(E) Tenant shall not encumber or obstruct the sidewalk
in front of, entrance to, or halls and stairs of said Premises,
nor allow the same to be obstructed or encumbered in any manner.
(F) Tenant will not under any circumstances allow Common
Areas or Tenant's Parking Allocation to collect debris, garbage,
refuse, or any other object or substance used in association with
Tenant's business or discarded by Tenant's employees, agents,
contractors, independent contractors, licensees, subtenants or
customers (collectively "Tenant Debris"). If Tenant fails to
keep the Common Areas or Tenants' Parking Allocation free of
Tenant Debris, as determined by Landlord in its sole discretion,
Landlord may cause such Tenant Debris to be removed and charge
the cost of such removal to Tenant as Additional Rent hereunder.
(G) Tenant is responsible for snow removal from porches
and walkways in front of the Premises to the parking area and
assumes all liability with regard to the clearing of moisture
accumulation on said walkways.
(H) In no event shall Landlord be liable to Tenant, its
employees, agents, customers, contractors, independent
contractors, or invitees for any damage or injury to person or
property caused by or resulting from steam, electricity, gas,
water, rain, ice or snow, or any leak or flow from or into any
part of the Premises or said Buildings or from any damage or
injury caused by or due to the negligence of the Landlord.
(I) Tenant will not under any circumstances allow
Tenant's employees, agents, contractors, independent contractors,
licensees, subtenants or customers to bring animals onto the
Premises. If animals are allowed on the Premises, Landlord may
charge the cost of restoring any damage caused by the animals to
Tenant as Additional Rent hereunder.
(J) The respective obligations (if any) of Landlord and
Tenant to prepare the Premises for occupancy are described on the
attached Exhibit C. Landlord and Tenant (as applicable) shall
perform such work diligently, in a first-class and workmanlike
manner and in compliance with all applicable laws, ordinances,
rules and regulations. With respect to any work performed by
Landlord, Landlord and Tenant shall, at a mutually convenient
time, conduct a walk-through of the Premises prior to or within
fifteen (15) days after the Commencement Date, and prepare a list
of items to be promptly completed by Landlord.
6. COMMON AREAS - Areas within the outer property lines of the
Development as delineated on the plat attached hereto marked
Exhibit B, exclusive of areas therein specified or as built for
leasing to Tenants shall be known as Common Areas, as shall all
other areas from time to time designated by Landlord for use as
part of the Development. Landlord shall have the right, at its
sole cost and expense, to improve any portions of said Common
Areas by installing and constructing thereon parking lots,
pedestrian walkways, sidewalks, exterior canopies, delivery and
landscaped areas and lighting facilities, and other desired
improvements to the extent to which the Landlord shall determine
to be necessary. Common Areas shall be available for the common
use of all Landlord's tenants in the Development, their
employees, customers, and invitees. Notwithstanding anything
elsewhere herein contained, Landlord reserves the right from time
to time to make reasonable changes in, additions to and deletions
from the Common Areas and the purposes to which the same may be
devoted, and the use of Common Areas shall at all times be
subject to such reasonable rules and regulations as may be
promulgated by the Landlord. Landlord may, at Tenants expense,
clean Common Areas or Tenant's Parking Allocation of any object
or substance that Tenant or Tenant's employees, customers,
contractors, independent contractors, and invitees allow to
remain in Common Areas or Tenant's Parking Allocation and charge
the cost of such cleaning to Tenant as Additional Rent hereunder.
7. SERVICES PROVIDED BY LANDLORD - As long as Tenant is not in
default of any of the terms and conditions of this Lease,
Landlord agrees to provide the following services:
(A) Water for ordinary lavatory purposes. If, in the
sole determination of Landlord, Tenant shall use or consume water
for any purpose other than ordinary lavatory purposes or in
unusual quantities, Tenant shall pay to Landlord as Additional
Rent any charge or fee assessed or imposed upon Landlord by
reason of such use, whether determined by meter or otherwise, as
soon as the same is assessed or imposed. Should Landlord
determine that Tenant's water usage should be separately metered,
Tenant shall pay any expense incurred by Landlord in connection
with the installation, setting and maintenance of such meter in
the Premises. Water and sewer fees are included in the Common
Area Maintenance fee paid by Tenant. In the event that water and
sewer charges due and owing by Landlord for the Buildings shall
be increased above those charges during the base year (which is
defined as the fiscal year used by the governmental authority
assessing such fees in effect on the Commencement Date of this
Lease), Tenant agrees to pay as Additional Rent within thirty
(30) days of receipt of notice from Landlord, Tenant's pro rata
share of additional water and sewer charges.
(B) Common Area Maintenance - Landlord will maintain or
cause to be maintained the Common Areas, and Tenant shall
reimburse Landlord for Tenant's pro rata share of the cost of
such maintenance as hereinafter provided. Common Area maintenance
costs and expenses shall include, but shall not be limited to,
landscaping, parking area snow removal, upkeep, repairs,
replacements and improvements in the Common Areas, exterior
painting, sweeping and cleanup, depreciation allowance on any
machinery and equipment owned by Landlord and used in connection
therewith, payroll and payroll costs, utility services, fire
sprinkler installation costs (amortized over 15 years), premiums
for public liability, property damage and fire insurance which
shall insure Landlord in the Common Areas, and any real estate
tax consultant expense incurred for the purpose of maintaining
equitable tax assessments on the Development. All property taxes
or assessments levied or assessed against the Common Areas that
are not separately assessed, shall be determined as follows: (i)
for land, by the ratio of land area designated for the Common
Area use to the total land area in the Development; and (ii) for
improvements, on a fair and equitable allocation among the
various improvements in the Development, giving weight to the
factors that determine the amount of the real property tax or
assessment in question. Common Area maintenance costs and
expenses shall also include administrative costs equal to ten
percent (10%) of the total cost paid or incurred by the Landlord
under this paragraph.
(C) For the space at 1774 West 2300 South and 1776 West
2300 South:
(1) Electricity for lighting, air conditioning,
heating, and office equipment.
(2) Natural Gas for heating.
(D) Landlord is not obligated to provide any other
services as part of this Agreement. Tenant is responsible for the
following services: Electrical, natural gas, telephone, air
conditioning, heating, cooling, ventilation, snow removal on
porches and walkways in front of the Premises, and any and all
other services the Tenant may require, excepting those services
provided in subsection (C) above.
In the event any utility service to the Premises is interrupted
or temporarily discontinued for any reason whatsoever, Landlord
shall not be liable therefore to Tenant and the rent required to
be paid hereunder shall not be abated as a result thereof. Tenant
waives any claims it might otherwise have against Landlord as a
result of any such interruption or discontinuation.
8. COMMON AREA MAINTENANCE FEE - Tenant shall pay as
Additional Rent to Landlord, Tenant's pro rata share of such
Common Area expenses in the following manner:
(A) Tenant shall pay Landlord in advance on the first
day of each calendar month during the Term an amount equal to the
total square feet of the Premises multiplied by 0.065. The
foregoing rate per square foot may be adjusted by Landlord by
notice to Tenant at the end of any calendar month on the basis of
Landlord's experience and reasonably anticipated costs.
(B) Within thirty (30) days following the end of each
calendar year, Landlord shall furnish Tenant a statement covering
the calendar year just expired, showing the total operating
costs, the amount of Tenant's pro rata share of such Common Area
expenses for such calendar year and the payments made by Tenant
with respect to such calendar year. Tenant's pro rata share of
the total Common Area expenses for the previous calendar year
shall be that portion of all such expenses which is equal to the
proportion which the number of square feet of the Premises bears
to the total number of square feet of gross leasable area of
buildings in the entire Development which are from time to time
completed and occupied as of the commencement of each calendar
year. If Tenant's pro rata share of such Common Area expenses
exceeds Tenant's payments made pursuant to subparagraph (A)
above, Tenant shall pay Landlord the deficiency within ten (10)
days after receipt of such statement. If the payments exceed
Tenant's pro rata share of such Common Area expenses, Tenant
shall be entitled to offset the excess against Common Area
expense payments to become due Landlord.
9. REAL ESTATE TAXES - Tenant acknowledges that the Premises
comprise approximately 14% of the Building at 1772 West 2300
South, and 13% of the Building at 1780 West 2300 South, which
shall be defined as "Tenant's Share." Real estate taxes are
included in the Common Area Maintenance fee paid by Tenant. In
the event that real estate taxes due and owing by Landlord for
the Buildings and property shall be increased above those charges
during the base year (which is defined as the tax or fiscal year
used by the governmental authority assessing such taxes in effect
on the Commencement Date), Tenant agrees to pay as Additional
Rent within thirty (30) days of receipt of notice from Landlord,
an amount equal to Tenant's Share of such additional real estate
taxes.
10. NO ABATEMENT OF RENT OR ADDITIONAL RENT - Landlord shall
not be liable for failure to give possession of the Premises upon
the Commencement Date by reason of the fact that the Premises are
not ready for occupancy or because a prior tenant or any other
person is wrongfully holding over or is in wrongful possession,
or for any other reason, and the Term shall not be extended by
reason of such delay.
