UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998 Commission File Number: 0-28498
PARADIGM MEDICAL INDUSTRIES, INC.
Exact Name of Registrant.
DELAWARE 87-0459536
(State or other jurisdiction IRS Identification
of incorporation or organization) Number
1127 West 2320 South, Suite A, Salt Lake City, Utah 84119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including Area Code (801) 977-8970
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for 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
State the number of shares outstanding of each of the issuer's classes of common
equity as of the close of the period covered by this report.
Common Stock, $.001 par value 3,922,128
- ------------------------------- ------------
Title of Class Number of Shares
Outstanding as of
June 30, 1998
Series A Preferred, $.001 par value 36,122
- ------------------------------------ ----------
Title of Class Number of Shares
Outstanding as of
June 30, 1998
Series B Preferred, $.001 par value 33,236
- ------------------------------------- -----------
Title of Class Number of Shares
Outstanding as of
June 30, 1998
Series C Preferred, $.001 par value 29,980
- ------------------------------------- -----------
Title of Class Number of Shares
Outstanding as of
June 30, 1998
Transitional Small Business Disclosure Format
YES NO X
1
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
FORM 10-QSB/A-1
QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Balance Sheets (unaudited) - June 30, 1998 and
December 31, 1997 3
Statements of Operations (unaudited) for the three months
and the six months ended June 30, 1998 and June 30, 1997 5
Statements of Cash Flows (unaudited) for the six months
ended June 30, 1998 and June 30, 1997 6
Notes to Financial Statements (unaudited) 7
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II - OTHER INFORMATION
Other Information 11
Signature Page 13
2
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<S> <C> <C>
June 30, December 31,
1998 1997
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,324,885 $ 886,558
Trade accounts receivable 638,639 120,853
Inventories 892,438 833,930
Prepaid expenses 35,770 15,787
------------ ---------
Total current assets 2,891,732 1,857,128
Prepaid financing costs - 425,029
Capitalized engineering and design charges 272,268 309,396
Property and equipment, net 109,676 121,274
------------- -----------
Total assets $ 3,273,676 $ 2,712,827
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 31,731 $ 243,206
Accounts payable - related parties 61,583 458,467
Accrued expenses 262,324 349,930
Note payable to bank - current 3,620 3,620
Purchase Deposits 10,500 -
------------- --------
Total current liabilities 369,758 1,055,223
Note payable, less current portion 85,244 1,081,996
------------ -----------
Total liabilities 455,002 2,137,219
------------- -----------
Stockholders' equity:
Preferred stock, authorized:
5,000,000 shares, $.001 par value
Series A
Authorized: 500,000 shares; issued and
outstanding: 50,122 shares at December 31, 1997
and 36,122 shares at June 30, 1998 36 50
Series B
Authorized: 500,000 shares; issued and
outstanding: 45,383 shares at December 31, 1997
and 33,236 shares at June 30, 1998 33 45
Series C
Authorized: 30,000 shares; issued and
outstanding: 29,980 shares at June 30, 1998 30
Common stock, authorized: 20,000,000 shares; issued and
outstanding 3,798,931 shares at December 31, 1997 and
3,922,128 shares at June 30, 1998 3,922 3,799
Additional paid-in-capital 16,687,157 8,833,897
Treasury stock, 2,600 shares, at cost (3,777) (3,777)
Accumulated deficit (13,868,728) (8,258,406)
------------ ------------
3
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Total stockholders' equity 2,818,673 575,608
----------- -----------
Total liabilities and stockholders' equity $ 3,273,676 $ 2,712,827
============ ===========
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales $ 625,854 $ 103,992 $ 977.536 $ 360,407
Cost of sales 300,462 83,043 477,932 195,063
Amortization of capitalized engineering and
and design charges 18,564 18,564 37,128 24,312
--------------- ---------- ----------- ---------
Net cost of sales 319,026 101,607 515,060 219,375
------------- ---------- ---------- ----------
Gross profit 306,828 2,385 462,476 141,032
-------------- ------------- ----------- ---------
Operating expenses:
Marketing and selling 200,707 139,600 358,870 251,752
General and administrative 297,607 316,268 631,674 775,056
Research and development 162,939 119,281 226,171 513,914
-------------- ---------- ----------- -------
Total operating expenses 661,253 575,149 1,216,715 1,540,722
-------------- ----------- ---------- ---------
Operating loss (354,425) (572,764) (754,239) (1,399,690)
-------------- ----------- ----------- -----------
Other income (expense):
Interest income 32,758 17,963 43,829 42,438
Interest expense (5,214) (443) (29,888) (906)
--------------- ----------- ------------- -----------
Total other income 27,543 17,520 13,941 41,532
Net loss $ (326,882) $ (555,224) $ (740,298) $(1,358,158)
------------- ------------ ------------ -----------
Net operating loss per common share $ (0.08) $ (0.16) $ (0.19) $ (0.39)
=============== ============= ============= =============
Non-cash preferred stock dividend on Series "C" $ (4,870,023)1 $ -
Net loss attributable to common shareholders, after
non-cash preferred dividend $ (5,610,321) $ (1,358,158)
Net loss per common share, after non-cash
preferred dividend $ (1.45) $ (0.39)
============ =============
Shares used in computing net loss per common share 3,876,000 3,500,000 3,850,000 3,465,000
- --------
1Based on EITF D-60, the difference between the conversion price per share of
the Series "C" Preferred stock and the grant dates' market price per share of
the Common into which the preferred stock is convertible, multiplied by the
number of common shares into which the preferred stock is convertible, must be
recognized as a non-cash dividend.