(A) This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements
hereunder on part of Tenant to be performed shall in no way be
affected, impaired or excused because Landlord is unable to
supply or is delayed in supplying any service expressly or
impliedly to be supplied or is unable to make, or is delayed in
making any repairs, additions, alterations or decorations or is
unable to supply or is delayed in supplying any equipment or
fixtures if Landlord is prevented or delayed from so doing by
reasons of government preemption in connection with a National
Emergency or in connection with any rule, order or regulation of
any department or subdivision thereof of any governmental agency
or by reason of the conditions of supply and demand which have
been or are affected by war or other emergency.
(B) No diminution or abatement of rent, or other
compensation, shall be claimed or allowed for inconvenience or
discomfort arising from the making of repairs or improvements to
the Buildings or to its appliances, nor for any space taken to
comply with any law, ordinance or order of a government
authority. In respect to the various "services" if any, herein
expressly or impliedly agreed to be furnished by Landlord to
Tenant, it is agreed that there shall be no diminution or
abatement of the rent, or any other compensation, for
interruption or curtailment of such "service" when such
interruption or curtailment shall be due to accident, alteration
or repairs desirable or necessary to be made or to Landlord's
inability or difficulty in securing supplies or labor for the
maintenance of such "service" or to some other cause, nor gross
negligence on the part of Landlord. No such interruption or
curtailment of any such "service" shall be deemed a constructive
eviction. Landlord shall not be required to furnish, and Tenant
shall not be entitled to receive any "services" during any period
when Tenant shall be in default in respect to the payment of
rent. Neither shall there be any abatement or diminution of rent
because of making of repairs, improvements or decorations to the
Premises after the Commencement Date, it being understood that
rent shall, in any event, commence as of the Commencement Date.
11. DAMAGE TO THE PREMISES - Tenant must give Landlord prompt
notice of fire, accident, casualty, damage or dangerous or
defective condition. If the Premises can not be used because of
fire or other casualty, Tenant is not required to pay rent for
the time the Premises are unusable. If part of the Premises can
not be used, Tenant must pay rent for the usable part. Landlord
shall have the right to decide which part of the Premises is
usable. Landlord need only repair the damaged structural parts of
the Premises. Landlord is not required to repair or replace any
equipment, fixtures, furnishings or decorations unless originally
installed by Landlord. Landlord is not responsible for delays due
to settling insurance claims, obtaining estimates, labor and
supply problems or any other cause not fully under Landlord's
control.
(A) If the fire or other casualty is caused by an act or
neglect of Tenant, Tenant's employees or persons on the Premises
with permission of Tenant, or at the time of the fire or casualty
Tenant is in default in any term of this Lease, then all repairs
will be made at Tenant's expense and Tenant must pay the full
rent with no adjustment. The cost of any such repairs performed
by Landlord will charged to Tenant as additional rent hereunder.
(B) Landlord has the right to demolish or rebuild the
Buildings if there is substantial damage by fire or other
casualty. Landlord may cancel this Lease within thirty (30) days
after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The Lease will end
thirty (30) days after Landlord's cancellation notice to Tenant.
Tenant must deliver the Premises to Landlord on or before the
cancellation date in the notice and pay all rent due to the date
of the fire or casualty. If the Lease is canceled, Landlord is
not required to repair the Premises or Buildings. The
cancellation does not release Tenant of liability in connection
with the fire or casualty.
12. INSPECTION AND ENTRY BY LANDLORD - Tenant agrees that
Landlord and Landlord's agents and other representatives shall
have the right to enter into and upon the Premises, or any part
thereof, at all reasonable hours for the purpose of examining the
same, or making such repairs or alterations therein as may be
necessary for the safety and preservation of the Premises.
(A) Tenant also agrees to permit Landlord or the
Landlord's agents to show the Premises to persons wishing to
lease or purchase the Premises. Tenant further agrees that on and
after the sixth month preceding the Expiration Date, Landlord or
Landlord's agents shall have the right to place notices on the
front of said Premises, or any part thereof, offering the
Premises "To Let," "For Lease" or "For Sale" and the Tenant
agrees to permit the same to remain thereof without hindrance or
molestation.
13. GLASS - Landlord may replace, at the expense of Tenant, any
and all broken glass in and about the Premises. Landlord may
insure, and keep insured, all plate glass in the Premises for and
in the name of Landlord. Bills for the premiums therefor shall be
rendered by Landlord to Tenant at such times as Landlord may
elect, and shall be due from and payable by Tenant when rendered,
and the amount thereof shall be deemed Additional Rent. Damage
and injury to the said Premises, caused by the carelessness,
negligence or improper conduct on the part of Tenant or Tenant's
agents or employees shall be repaired as speedily as possible by
Tenant at Tenant's own cost and expense.
14. SIGNS - Tenant shall neither place, nor cause nor allow to
be placed, any sign or signs of any kind whatsoever at, in or
about the entrance to said Premises or any part of same, except
in or at such place or places as may be indicated by the
Landlord's written consent, which consent shall not be
unreasonably withheld. Any sign installation shall not adversely
affect or damage the physical structure of the Buildings, nor
detract from the overall harmony of the Buildings and
Development. In the event Landlord or Landlord's representatives
shall deem it necessary to remove any such sign in order to paint
the Premises or the Buildings wherein same is situated or make
any repairs, alterations, improvements in or upon the Premises or
the Buildings or any part of the Premises or the Buildings,
Landlord shall have the right to do so, providing any sign be
removed and replaced at Landlord's expense whenever the said
repairs, alterations or improvements shall be completed. Tenant
agrees that it will, at its own cost and expense, remove any and
all signs upon vacating the premises and restore the Buildings to
its original condition before any sign or signs were installed.
15. INSURANCE - On or before the date of this Lease, Tenant
shall, at Tenant's sole cost, procure and continue in force
commercial general liability insurance with a combined single
limit for bodily injury and property damage of not less than
$1,000,000 per occurrence, including, without limitation,
contractual liability coverage for the performance by Tenant of
the indemnity provision set forth in this Lease. Such minimum
limits shall in no event limit the liability of Tenant under this
Lease. Such insurance shall be with companies reasonably
acceptable to Landlord, and Tenant shall furnish Landlord with
certificates of coverage. Such insurance shall not be cancelable
or subject to reduction of coverage or other material
modification except after at least ten (10) days' prior written
notice to Landlord by the insurer. Such insurance shall be
written as a primary policy, not contributing with and not in
excess of the coverage which Landlord may carry, and shall name
Landlord as an additional insured. Tenant shall, at least ten
(10) days prior to the expiration of such insurance, furnish
Landlord with a renewal certificate for such insurance. Tenant
agrees to furnish to Landlord, prior to the effective date of
this Lease, a binder or other such certificate evidencing such
insurance coverage.
(A) Tenant agrees that it will, at its own cost and
expense, keep its furniture, fixtures, equipment, records, and
personal property insured against loss or damage by fire or other
peril normally covered by "extended coverage" endorsements, and
shall deliver to Landlord prior to the effective date of this
Lease, a binder or other such certificate of such insurance
coverage.
16. SUBLETTING OR ASSIGNMENT - Neither the Premises nor any
portion of the Premises may be sublet, nor may this Lease be
assigned without the express written consent of Landlord, which
consent shall not be unreasonably withheld, and upon such terms
and conditions as Landlord may require.
17. DEFAULT
(A) The occurrence of any of the following events shall
constitute a default by Tenant under this Lease: (i) Tenant fails
to timely pay any installment of Base Rent or any other sum due
under this Lease, and such failure is not cured within five (5)
days after written notice is given to Tenant; (ii) Tenant fails
to timely perform any other obligation to be performed by Tenant
under this Lease, and such failure is not cured within ten (10)
days after written notice is given to Tenant; provided, however,
that if more than ten (10) days is reasonably required to cure
such failure, Tenant shall not be in default if Tenant commences
such cure within such ten (10) day period and diligently
prosecutes such cure to completion; or (iii) Tenant or any
guarantor files a petition in bankruptcy, becomes insolvent, has
taken against such party in any court, pursuant to state or
federal statute, a petition in bankruptcy or insolvency or for
reorganization or appointment of a receiver or trustee, which
involuntary petition is not dismissed within sixty (60) days,
petitions for or enters into an arrangement for the benefit of
creditors or suffers this Lease to become subject to a writ of
execution.
(B) On any default by Tenant under this Lease, Landlord
may at any time, without waiving or limiting any other right or
remedy available to Landlord, (i) perform in Tenant's stead any
obligation that Tenant has failed to perform, and Landlord shall
be reimbursed promptly for any reasonable cost incurred by
Landlord with interest from the date of such expenditure until
paid in full at the rate of eighteen percent (18%) per annum (the
"Interest Rate"), (ii) terminate Tenant's rights under this Lease
by written notice, (iii) reenter and take possession of the
Premises by any lawful means (with or without terminating this
Lease), or (iv) pursue any other remedy allowed by law. Tenant
shall pay to Landlord the reasonable cost of recovering
possession of the Premises, all reasonable costs of reletting,
including reasonable renovation, remodeling and alteration of the
Premises, the amount of any commissions paid by Landlord in
connection with such reletting, and all other reasonable costs
and damages arising out of Tenant's default, including reasonable
attorneys' fees and costs. Notwithstanding any termination of
Tenant's rights under this Lease or reentry of the Premises, the
liability of Tenant for the rent payable under this Lease shall
not be extinguished for the balance of the Term, and Tenant
agrees to compensate Landlord on demand for any deficiency. No
reentry or taking possession of the Premises or other action by
Landlord on or following the occurrence of any default by Tenant
shall be construed as an election by Landlord to terminate this
Lease or as an acceptance of any surrender of the Premises,
unless Landlord provides Tenant written notice of such
termination or acceptance. Following a default by Tenant under
this Lease, Landlord shall exercise commercially reasonable, good
faith efforts to mitigate its damages as required by applicable
Utah law.
(C) If Tenant fails to pay within five (5) days of the
date due any amount required to be paid by Tenant under this
Lease, such unpaid amount shall bear interest at the Interest
Rate from the due date of such amount to the date of payment in
full, with interest, and Landlord may also charge a sum of five
percent (5%) of such unpaid amount as a service fee. All amounts
due under this Lease are and shall be deemed to be rent or
Additional Rent, and shall be paid without abatement, deduction,
offset or prior notice or demand, unless specifically provided by
the terms of this Lease. Landlord shall have the same remedies
for a default in the payment of any amount due under this Lease
as Landlord has for a default in the payment of Base Rent.
(D) Landlord shall not be in default under this Lease
unless Landlord or the holder of any mortgage or deed of trust
covering the Buildings whose name and address have been furnished
to Tenant in writing fails to perform an obligation required of
Landlord under this Lease within thirty (30) days after written
notice by Tenant to Landlord and to such holder, specifying the
respects in which Landlord has failed to perform such obligation.
If the nature of Landlord's obligation is such that more than
thirty (30) days are reasonably required for performance or cure,
Landlord shall not be in default if Landlord or such holder
commences performance within such thirty (30) day period and
after such commencement diligently prosecutes the same to
completion. In no event may Tenant terminate this Lease or
withhold the payment of rent or other charges provided for in
this Lease as a result of Landlord's default.
(E) If after default in payment of rent or violation of
any other provision of this Lease, or upon the expiration of this
Lease, Tenant moves out or is dispossessed and fails to remove
any trade fixtures or other property prior to such said default,
removal, expiration of Lease, or prior to the issuance of the
final order or execution of the warrant, then and in that event,
the said fixtures and property shall be deemed abandoned by the
said Tenant and shall become the property of Landlord.
18. PARKING - Automobiles of Tenant and Tenant's agents,
employees, contractors, independent contractors, or invitees
shall be parked only within the parking stalls designated by
Landlord in accordance with Tenant's Parking Allocation or
parking areas not otherwise reserved by Landlord or specifically
designated for use by any other tenant or occupants associated
with any other tenant. Tenant and Tenant's agents, employees,
contractors, independent contractors, or invitees use of the
parking areas, including parking stalls designated for Tenant's
exclusive use, shall be limited to such uses as are ordinary and
customary for commercial office uses. In no event shall Tenant
or Tenant's agents, employees, contractors, independent
contractors, or invitees leave automobiles in the parking areas,
including parking stalls designated for Tenant's exclusive use,
for a consecutive time period in excess of twenty-four (24)
hours. Landlord may from time to time designate additional
parking spaces for Tenant and make such other rules and
regulations as Landlord reasonably determines to be necessary or
appropriate to the proper use of the parking areas. Landlord and
Landlord's representatives may, without any liability to Tenant
or Tenant's agents, employees, contractors, independent
contractors, or invitees cause to be removed any automobile of
Tenant or Tenant's agents, employees, contractors, independent
contractors, or invitees that may be parked wrongfully in a
prohibited or reserved parking area, and Tenant agrees to
indemnify, defend and hold harmless Landlord from and against all
claims, liabilities and expenses, including attorneys' fees,
arising in connection with such removal. In addition, Tenant
agrees that it shall pay the cost of such removal as Additional
Rent hereunder.
19. NO WAIVER BY LANDLORD - The failure of Landlord to insist
upon a strict performance of any of the terms, conditions and
covenants herein shall not be deemed a waiver of any rights or
remedies that Landlord may have, and shall not be deemed a waiver
of any subsequent breach or default in the terms, conditions and
covenants herein contained. This instrument may not be changed,
modified, discharged or terminated orally.
20. LEASE NOT A LIEN - This Lease shall not be a lien against
the Premises in respect to any mortgage that may now or in the
future be placed against said Premises, and that the recording of
such mortgage or mortgages shall have preference and precedence
and be superior and prior in lien of this Lease, irrespective of
the date of recording, and the Tenant agrees to execute without
cost any such instrument which may be deemed necessary or
desirable to further effect the subordination of this Lease to
any such mortgages, and a refusal to execute such instrument
shall entitle the Landlord, or the Landlord's assigns and legal
representative to the option of canceling this Lease without
incurring any expenses or damages and the Term hereby granted is
expressly limited accordingly.
21. ESTOPPEL CERTIFICATE - Tenant shall, within fifteen (15)
days after Landlord's written request, execute and deliver to
Landlord an estoppel certificate in favor of Landlord and such
other persons as Landlord shall request setting forth the
following: (a) a ratification of this Lease; (b) the Commencement
Date and Expiration Date; (c) that this Lease is in full force
and effect and has not been assigned, modified, supplemented or
amended (except by such writing as shall be stated); (d) that all
conditions under this Lease to be performed by Landlord have been
satisfied, or, in the alternative, those claimed by Tenant to be
unsatisfied; (e) that, to the best of Tenant's knowledge, no
defenses or offsets exist against the enforcement of this Lease
by Landlord, or, in the alternative, those claimed by Tenant to
exist; (f) the date to which rent has been paid; (g) the amount
of the Security Deposit; and (h) such other information as
Landlord may reasonably request. Landlord's mortgage lenders and
purchasers shall be entitled to rely on any estoppel certificate
executed by Tenant.
22. QUIET POSSESSION - Landlord covenants that Tenant, on
paying the rent and Additional Rent, and faithfully performing
the covenants required or imposed upon Tenant, shall and may
peacefully and quietly have, hold and enjoy the Premises for the
Term, provided however, that this covenant shall be conditioned
upon the retention of title to the Premises by the Landlord.
23. ARBITRATION - Any controversy or claim arising out of or
relating to this contract, or the breach thereof, shall be
settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
24. ATTORNEYS FEES - In the event of any action at law or in
equity between Landlord and Tenant to enforce any of the
provisions and/or rights hereunder or to recover damages for
breach thereof, the unsuccessful party to such litigation
covenants and agrees to pay to the successful party all costs and
expenses, including reasonable attorney's fees, incurred therein
by such successful party, and if such successful party shall
recover judgment in any such action or proceeding, such costs and
expenses and attorney's fees shall be included in and as a part
of such judgment.
25. FORCE MAJEURE - Tenant agrees that Landlord shall not be
liable for any delay, detention, failure to perform, loss or
damages, including consequential damages, resulting from causes
beyond the control of Landlord, including but not limited to:
acts of God; acts or omissions of Tenant; fires; strikes;
insurrections; riots; embargoes; delays in transportation;
inability to obtain supplies; or requirements or regulations of
the United States government or any other civil or military
authority. Delays or nonperformance excused by this provision
shall not excuse payment of any amount due hereunder owed at the
time of the occurrence.
26. INDEMNITY - Tenant will indemnify landlord and save it
harmless from and against any and all claims, actions, damages,
injury, damage to property and/or any other civil liability
arising from or out of any occurrence in, upon or at the Premises
or from the occupancy or use by Tenant of the Premises or any
part thereof, relating to any breach of any covenant required to
be performed by Tenant hereunder, or occasioned wholly or in part
by any act or omission, including, without limitation, any
hazardous substances, hazardous wastes, pollutants or
contaminants deposited, released or stored by Tenant, its agents,
contractors, independent contractors,, employees, servants,
sublessees, concessionaires or invitees.
27. NOTICES - Any notices or demand required or permitted to be
given under this Agreement shall be deemed to have been properly
given when, and only when, the same is in writing and has been
personally delivered to an officer of Landlord or Tenant at the
following addresses:
LANDLORD: Tri-Cox, L.C.
Attention: M. Lee Cox
1818 West 2300 South
West Valley City, Utah 84119
TENANT: Paradigm Medical Industries, Inc.
1772 West 2300 South
West Valley City, Utah 84119
28. SEVERABILITY - If any provision of this Lease or the
application of any provision of this Lease to any person or
circumstance shall to any extent be invalid, the remainder of
this Lease or the application of such provision to persons or
circumstances other than those as to which such provision is held
invalid shall not be affected by such invalidity. Each provision
of this Lease shall be valid and enforceable to the fullest
extent permitted by law.
29. BROKERAGE COMMISSIONS - Tenant shall indemnify, defend and
hold harmless Landlord from and against all claims, liabilities
and expenses, including reasonable attorneys' fees, relating to
any brokerage commission or finder's fee arising out of any
agreement made by Tenant. Landlord shall indemnify, defend and
hold harmless Tenant from and against all claims, liabilities and
expenses, including reasonable attorneys' fees, relating to any
brokerage commission or finder's fee arising out of any agreement
made by Landlord.