5
</TABLE>
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
<TABLE>
<S> <C> <C>
June 30,
1998 1997
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(740,298) $(1,358,158)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 15,172 18,281
Amortization of capitalized engineering and design changes 37,128 -
Common stock issued for compensation 7,500 60,760
(Increase) decrease from changes in:
Trade accounts receivable (517,786) (135,878)
Inventories (58,507) (299,342)
Prepaid expenses (19,983) (3,325)
Debt financing cost 164,776 -
Increase (decrease) from changes in:
Trade accounts payable (211,475) (10,909)
Trade accounts payable - related parties (396,884) (73,053)
Accrued expenses 18,368 (144,769)
----------- -----------
Net cash used in operating activities (1,701,989) (1,946,393)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (3,573) (11,216)
Purchase of marketable debt securities - available for sale - (258)
Purchase of engineering services - (340,925)
----------- -----------
Net cash used in investing activities (3,573) (352,399)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants - 41,632
Principle payments on notes payable (1,752) (1,598)
Proceeds from lines of credit - 980,000
Restricted cash - (715,464)
Net Proceeds for Series "C" Stock Issue 1,746,640 -
90,000 shares Common stock issued to Zevex in an exchange 399,000 -
----------- -----------
Net cash provided by financing activities 2,143,888 304,570
----------- -----------
Net increase (decrease) in cash and cash equivalents 438,326 (1,994,222)
Cash and cash equivalents at beginning of period 886,558 2,468,988
----------- -----------
Cash and cash equivalents at end of period $ 1,324,884 $ 474,766
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 27,649 $ 906
6
</TABLE>
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Significant Accounting Policies:
In the opinion of management, the accompanying financial statements
contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of Paradigm Medical
Industries, Inc. (the Company) as of June 30, 1998, and the results of
its operations for the three months and the six months ended June 30,
1997 and 1998, and its cash flows for the six months ended June 30,
1997 and 1998. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the full
year period.
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. Other common stock
equivalents have not been included in loss years because they are
anti-dilutive.
2. Legal Proceedings:
The company is not a party to any legal proceedings.
3. Preferred Stock Conversions:
Under the Company's Articles of Incorporation, holders of the Company's
Class A and Class B Preferred Stock have the right to convert such
stock into shares of the Company's common stock at the rate of 1.2
shares of common stock for each share of preferred stock. During the
three month period ended June 30, 1998 there were no conversions of
Class A or Class B Preferred Stock into common stock.
4. Series C Preferred Stock
In January 1998, the Company's Board of Directors authorized the
issuance of a total of 30,000 shares of non-voting Class C Preferred
Stock, $.001 par value, $100 stated value. Each share is convertible
into approximately 57.14 shares of common stock at an initial
conversion price, subject to adjustments for stock splits, stock
dividends and certain combinations or recapitalizations of the Common
stock, equal to $1.75 per share of common stock. Holders of the shares
of Series C Preferred stock are entitled to 12% non-cumulative
dividends. However, the shares shall be entitled to dividends declared
on the Company's common stock on an as-converted basis.
In March 1998, the Company closed a private placement of Series C
Preferred Stock, selling 20,030 shares at a price of $100 per share.
The net proceeds to the Company from the private placement were
approximately $1.7 million.
In January 1998, the Company offered to the holders of the Notes,
through an exchange offer, the right to exchange their Notes for shares
of Series C Preferred Stock. In March 1998, Notes totaling $995,000
were exchanged for 9,950 shares of Series C Preferred Stock, at $100
per share, totaling $995,000. The exchange offer has now expired.