30. RECOURSE BY TENANT - Anything in this Lease to the contrary
notwithstanding, Tenant shall look solely to the equity of
Landlord in the Buildings and the land serving the Buildings,
subject to the prior rights of the holder of any mortgage or deed
of trust, for the collection of any judgment (or other judicial
process) requiring the payment of money by Landlord on any
default or breach by Landlord with respect to any of the terms,
covenants and conditions of this Lease to be observed or
performed by Landlord, and no other asset of Landlord or any
other person shall be subject to levy, execution or other
procedure for the satisfaction of Tenant's remedies.
31. ENTIRE AGREEMENT - It is agreed between the parties hereto
that there are no other agreements or understandings between them
relating to the subject matter of this Agreement. This Agreement
supersedes all prior agreements, oral or written, between the
parties and is intended as a complete and exclusive statement of
the Agreement between the parties. Neither this Agreement, nor
its execution, have been induced by any reliance, representation,
stipulation, warranty, agreement or understanding of any kind
other than those herein expressed. No change or modification of
this Agreement shall be valid unless the same be in writing and
signed by the parties.
32. BINDING EFFECT - It is mutually understood and agreed that
the covenants and agreements contained in this Lease shall be
binding upon the parties hereto and upon their respective
successors, heirs, executors and administrators.
33. GOVERNING LAW - This Agreement shall be construed in
accordance with and governed by the laws of the State of Utah,
irrespective of the fact that a party hereto may not be a
resident of or maintain a place of business in that State.
34. AUTHORIZATION - Each individual executing this Lease does
represent and warrant to each other so signing (and each other
entity for which another person may be signing) that he has been
duly authorized to deliver this Lease in the capacity and for the
entity set forth where he signs.
IN WITNESS WHEREOF, the parties have set their hand and
seal this sixth day of December, 1996.
LANDLORD: Tri-Cox, L.C. a Utah limited liability
company,
By: M. Lee Cox
Its: Managing Member
TENANT: Paradigm Medical Industries, Inc.
By: Thomas Motter
Its: Chief Executive Officer
Attached hereto and incorporated herein:
Exhibit "A" - Floor Plan
Exhibit "B" - Development Site Plan
Exhibit "C" - Preparation of Premises for Occupancy and
Permission To Modify Premises
Exhibit "D" - Lease Payment and Common Area Maintenance Payment
Schedule
<PAGE>
EXHIBIT "C"
to
COMMERCIAL LEASE
PREPARATION OF PREMISES FOR OCCUPANCY
The respective obligations (if any) of Landlord and Tenant
to prepare the Premises referred to in the foregoing instrument
for occupancy are set forth on the attachments.
Landlord: None.
Tenant: None.
PERMISSION TO MODIFY PREMISIS
1780 LC
Tenant may remove the carpet in the North-East room of the
Premisis and install their own floor covering.
Tenant may also make modifications to the ceiling of the
North-East room for purposes of preparing the room for "clean"
component assembly.
<PAGE>
EXHIBIT "D"
to
COMMERCIAL LEASE
<TABLE>
<CAPTION>
Payment Due Lease CAM Total
<S> <C> <C> <C>
January 1, 1997 $2,971.87 $353.50 $3,325.37
February 1, 1997 $2,971.87 $353.50 $3,325.37
March 1, 1997 $2,971.87 $353.50 $3,325.37
April 1, 1997 $2,971.87 $353.50 $3,325.37
May 1, 1997 $2,971.87 $353.50 $3,325.37
June 1, 1997 $2,971.87 $353.50 $3,325.37
July 1, 1997 $2,971.87 $353.50 $3,325.37
August 1, 1997 $2,971.87 $353.50 $3,325.37
September 1, 1997 $2,971.87 $353.50 $3,325.37
October 1, 1997 $2,971.87 $353.50 $3,325.37
November 1, 1997 $2,971.87 $353.50 $3,325.37
December 1, 1997 $2,971.87 $353.50 $3,325.37
</TABLE>
Late fees begin on the 11th day of the month. Please include the
late fees with payment.
Amendment to Lease Agreement
For Good Consideration, TRI-COX, L.C. a Utah limited liability
company ("Landlord"), and PARADIGM MEDICAL INDUSTRIES, INC., a
Delaware corporation ("Tenant"), under a certain Lease Agreement
("Lease") between them for premises known as 1772 West 2300 South,
West Valley City, Utah, dated the 22 day of November 1995, under
which the Tenant continues month-to-month, hereby modify and amend
said Lease in the following particulars:
Landlord agrees to lease to Tenant an additional 2,233 square feet
of office space in the buildsing located at 1780 West 2300 South in
the city of West Valley City, County of Salt Lake, State of Utah
("Additional Premises"), for a term of 26 days beginning on December
5, 1996 and ending on December 31, 1996, for use and occupancy as
office. Tenant accepts and leases the Additional Premises in its
current condition, configuration, and state of repair. Consideration
for the Additional Premises are as follows:
1. RENT -- Tenant shall pay the rental of Ten Dollars ($10.00) plus
the value Tenant in its sole discretion calculates as the utility
from leasing the Premises for the term of this Amendment.
2. SERVICES PROVIDED BY LANDLORD -- Landlord is not obligated to
provide any services to the Additional Premises as part of this
Amendment.
3. COMMON AREA MAINTENANCE FEE -- The Common Area Maintenance Fee
is included in the Rent.
All other terms and conditions shall remain as contained in the
Lease.
IN WITNESS WHEREOF, the parties have set their hand and seal
this 6th day of December, 1996.
By: Thomas Motter By: M. Lee Cox
PARADIGM MEDICAL INDUSTRIES, INC. TRI-COX, L.C.
Chief Executive Officer Managing Member
(Tenant) (Landlord)
EMPLOYEES' LOCK UP AGREEMENT
This Agreement is made and entered into this 30th day of
May, 1996, between Thomas F. Motter, an employee and shareholder
of Paradigm Medical Industries, Inc. (the "Shareholder"),
Paradigm Medical Industries, Inc. (the "Corporation"), and
Kenneth Jerome & Co., Inc. (the "Underwriter") and such other
underwriters as are named in the Underwriting Agreement to be
entered into with the Corporation. All capitalized terms not
otherwise defined herein shall have the meanings assigned to them
in the Underwriting Agreement.
A. The Corporation and the Underwriter intend to enter
into an Underwriting Agreement (the "Underwriting Agreement")
pursuant to which the Corporation intends to offer for sale to
the public common stock of the Corporation.
B. The Shareholder owns 588,666 shares of Common Stock
received upon the founding of the Corporation or in connection
with Shareholder's employment.
NOW, THEREFORE, in consideration of the mutual covenants
and agreements contained in the Underwriting Agreement, the
parties hereto set forth their agreement as follows:
1. The Shareholder will not, without the
Underwriter's prior written consent, jointly or individually,
offer, sell, pledge, make any short sale of, contract to sell,
lend, grant any option for the purchase of, or otherwise dispose
of, directly or indirectly, any of the shares of Common Stock
owned of record or beneficially by the Shareholder as of
effective date of the Registration Statement or thereafter
acquired, for a period of three hundred sixty-five (365) days
from the effective date of the Registration Statement on Form
SB-2 to be filed with the Securities and Exchange Commission by
the Corporation pursuant to the Securities Act of 1933, as
amended.
2. The Shareholder further agrees that an
appropriate restrictive legend in substantially the form attached
hereto as Exhibit A and/stop transfer order may be imposed with
respect to all shares which are subject to this Lock Up
Agreement.
3. This Agreement shall inure to the benefit of
and be binding upon the parties, their heirs, legal
representatives, successors, and assigns.
4. This Agreement may be amended only by an
instrument duly executed in writing by the parties hereto.
5. This Agreement shall be construed in accordance
with and governed by the laws of the state of Utah.
IN WITNESS WHEREOF, the parties have executed this
Agreement the day and year first above written.
Signed & Sworn SHAREHOLDER
before me this 30th
day of May, 1996.
Thomas F. Motter
Signature
Jason Jahn
----------
Notary Public Thomas F. Motter
State of Utah (Print Name)
My Commission Expires
May 18, 1999
Signature (to be signed by
co-owner, if applicable)
Jason Jahn
1772 W. 2300 South
Salt Lake City, Utah 84110 (Print Name)
PARADIGM MEDICAL INDUSTRIES, INC.
By: Thomas F. Motter
Its: CEO/President
KENNETH JEROME & CO., INC.
By:
Its:
Please execute this document using the exact name in which
your shares are registered.
<PAGE>
EXHIBIT A
[Legend to be placed on locked up certificates]
The shares represented by this certificate are subject to
an agreement (the "Lock Up Agreement") among the holder hereof,
Paradigm Medical Industries, Inc. (the "Corporation"), and
Kenneth Jerome & Co., Inc. (the "Underwriter"), which prevents an
offer for sale, pledge, contract to sell, or other disposition
of, directly or indirectly, any of the shares represented hereby
without the prior written consent by the Underwriter and the
Corporation until _________________ [365 days from the Effective
Date], 1997. A copy of the Lock Up Agreement is on file with the
Secretary of the Corporation.