7
<PAGE>
5. Warrants
In connection with the private placement of Series C Preferred Stock,
the Company issued to Win Capital a warrant to purchase 100,000 shares
of the Company's common stock at a price of $3.00 per share, expiring
March 3, 2001. The Company has recorded the fair value of the warrant
at $336,000, which is being recognized as commission for raising
additional capital in the private placement.
6. Related Party Transactions:
The Company has subcontracted the manufacturing of its Precisionist and
Photon laser cataract systems to Zevex International, Inc. ("Zevex"), a
shareholder. On June 29, 1998 the Company issued 90,000 shares of
common stock at $4.44 per share to Zevex in exchange for extinguishment
of $399,000 of debt owed to Zevex. As of June 30, 1998, the Company
owed Zevex $61,583, which is included in trade accounts payable-
related parties.
A law firm, of which a director of the Company is a partner, had
rendered legal services to the Company. During the three month period
ended June 30, 1998, the Company paid this firm $48,704 for legal
services, and as of June 30, 1998, owed this firm $7,522, which is
included in accounts payable.
In August, 1997, the Company entered into an investment banking
agreement with Win Capital Corp. (Win Capital) for a two-year period
that may be extended for an additional year. The Company pays a
retainer to Win Capital of $2,000 per month for the first six months,
$4,000 per month for the second six months, and $6,000 per month for
the remainder of the contract. The Company also issued a warrant to Win
Capital to purchase up to 191,000 shares of common stock at a purchase
price of $3.00 per share. The warrant expires on August 19, 2000. A
director of Win Capital became a director of the Company in 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The followings Management's Discussion and Analysis of Financial
Condition and results of Operations contains forward looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward looking statements as a
result of certain factors discussed in this section. The Company's fiscal year
runs from January 1 to and including December 31.
General
The Company is engaged in the design, development, manufacture and sale
of high technology eyecare products. The Company's surgical equipment is
designed to perform minimally invasive cataract surgery and is comprised of
surgical devices and related instruments and accessories, including disposable
products. The Company's diagnostic instrument is designed to measure intraocular
pressure and ocular blood flow for the detection and treatment of glaucoma.
Paradigm's activities for the six months ended June 30, 1998 include domestic
and international sales of the Precisionist 3000 Plus(TM) and the Precisionist
ThirtyThousand(TM) Ocular Surgery Workstation(TM) cataract surgery systems,
domestic sales of the Blood Flow Analyzer(TM), and research and development on
the Photon(TM) laser cataract removal system which received FDA approval for
expansion to Phase II Clinical Trials on May 19, 1998. Paradigm activities also
included primary research for other new products.
Results of Operations
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
8
<PAGE>
Sales increased by $521,862, or 502%, to $625,854 for the three months
ended June 30, 1998, from $103,992 for the comparable period in 1997. The
increase in sales was a result of the Company launching the Blood Flow Analyzer
System(TM) and increased sales of the Precisionist ThirtyThousand(TM) Ocular
Surgery Workstation(TM). Cost of sales increased $217,419, or 214%, to $319,026
for the three months ended June 30, 1998, from $101,607 for the comparable
period in 1997, as a result of the increased sales.
The gross margin for the three months ended June 30, 1998, of 49%, is higher
than the gross margin for the comparable period in 1997, of only 2.3%. If the
amortization of capitalized engineering and design charges of $18,564, a
non-cash expense, is excluded for the three months ended June 30, 1998, the
gross margin was 52%. The sales performance for the quarter ended June 30, 1997,
was due primarily to the identification of certain software and hardware
revisions on the Precisionist Thirty Thousand that had to be made before
shipments could be resumed.
Marketing and selling expenses increased by $61,107, or 44%, to
$200,707 for the three months ended June 30, 1998, from $139,600 for the
comparable period in 1997. The increase was a result of the Company adding four
additional sales representatives and increasing promotional activities in
anticipation of launching the Blood Flow Analyzer(TM) and of increased sales of
the Precisionist ThirtyThousand(TM) Ocular Surgery Workstation(TM).
General and administrative expenses decreased by $18,661 or, 6%, to
$297,606 for the three months ended June 30, 1998, from $316,268 for the
comparable period in 1997. This reduction was a result of a restructuring that
eliminated three positions.
Research and development expenses increased by $43,658, or 37%, to
$162,939 for the three months ended June 30, 1998, from $119,281 for the
comparable period in 1997.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Sales increased by $617,129, or 171%, for the six months ended June 30,
1998, from $360,407 for the comparable period in 1997. The increase in sales was
the result of the Company launching the Blood Flow Analyzer System TM and
increased sales of the Precisionist Thirty Thousand TM Ocular Surgery
Workstation TM. Cost of sales increased $282,869, or 145%, to $477,932 for the
six months ended June 30, 1998, from $195,063 for the comparable period in 1997.
As a result of increased sales, the gross margin for the six months ended June
30, 1998, of 47%, is higher than the gross margin for the comparable period in
1997, of 39%. If the amortization of capitalized engineering and design charges
for the first six months of $37,128, as of June 30, 1998 and $24,312, as of June
30, 1997, a non-cash expense, are excluded, the gross margin was 51% and 46%,
respectively. The sales performance for the six months ended June 30, 1997 was
due primarily to the identification of certain software and hardware revisions
on the Precisionist Thirty Thousand TM that had to be made before shipments
could be resumed.
Marketing and selling expenses increased by $107,118, or 43%, to
$358,870 for the six months ended June 30, 1998, from $251,752 for the
comparable period in 1997. The increase was a result of the Company adding four
additional sales representatives and of increased promotional activities in
anticipation of launching the Blood Flow Analyzer TM and increased sales of the
Precisionist Thirty Thousand TM Ocular Surgery Workstation TM.
General and administrative expenses decreased by $143,382, or 18%, for
the six months ended June 30, 1998, from $775,056 for the comparable period in
1997. This reduction was a result of a restructuring that eliminated three
positions.
Research and development expenses decreased by $287,743, or 56%, to
$226,171 for the six months ended June 30, 1998, from $513,914 for the
comparable period in 1997. The principal reason for the decrease in research and
development was the completion of a substantial part of the engineering and
design changes on the Precisionist Thirty Thousand TM Ocular Surgery Workstation
TM.
Upgrades
9
<PAGE>
To garner sales, the Company offers the ultrasonic Precisionist(TM)
system with an unconditional arrangement under which the customer may trade in
their Precisionist(TM) system to upgrade to a Precisionist ThirtyThousand(TM)
Ocular Surgery System(TM) or, upon FDA clearance, a Photon(TM) laser cataract
system, when that system becomes available. Under this arrangement, the customer
receives full credit for the trade-in purchase price of the Precisionist(TM)
system against the price of the new Precisionist ThirtyThousand(TM) Ocular
Surgery System(TM) or Photon(TM) laser cataract system.
In the June 30, 1998 quarter, there were two trade-in sales totaling
$76,000, in which the customer has upgraded a Precisionist(TM) system to the
Precisionist ThirtyThousand(TM) Ocular Surgery System(TM), compared with two
trade-in sales in the quarter ended June 30, 1997.
Liquidity and Capital Resources
The Company's ratio of inventory to quarterly sales for the period
ended June 30, 1998 was 1.4, compared to 8.0 in the comparable 1997 quarter.
With the launching of two new products within the past fifteen months,
management has had to build inventory in anticipation of sales. As a result, the
ratio of inventory to quarterly sales had tended to fluctuate widely depending
on the company's purchase orders with the manufacturers; the time lags between
the purchase order, delivery and sales, the number of demonstration units in the
field, the accuracy of the sales forecast, and seasonal factors.
As of June 30, 1998 working capital was 2,521,974, compared with
$801,905 in the same period in 1997. This represented an increase of 214%.
Long-term debt showed a 92% decline to $85,244 as of June 30, 1998, versus
$1,081,996 as of June 30, 1997. The principal reason for the improvement in
working capital and the decline in long-term debt was the sale of 20,030 shares
of Class C Preferred Stock at $100 per share, and the exchange of $995,000 of
notes for 9,950 shares of Class C Preferred Stock at $100 per share.
The Company used cash in operating activities of $1,701,989 for the six
months ended June 30, 1998, compared to $1,946,393 for the same period in 1997.
The Company used cash in investing activities of $3,573 for the six months ended
June 30, 1998, compared to $352,399 for the same period in 1997. The net cash
provided by financing activities for the six months ended June 30, 1998 was
$2,143,888, compared with $304,570 for a similar period in 1997. The financing
activities for the six months ended June 30, 1998 included net proceeds of
$1,746,640 from the sale of 20,030 shares of Series "C" Preferred Stock, and
$399,000 from the exchange of 90,000 shares of the Company's common stock for
cancellation of trade accounts payable-related parties. As a result of these
financing transaction, cash and cash equivalents as of June 30, 1998 totaled
$1,324,884, compared to $474,766 on June 30, 1997, an increase of $850,118, or
179%.