REGISTERING SHAREHOLDER'S LOCK UP AGREEMENT
This Agreement is made and entered into this 5th day of June,
1996, between Richard Bowe, a Series B Preferred shareholder of
Paradigm Medical Industries, Inc. (the "Shareholder") and Kenneth
Jerome & Co., Inc. (the "Underwriter") and such other underwriters
as are named in the Underwriting Agreement to be entered into with
Paradigm Medical Industries, Inc. (the "Corporation"). All
capitalized terms not otherwise defined herein shall have the
meanings set forth in the Underwriting Agreement.
A. The Corporation and the Underwriter intend to enter into
an Underwriting Agreement (the "Underwriting Agreement") pursuant
to which the Corporation intends to make a public offering of
shares of the common stock of the Corporation, and the Underwriter
has agreed that up to 598,820 shares of common stock held by
shareholders (the "Common Stock") upon the conversion of Series B
Preferred shares (the "Series B Preferred Shares") into shares of
Common Stock may be registered in the public offering;
B. The Shareholder will own the number of shares of Common
Stock set forth next to the Shareholder's signature below (the
"Shares"), assuming the conversion of his Series B Preferred Shares
into shares of Common Stock; the Shareholder is one of a number of
private shareholders who acquired Series B Preferred Shares in
private placements directly from the Company which are convertible
into shares of Common Stock at the rate of 1.2 shares of Common
Stock for each of the Series B Preferred Shares.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in the Underwriting Agreement, the parties
hereto set forth their agreement as follows:
1. a. The Shareholder shall not, without the
Underwriter's prior written consent, jointly or individually,
offer, sell, pledge, make any short sale of, contract to sell,
lend, grant any option for the purchase of, or otherwise dispose
of, directly or indirectly, any of the shares of Common Stock that
the Shareholder will own if he elects to exercise his conversion
rights to convert the Series B Preferred Shares into shares of
Common Stock, except as set forth in subparagraph (b) below.
b. After the expiration of one hundred eighty
(180) days from the effective date of the Registration Statement on
Form SB-2 which was filed with the Securities and Exchange
Commission by the Corporation as of March 19, 1996, pursuant to the
Securities Act of 1933, as amended (the "Effective Date"), there
shall be released from the restrictions of this Lock Up Agreement
("released") all of the Shares.
2. The Shareholder further agrees that an appropriate
restrictive legend in substantially the form attached hereto as
Exhibit A and/or stop transfer order may be imposed with respect to
all Shares which are subject to this Lock Up Agreement.
3. This Agreement shall inure to the benefit of and be
binding upon the parties, their heirs, legal representatives,
successors, and assigns.
4. This Agreement may be amended only by an instrument
duly executed in writing by the parties hereto.
5. This Agreement shall be construed in accordance with
and governed by the laws of the state of Utah.
6. Notwithstanding the foregoing, the agreements
contained in this Lock Up Agreement shall terminate if the proposed
public offering is abandoned.
IN WITNESS WHEREOF, the parties have executed this Agreement
the day and year first above written.
SHAREHOLDER
Richard G. Bowe, MD
Signature
Richard G. Bowe,
Smith Barney, Inc.
(Print Name)
------------------------------------
Signature (to be signed by co-owner,
if applicable)
-----------------------------------
(Print Name)
Number of Shares: 15,054
KENNETH JEROME & CO., INC.
By: Robert Kaplan
Its: President
Please execute this document using the exact name in which
your shares are registered.
<PAGE>
EXHIBIT A
[Legend to be placed on locked up certificates]
The shares represented by this certificate are subject to an
agreement (the "Lock Up Agreement") among the holder hereof,
Paradigm Medical Industries, Inc. (the "Corporation"), and Kenneth
Jerome & Co., Inc. (the "Underwriter"), which prevents an offer for
sale, pledge, contract to sell, or other disposition, directly or
indirectly, of any of the shares represented hereby without the
prior written consent by the Underwriter and the Corporation until
_________________ [180 days from the Effective Date], 1997. A copy
of the Lock Up Agreement is on file with the Secretary of the
Corporation.
DESIGN, ENGINEERING AND MANUFACTURING AGREEMENT
THIS DESIGN, ENGINEERING AND MANUFACTURING AGREEMENT (the
"Agreement") is made and entered into as of this 23 day of
September, 1996 (the "Effective Date"), by and between PARADIGM
MEDICAL INDUSTRIES, INC., a Delaware corporation ("Paradigm") and
ZEVEX, INC., a Utah corporation ("Manufacturer"). Paradigm and
Manufacturer are also referred to herein, individually, as
"party," and collectively, as "parties."
RECITALS
WHEREAS, Paradigm is a supplier of technical products,
services and support to the medical and health care industry;
WHEREAS, Manufacturer is a designer, engineer and
manufacturer of medical and health care products; and
WHEREAS, Paradigm desires to obtain design, engineering and
manufacturing services for its products and Manufacturer desires
to provide such services as an original equipment manufacturer;
NOW, THEREFORE, in consideration of the respective
representations, warranties, covenants and agreements contained
herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Definitions. The capitalized terms in this Agreement
shall have the following meanings unless otherwise defined
herein:
1.1 "Systems" shall mean the Photon Laser
Phacoemulsification system as defined by Zevex Part No. Z-12669
and the Precisionist Thirty Thousand Phacoemulsification unit,
including all accessories, components, modules and packaging.
1.2 "Precisionist Thirty Thousand" shall mean the
Precisionist Thirty Thousand instrument enclosure containing
displays, pump and electrical subsystems defined by Zevex Part
No. Z-10811.
1.3 "Photon Laser Phaco" shall mean the Precisionist
Thirty Thousand with Laser Module (as defined in paragraph 1.5
below).
1.4 "Laser Handpiece" shall mean the laser surgical
handpiece, optical fiber cord and connector.
1.5 "Laser Module" means the electronic laser driver
module used in conjunction with the Laser Handpiece.
2. Development and Manufacturing. Manufacturer shall
produce and manufacture the Systems for Paradigm, except for the
Laser Module and Laser Handpiece, and be compensated for such
services as follows:
2.1 Engineering. Manufacturer agrees to use its
best efforts and allocate sufficient staff to design, develop
specifications and engineering documentation, make procurements,
and test and produce technical prototypes for the "technically
driven" accessories of the Precisionist Thirty Thousand as well
as the Photon Laser Phaco (excluding the Laser Module and Laser
Handpiece, but including laser interface hardware). Engineering,
design, and manufacturing meetings shall be held at least
bi-weekly to monitor the design and development of the Systems.
Minutes shall be kept for each meeting and a copy provided to
Paradigm. Representatives of Paradigm shall be given at least 24
hours notice of and have the right to attend all such meetings.
Representatives shall also have the right to visit Manufacturer's
facilities and meet with Manufacturer's representatives daily if
Paradigm desires. As more fully set forth in Section 9 below,
all documentation, specifications, designs, etc. relating to the
Systems shall belong to Paradigm.
2.2 Engineering Compensation. Paradigm shall pay
Manufacturer the sum of $860,000 for engineering and design
services and shall also pay an incentive bonus of $140,000 to
Manufacturer for distribution to key engineers, consultants and
other persons assisting with the design, engineering and
manufacture of the Systems, for total engineering compensation of
$1,000,000; provided that the conditions specified in the
subparagraphs of this paragraph 2.2 are satisfied within the time
frames set forth therein (each separate condition being referred
to as a "Milestone" and the payment with respect to a Milestone
being referred to as a "Milestone Payment"). Such compensation
shall not include travel expenses or off-site regulation
expenses, which expenses shall be paid by Paradigm as incurred
provided that such expenses have been pre-approved.
(a) Contract Advance. On the Effective Date of
this Agreement, contemporaneous with its signing, Paradigm shall
pay Manufacturer $100,000 as an advance retainer to begin
electrical, mechanical and software design, and component and
vendor identification for the manufacture of the Systems.
(b) Source Components. A Milestone Payment in the
amount of $20,000, which payment shall be used by Manufacturer to
purchase materials and components to build a complete bench
prototype of the System, shall be payable when the following
conditions constituting one Milestone are satisfied, which
conditions are all expected to be satisfied on or about October
1, 1996:
(1) When Paradigm has reviewed and, in its
sole discretion, approved product specifications as set forth and
defined in Manufacturer's product specification Z-12670, a
specification reference created by Manufacturer to manufacture
the Systems;
(2) When part numbers have been assigned to
all major components and key parts and Paradigm has reviewed and
approved all major components and key parts to be used in the
Systems and has approved all vendors of such components; and
(3) When any production engineering order
(hereafter "EO") is signed by Paradigm to procure components to
build a complete bench prototype of the System.
(c) Design Documentation. A Milestone Payment in
the amount of $250,000 shall be payable if, on or about December
1, 1996, all electrical designs are completed for the Systems and
a complete drawing package has been submitted to and approved by
Paradigm and Paradigm has signed an EO authorizing Manufacturer
to commence mechanical, enclosure and tooling design drawings.
(d) Material and Tooling First Articles. A
Milestone Payment in the amount of $120,000 shall be payable if,
on or about February 1, 1997, first articles have been received
at Manufacturer's place of business and either approved or
approved with changes by Paradigm for all molded, custom
mechanical and enclosure components and tooling, and any EO is
signed by Paradigm authorizing the purchase of such components or
tooling.
(e) First Article Prototype. A Milestone Payment
in the amount of $100,000 shall be payable if, on or about March
1, 1997, a first article prototype of the System is fully
assembled and operational (the "Prototype"), has been reviewed
and either approved or approved with changes by Paradigm and an
EO has been signed by Paradigm authorizing the production of 19
additional Systems.
(f) Delivery of Systems. A Milestone Payment in
the amount of $150,000 shall be payable if, on or about March 31,
1997, 19 Systems meeting the Z-12670 product specifications are
delivered to Paradigm fully assembled and operational, Paradigm
accepts all 19 Systems, and the Prototype meeting the Z-12670
product specifications is fully assembled and operational in
Manufacturer's possession as a bench prototype (hereinafter
referred to as the "Validation System"). (The Milestone Payment
of this paragraph 2.2(f) of the Agreement is additional
compensation over and above the purchase price of each System,
which amount is set forth in paragraph 3.1 below).
(g) Validation. A Milestone Payment in the amount
of $120,000 shall be payable if the following conditions,
constituting one Milestone, are satisfied on or before June 15,
1997:
(1) When the System has been validated
pursuant to IEC 601 standards by Paradigm; and
(2) When the System has been validated for
the European CE Mark by an independent agency provided by
Paradigm.
(h) Bonus. A bonus in the amount of $140,000 shall
be payable to Manufacturer for distribution to key engineers,
consultants and other persons assisting with the design,
engineering and manufacture of the Systems if the Milestone set
forth in subparagraph 2.2(f) above is, in Paradigm's sole
discretion, met and fully satisfied on or before March 31, 1997.
Such bonus shall be given to Manufacturer for distribution to the
engineers, consultants, and other personnel responsible for
designing, engineering and manufacturing the Systems as
determined by a compensation committee consisting of one member
designated by Paradigm and three members designated by
Manufacturer.
2.3 Tooling. Paradigm shall pay Manufacturer the
actual cost of tooling, plus a two percent (2%) mark-up above
actual cost of such tooling (the "Tooling Allocation"). All
models and other items purchased for tooling purposes shall
belong to Paradigm and shall be returned to Paradigm upon
termination or expiration of this Agreement. Tooling will not be
ordered until production components have been designed, reviewed
and approved by Paradigm. Paradigm shall pay for tooling costs
pursuant to the vendor's terms, provided that such costs are
pre-approved by Paradigm. The Tooling Allocation shall be paid
to Manufacturer when the final payment on actual tooling costs is
remitted to the tooling vendor or vendors. Paradigm understands
that adjustments may be required to tooled items and hereby
agrees to pay for such adjustments provided that the adjustments
and related charges are agreed to and pre-approved by Paradigm.
2.4 Components. Manufacturer will subcontract
production for components only, and will assemble, calibrate,
test, document and package the complete Systems under
Manufacturer's direct control at its own plant.
2.5 System Changes. Manufacturer will notify
Paradigm of all proposed changes to the Systems and will not
perform any material changes in the Systems after completion of
testing and delivery of prototypes without written approval by
Paradigm by means of a Manufacturer's Engineering Change Order or
other similar document. Manufacturer will supply Paradigm with
a copy of each such change order for its records. Each party
shall keep its own master engineering and medical device files.
2.6 Quality Control. Manufacturer will perform
product testing, burn-in, calibration and quality assurance
inspections for the Systems to comply with regulatory standards
as set forth in Manufacturer's Quality Manual and Product
Performance Specifications provided by Paradigm. Manufacturer
will keep accurate records that comply with regulatory standards
of the Food, Drug and Cosmetics Act for each product manufactured
and make copies of the same available to Paradigm for its product
history and reporting records. Paradigm shall be entitled to
integrate Manufacturer's Quality Manual into its own Quality
Manual.
2.7 Regulatory Approval. Paradigm shall perform or
be responsible for all clinical evaluations, testing and
documentation related to regulatory approvals as may be required
to market the Systems in the United States and abroad.
Notwithstanding the foregoing, Manufacturer will make available
to authorized representatives of the United States Food and Drug
Administration ("FDA"), all documents reasonably necessary to
demonstrate FDA Good Manufacturing Practice ("GMP") requirements
and will make all reasonable efforts to comply with FDA GMP
requirements. Manufacturer will also make available to
authorized representatives of the European CE Mark, Japanese
Ministry of Health as well as any other governmental or
regulatory body which may oversee or control the sell of the
Systems, all documents reasonably necessary to satisfy the
requirements of such body and obtain marketing approval for the
Systems.
2.8 Service and Training. Paradigm shall be
responsible for performing field service and maintenance of the
Systems. Manufacturer shall train Paradigm's designated service
technicians and sales personnel as required by Paradigm in
training classes. A separate training class shall be conducted
on each of the following topics: (1) Basic Systems operations
(2) Common fault diagnosis; (3) Field component repair or
replacement; and (4) Manufacturer repair protocol. Training
classes may also be conducted on any other matter or matters
mutually agreed upon by the parties on the terms and conditions
set forth in this paragraph 2.8. Training classes shall be
scheduled at least two weeks in advance through Manufacturer's
customer service department. Training classes shall be six hours
in duration and shall be scheduled in two sessions: (a) 9:00 a.m.
to noon and (b) 1:00 p.m. to 4:00 p.m. There shall be no limit
to the number of students in a class. However, it is recommended
that there be no more than six students per class.
Notwithstanding the foregoing, Paradigm shall pay Manufacturer
$700 for each class regardless of the class size. Paradigm shall
also pay any and all reasonable travel and lodging costs for
students and instructors.
2.9 Independent Testing. Paradigm shall bear the
cost of all independent laboratory testing of the Systems. All
data generated from independent laboratory testing shall belong
to Paradigm and all testing must be pre-approved by Paradigm
before it is ordered by Manufacturer.
3. Purchase Price of Systems.
3.1 Purchase Price. Paradigm will purchase each
completed System (not including the Laser Handpiece and Laser
Module) for the lesser of: (1) $19,000.00 (the "Fixed Purchase
Price"); or (2) the actual cost of producing the Systems, plus
30% as set forth in Schedule A attached hereto (the "Alternative
Purchase Price"). The actual costs of producing the Systems
shall not include engineering costs, tooling costs or any other
costs paid directly by Paradigm pursuant to this Agreement.
Actual costs shall include the cost of materials, labor costs,
and fixed and variable overhead costs applied on a per system
basis as set forth in Schedule A attached hereto. All such
actual costs, including overhead, which are included in the
Alternative Purchase Price (but not the Fixed Purchase Price)
shall be adjusted annually and any changes shall be verified and
accounted for by both parties. Notwithstanding the foregoing,
the Fixed Purchase Price shall be adjusted as mutually agreed
upon by the parties if there is a material increase or decrease
in the total cost of materials. Paradigm shall pay the purchase
price of each System within thirty (30) days after receipt of an
invoice and System.
3.2 Inspection of Records. During the Term and any
Renewed Terms of this Agreement (as defined in paragraph 6 below)
and for two years following the termination or expiration of this
Agreement, Manufacturer shall maintain books and records
sufficient to determine the manufacturing costs of the Systems
and shall make such records available for inspection by Paradigm
or its agents, at Paradigm's expense, during normal business
hours, at any time upon 15 days written notice, for the purpose
of verifying the accuracy of the records and manufacturing costs
charged thereunder, provided that such inspection shall not
unreasonably interfere with Manufacturer's business activities.
4. Warranty and Service.
4.1 Warranty. Manufacturer will be responsible for
warranty and repair of the Systems for 14 months from the date of
purchase by Paradigm and shall provide replacement parts or
components for each System during such warranty period (exclusive
of the Laser Handpiece and Laser Module) at no cost to Paradigm
or the purchaser of the System within 10 days after notification
subject to the availability of materials and component parts to
replace or manufacture System parts. Manufacturer's warranties
shall include implied warranties of merchantability and fitness
for a particular purpose.
4.2 Field Service. Paradigm will coordinate all
customer service communications, product delivery to and from
customers, field service and service billing (post-warranty where
available).
4.3 Parts. Manufacturer will make System parts
available to Paradigm for distribution to field service
organizations and Paradigm's dealers or representatives during
the Term and any Renewed Terms of this Agreement (as defined in
paragraph 6 below) and for at least two years following the
termination or expiration of this Agreement subject to the
availability of parts and components to manufacture such System
parts.
5. Marketing. Manufacturer shall allow Paradigm's
domestic or international dealers, representatives and/or
customers to tour Manufacturer's manufacturing facility, provided
that Paradigm reviews all such requests with the Manufacturer and
provides a complete list of all proposed visitors prior to any
final commitment by Manufacturer and such tour does not
unreasonably interfere with Manufacturer's business activities.
Paradigm will make all reasonable efforts not to allow any known
competitor of manufacturer to participate in a tour of
Manufacturer's facility.
6. Term. The term of this Agreement shall commence on the
date first above written and shall expire three years from that
date (the "Term") unless sooner terminated as provided in
paragraph 10 below. If not terminated, this Agreement shall
automatically be renewed thereafter for successive one year
additional terms (each, a "Renewed Term") unless either party
notifies the other party in writing at least 180 days prior to
the expiration of the Term or Renewed Term of its desire not to
renew this Agreement.
7. Covenant Not to Compete.
7.1 Covenant. Manufacturer covenants and agrees
that during the Term or any Renewed Term of this Agreement, and
for two years thereafter, that it, and its officers and directors
will not own, manage, operate, join, control or participate in
the ownership, operation or control of a business engaged in the
distribution or sale of invasive ophthalmic medical lasers, nor
develop or manufacture invasive ophthalmic medical lasers in
competition with Paradigm in the state of Utah, and each other
state in the United States, and each foreign country, in which
Paradigm or its subsidiaries do or may hereafter do business.
7.2 Injunctive and Equitable Relief. Manufacturer
covenants and agrees that Paradigm's remedy at law for any breach
or violation of the provisions of this Section 7 are inadequate
and that, in the event any such breach or violation, Paradigm
shall be entitled to injunctive relief in addition to any other
remedy, at law or in equity, to which it may be entitled.
7.3 Acknowledgment of Reasonableness and
Restrictions. Manufacturer specifically acknowledges and agrees
that the two-year post-Agreement limitation upon its and its
employees, agents, consultants and representatives activities as
specified above, together with the geographical limitations set
forth above, are reasonable limitations as to time and place upon
their post-Agreement activities, and that the restrictions are
necessary to preserve, promote and protect the business, accounts
and good-will of Paradigm and impose no greater restraint than is
reasonably necessary to secure such protection.
7.4 Limitation on Scope or Duration. In the event
that any provision of this Section 7 shall be held invalid or
unenforceable by a court of competent jurisdiction by reason of
the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid
or unenforceable any other provision of this Section 7 and, to
the fullest extent permitted by law, this Section shall be
construed as if the geographic or business scope or the duration
of such provision had been more narrowly drafted so as not to be
invalid or unenforceable but rather to provide the broadest
protection to Paradigm permitted by law.
8. Confidentiality; Proprietary Rights.
8.1 Definition of Paradigm's Confidential
Information. For purposes of this Agreement, Paradigm's
"Confidential Information" means any customer lists, information,
materials, technical data, know-how, or trade secrets of
Paradigm, which is disclosed to Manufacturer. Paradigm's
"Confidential Information" shall not include information that
Manufacturer can demonstrate through its records, was or became
public knowledge through no fault of Manufacturer or was known to
Manufacturer prior to the date of disclosure, or was disclosed to
Manufacturer by a third party who had a lawful right to disclose
it.
8.2 Definition of Manufacturer's Confidential
Information. For purposes of this Agreement, Manufacturer's
"Confidential Information" means any information, data, designs,
concepts, ideas, processes, methods, models, computer aided
drafting and software tools, techniques, specifications,
formulae, know-how, trade secrets, and improvements relating to
the research, development, manufacturing or marketing activities
of Manufacturer together with analyses, compilations, studies,
and other documents that contain or otherwise reflect any of the
foregoing, including, without limitation, Manufacturer's
technology and manufacturing processes, its proprietary
technology and know-how and assembly and manufacturing processes
and technology and know-how, and its technology and know-how
concerning laser phaco or phacoemulsification technology that is
disclosed by Manufacturer to Paradigm. Manufacturer's
"Confidential Information" shall not include information that
Paradigm can demonstrate through its records, was or became
public knowledge through no fault of Paradigm or was known to
Paradigm prior to the date of disclosure, or was disclosed to
Paradigm by a third party who had a lawful right to disclose it.
8.3 Non-Disclosure of Confidential Information.
Neither party shall use or disclose the Confidential Information
of the other party for its own use or for any purpose except as
provided for in this Agreement. Each party agrees that it will
protect the confidentiality of, and take all reasonable steps to
prevent unauthorized disclosure or use of, the Confidential
Information to prevent it from falling into the public domain or
the public literature or to prevent it from falling into the
possession of unauthorized persons or entities. Without limiting
the generality of the foregoing, each party agrees to take the
same steps and use the same methods to prevent the unauthorized
use or disclosure of the Confidential Information as the other
takes to protect its secret, confidential, or proprietary
information and data, including causing its employees, agents,
consultants and representatives to agree to abide by the
conditions and promises made in this Agreement. Each party will
promptly notify the other in writing of any misappropriation or
misuse by any person or entity of any Confidential Information
that comes to their attention.
8.4 Return of Materials. Any Confidential
information or other information, materials, or documents that
are furnished hereunder or were derived from the Confidential
Information or such information or materials will be promptly
returned, accompanied by all copies of such Confidential
Information or such other information, materials, or documents
made, at the earlier of one party's request for return of the
same or the termination of this Agreement excluding any documents
required to be maintained by any regulatory agency.
8.5 Legal Remedies. It is understood and agreed
that no failure or delay by any party in exercising any right,
power, or privilege hereunder will operate as a waiver thereof,
nor will any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other
right, power, or privilege hereunder. It is further understood
and agreed that money damages will not be a sufficient remedy for
any breach of this Section 8 by either party or any of its
employees, agents, consultants or representatives and that the
non-breaching party will be entitled to equitable relief,
including injunctive relief and specific performance, as a remedy
for any such breach of this Agreement.
9. Inventions.
9.1 Disclosure of Inventions. Manufacturer hereby
agrees that if it or its employees or agents, directors,
consultants or representatives conceive, learn, make, or first
reduce to practice, either alone or jointly with others, any
inventions, improvements, original works of authorship, formulas,
processes, computer programs, techniques, know-how, or data
relating to the Systems (referred to herein as the
"Developments") while Manufacturer is under contract with
Paradigm, it or they will promptly disclose such Developments to
Paradigm or to any person designated by Paradigm.
Notwithstanding the fact that Manufacturer may determine that
Paradigm has no right to such inventions and that such inventions
may be Manufacturer's proprietary information, it shall
nevertheless promptly disclose any such inventions to Paradigm or
to any person designated by Paradigm upon reasonable request.
9.2 Ownership, Assignment, and Assistance. All
Developments related to the Systems shall be the sole and
exclusive property of Paradigm, and Paradigm shall have the right
to use and to apply for patents, copyrights or other statutory or
common law protection for such Developments in any country.
Furthermore, Manufacturer agrees to assist Paradigm in every
proper way at Paradigm's expense to obtain patents, copyrights,
and other statutory common law protection for such Developments
in any country and to enforce such rights from time to time.
Specifically, Manufacturer agrees to execute all documents as
Paradigm may reasonably request for use in applying for and in
obtaining or enforcing such patents, copyrights, and other
statutory or common law protection, together with any assignments
thereof, to Paradigm or to any person designated by Paradigm.
9.3 Patent or Copyright Infringement. Nothing in
this Agreement is intended to grant Manufacturer any rights under
any patent, trademark, tradename or copyright of Paradigm with
respect to the Systems.
10. Termination.
10.1 Termination by Paradigm. Paradigm shall have
the right to terminate this Agreement on written notice to
Manufacturer (a) pursuant to Section 10.3(b) below, if
Manufacturer fails for two consecutive quarters to timely fulfill
Paradigm's purchase orders (subject, however, to the Force
Majeure provisions of Section 11.11); (b) in the event Paradigm
is unable to obtain governmental or regulatory approvals,
including FDA Approval that may be required with respect to the
Systems or any component thereof; (c) in the further event that
any governmental or regulatory approvals are withdrawn, altered
or modified during the term of this Agreement in a manner which,
in Paradigm's good faith judgment, is material and adverse to
Paradigm or which prohibits or interferes with the manufacture or
sale of the System or renders the sale of the System
unprofitable; or (d) if an event of Force Majeure preventing or
delaying Manufacturer's performance hereunder continues for more
than 60 days.
10.2 Termination by Manufacturer. Manufacturer
shall have the right to terminate this Agreement on written
notice to Paradigm if (a) Paradigm has failed to timely make any
payments required by this Agreement and (b) Paradigm does not pay
all delinquent sums in full within 20 business days after written
notice from Manufacturer demanding payment.
10.3 Termination By Either Party. In addition to
their respective rights set forth in Sections 10.1 and 10.2,
either party shall have the right to terminate this Agreement on
written notice to the other party under the following
circumstances:
(a) by mutual agreement;
(b) if the other party materially defaults in the
performance of any material obligation hereunder (including
failing to meet a milestone on a timely basis as set forth in
subparagraphs 2.2(c) through 2.2(g)) and such default continues
for more than 20 business days after receiving written notice
from the other party of such default; provided, however, there
shall be no default under this provision if the defaulting party
has cured the default within 20 business days after the giving of
notice;
(c) in the event that the other party is declared
insolvent, or bankrupt by a court of competent jurisdiction, or
a voluntary petition of bankruptcy is filed in any court of
competent jurisdiction by such other party, or such other party
shall make or execute an assignment for the benefit of creditors,
or a receiver is appointed by a court of competent jurisdiction
over all or a substantial portion of the other party's assets and
such receivership is not dismissed within 30 days of appointment;
or
(d) in the event of the issuance of a final order,
decree or other action by any competent judicial authority or
governmental agency which restrains, enjoins or prohibits the
sale or introduction into interstate commerce of the System and
such restraint, injunction or prohibition is not vacated within
30 days thereafter.
10.4 Survival. The termination or expiration of
this Agreement shall be without prejudice (a) to the rights of
any party to receive upon its request all payments accrued and
unpaid, or all documents, data and deliverables not delivered, as
of the date of such expiration or termination; (b) the rights and
remedies of either party with respect to any previous breach or
default under any representation, warranty or covenant herein
contained; and (c) rights under any other provision of this
Agreement which expressly and necessarily calls for performance
after expiration or termination.
11. Miscellaneous.
11.1 Entire Agreement. This Agreement constitutes
the entire agreement and understanding of the parties with
respect to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings related to the
subject matter hereof. No representation, promise, inducement or
statement of intention has been made by either of the parties
that is not embodied in this Agreement or in the documents
referred to herein, and neither of the parties shall be bound by
or be liable for any alleged representation, promise, inducement
or statement of intention not set forth or referred to herein.
The above Recitals and the Schedules referred to herein and
attached hereto are deemed to be incorporated herein.
11.2 Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the
laws of the State of Utah.
11.3 Amendments; Waiver. This Agreement may not be
amended, modified, superseded or canceled, nor may any of the
terms, covenants, representations, warranties, conditions or
agreements herein be waived, except by a written instrument
executed by the party against whom such amendment, modification,
supersedure, cancellation or waiver is charged. The failure of
either of the parties at any time or times to require performance
of any provision hereof shall in no manner affect the right at a
later time to enforce the same. No waiver by either of the
parties of any condition, or of any breach of any term, covenant,
representation, warranty, condition or agreement contained
herein, shall be deemed to be or shall be construed to be a
waiver or continuing waiver of any such condition or breach or a
waiver of any other condition or of the breach of any other term,
covenant, representation, warranty, condition or agreement
hereof.
11.4 Headings; Construction. The captions and
headings contained herein are for convenience of reference only,
and shall not in any way affect the meaning or interpretation of
this Agreement. Notwithstanding any rule or maxim of construction
to the contrary, any ambiguity or uncertainty in this Agreement
shall not be construed against either of the parties based upon
authorship of any of the provisions hereof.
11.5 Counterparts. This Agreement may be executed
by facsimile and may be executed in one or more counterparts,
each of which shall be deemed an original, and all of which, when
taken together, shall constitute one and the same instrument.
11.6 Attorneys' Fees. In the event either of the
parties shall bring an action in connection with the performance,
breach or interpretation of this Agreement, or in any action
related to the subject matter hereof, the prevailing party in
such action shall be entitled to recover from the non-prevailing
party in such action all reasonable costs and expenses of such
action, including, without limitation, attorneys' fees, costs of
investigation, accounting and other costs reasonably incurred or
related to such action, in such amount as may be determined in
the discretion of the arbitrator(s).
11.7 Severability. In the event any provision
hereof is determined to be illegal or unenforceable for any
reason whatsoever, such determination shall not affect the
validity or enforceability of the remaining provisions hereof,
all of which shall remain in full force and effect.
11.8 Further Assurances. The parties each hereby
covenant and agree that, from time to time, after the date
hereof, at the reasonable request of either party, and without
further consideration, they will execute and deliver such other
documents and instruments and take such other action as may be
reasonably required to carry out in all respects the subject
matter hereof and the intent of this Agreement.
11.9 Notices. All notices, demands and other
communications required or permitted to be given hereunder shall
be in writing and shall be deemed to have been duly given and
received (a) immediately if delivered personally, (b) 72 hours
after deposit in the United States Mail, first class, postage
prepaid, registered or certified mail, return receipt requested,
if so mailed, (c) upon completed transmission, if faxed, or (d)
the following business day, if sent by overnight courier. All
such notices shall be addressed to the parties at the addresses
and/or fax numbers listed below. Either party may change the
address and/or the fax number to which communications are to be
directed by giving written notice to the other party in the
manner provided herein.
TO PARADIGM: PARADIGM MEDICAL INDUSTRIES, INC.
1772 West 2300 South
Salt Lake City, Utah 84119
Fax No. (801) 977-8973
With a copy to: Randall A. Mackey, Esq.
Mackey Price & Williams
900 First Interstate Plaza
170 South Main Street
Salt Lake City, Utah 84101-1655
Fax No. (801) 575-5006
TO MANUFACTURER: ZEVEX, INC.
5175 Greenpine Drive
Salt Lake City, Utah 84123 USA
Fax No. (801) 264-1051
With a Copy to: E. Nordell Weeks, Esq.
Weeks Law Firm
320 Kearns Building
Salt Lake City, Utah 84101
Fax No. (801) 322-2885
11.10 No Third-Party Beneficiaries. Nothing in this
Agreement, whether express or implied, is intended to confer any
rights or remedies under or by reason of this Agreement on any
person other than the parties and their respective successors or
permitted assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third
person to either of the parties, nor shall any provision hereof
give any third person any right of subrogation or action over or
against either of the parties.
11.11 Force Majeure. Neither party shall be
responsible or liable to the other hereunder for failure or delay
in performance of the Agreement due to any war, fire, accident or
other casualty, or any labor disturbance or act of God or the
public enemy, or any other contingency beyond such party's
reasonable control. In addition, in the event of the
applicability of this Section 11.11, the party failing or
delaying performance shall use its best efforts to expeditiously
eliminate, cure and overcome any of such causes and resume
performance of its obligations.
11.12 Relationship of the Parties. Notwithstanding
any provision hereof, for all purposes of this Agreement, each
party shall be and act as an independent contractor and not as a
partner, joint venturer or agent of the other party and shall not
bind nor attempt to bind the other party to any contract or
agreement.
11.13 Successors and Assigns. This agreement shall
be binding on all successors and assigns of the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the day and year first above written.
PARADIGM MEDICAL INDUSTRIES, INC.,
a Delaware corporation
By: Robert W. Millar
Title: Vice President
ZEVEX, INC.,
a Utah corporation
By: Phillip McStotts
Title: CFO Sec/Treas.
<PAGE>
SCHEDULE A
Alternative Purchase Price
The following is the formula for determining the Alternative
Purchase Price:
Direct labor (assembly & test) x $31/hour
(fully burdened, no profit) _____
Current average labor rate $ 8.50
Direct overhead (current 1996 rate) x 242%
Subtotal $20.57
G & A overhead (current 1996 rate) x 151%
Total labor rate $31.06
Parts costs x 1.69 (fully burdened, no profit,
excluding laser)
Parts costs
Direct overhead (current 1996 rate) x 112%
Subtotal G & A overhead x 151% +_____
Subtotal =_____
x .3
Profit margin 30% added to subtotal +_____
Laser cost x 1.04 (modified direct
overhead only) +_____
Direct engineering support(1) (based on 50 units
per year) +_____
Total =_____
- --------------------
(1) This amount may change based on the number of systems sold.
It is etimated this amount shall not decrease to below
$250 per system.
EXHIBIT 11.1
Paradigm Medical Industries, Inc.
Statement Regarding Computation of Per Share Earnings (Loss)
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE
Year ended
September 30,
-----------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Net loss attributable
to common shareholders $(1,448,171) $ (883,681)
=========== ===========
Weighted average
shares outstanding 1,979,548 1,979,548
Common stock and
equivalents (see Note A) 191,240 372,483
Common stock issued in
connection with initial
public offering 208,333 -
----------- -----------
Shares used in
computing net loss
per common share 2,379,121 2,352,031
=========== ===========
Net loss per
common share $(.61) $(.38)
=========== ===========
</TABLE>
Note A - Represent common shares issued or issuable in
connection with stock options and warrants granted within one
year of the initial filing of a registration statement in
connection with the initial public offering (IPO) at prices below
the offering price (net of shares repurchased under the treasury
stock method).
FULLY DILUTED EARNINGS PER SHARE
Fully diluted earnings per share differs from primary earnings
per share by less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED BALANCE SHEET OF PARADIGM MEDICAL INDUSTRIES, INC. AS OF
SEPTEMBER 30, 1996, AND THE RELATED STATEMENTS OF OPERATIONS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,040,152
<SECURITIES> 486,039
<RECEIVABLES> 55,454
<ALLOWANCES> 0
<INVENTORY> 369,045
<CURRENT-ASSETS> 3,969,051
<PP&E> 150,519
<DEPRECIATION> (26,975)
<TOTAL-ASSETS> 4,192,595
<CURRENT-LIABILITIES> 160,213
<BONDS> 0
0
1,976,076
<COMMON> 6,189,423
<OTHER-SE> (4,149,572)
<TOTAL-LIABILITY-AND-EQUITY> 4,192,595
<SALES> 252,134
<TOTAL-REVENUES> 294,993
<CGS> 180,010
<TOTAL-COSTS> 1,328,173
<OTHER-EXPENSES> 179,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (56,829)
<INCOME-PRETAX> (1,449,019)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,449,019)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,449,019)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