At June 30, 1998 the Company had net operating loss carryforwards
(NOLs) of approximately $7,100,000 and research and development tax credit
carryforwards of approximately $64,000. 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(TM) laser cataract system, a 100% valuation allowance has been
provided for these deferred tax assets. The Company's ability to use its NOLs to
offset future income taxes 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.
10
<PAGE>
Impact of New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", and SFAS No. 131 ("SFAS 131"), "Disclosures
About Segments of an Enterprise and Related Information". SFAS 130 establishes
standards for reporting and display of comprehensive income in the financial
statements. Comprehensive income is the total of net income and all other
non-owner changes in equity. SFAS 131 requires that companies disclose segment
data based on how management makes decisions about allocating resources to
segments and measuring their performance. In addition, in February 1998 the FASB
issued SFAS No. 132 ("SFAS 132"), "Employers' Disclosures About Pensions and
Other Postretirement Benefits", concerning employer disclosure about pension
plans and other postretirement benefits. SFAS 130, SFAS 131 and SFAS 132 are
effective for fiscal years beginning after December 15, 1997. Adoption of the
standards is not expected to have an effect on the Company's financial
statements, financial position or results of operations.
The Company has reviewed all recently issued accounting standards in
order to determine their effects, if any, on the results of operations or
financial position of the Company. Based on that review, the Company believes
that none of these pronouncements will have a significant effect on current or
future earnings or operations.
Year 2000
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Management of
the Company does not anticipate that any significant modification or replacement
of the Company's software will be necessary for its computer systems to properly
utilize dates beyond December 31, 1999 or that the Company will incur
significant operating expenses to make any such computer system improvements.
The Company is not able to determine, however, whether any of its suppliers,
lenders, or service providers will need to make any such software modifications
or replacements or whether the failure to make such software corrections will
have an effect on the Company's operations or financial condition.
Part II: Other Information
Item 5. Other Information
On June 26, 1998, the Company entered into a Co-Distribution
Agreement (the "Co-Distribution Agreement") with Pharmacia & Upjohn
Company ("Pharmacia & Upjohn") and National Healthcare Manufacturing
Corporation ("National Healthcare") which provides for the marketing
and sale of a range of ophthalmic products. Under the terms of the
Co-Distribution Agreement, the Company, Pharmacia & Upjohn, and
National Healthcare, will offer a comprehensive package of products to
cataract surgeons, including cataract surgical equipment, intraocular
lens implants, intraocular pharmaceuticals, surgical instruments and
sterile procedural packs. The Company will provide the Precisionist
Thirty Thousand TM for distribution and sale under the Co-Distribution
Agreement. The Pharmacia & Upjohn products to be distributed as part of
the Co-Distribution Agreement include the Healon(R) and Healongv(R)
viscoelastic solution and the CeeOn line of foldable, small intraocular
lens implants, designed to replace the natural lens removed during
cataract surgery.
On July 23, 1998, the Company entered into an Agreement for
Purchase and Sale of Assets (the "Agreement") with the Humphrey Systems
Division of Carl Zeiss, Inc. ("Humphrey Systems") to acquire the
ownership and manufacturing rights to certain assets of Humphrey
Systems that are diagnostic instruments, including the Ultrasonic
Biometer Model 820, the A/B Scan System Model 837, the Ultrasound
Pachymeter Model 855, and the Ultrasound Biomicroscope Model 840, and
all accessories, packaging, and end-user collateral materials for each
of the product lines for the sum of $500,000, payable in the form of
78,947 shares of Common Stock which were issued to Humphrey Systems,
and 26,316 shares of Common Stock which were issued to Douglas Adams.
However, if the net proceeds received by Humphrey Systems from the sale
of the shares issued pursuant to the Agreement is less than $375,000
(after payment of commissions, transfer taxes and other expenses
relating to the sale of such shares), then the Company is required to
issue additional shares of Common Stock, or pay additional funds to
Humphrey Systems as is necessary to increase Humphrey Systems' net
proceeds from the sale of the assets to $375,000.
11
<PAGE>
The rights to the ophthalmic diagnostic instruments that have
been purchased from Humphrey Systems under the Agreement compliment
both the Company's cataract surgical equipment and its ocular Blood
Flow Analyzer TM. The Ultrasonic Biometer calculates the prescription
for the intraocular lens to be implanted during cataract surgery. The
Ultrasound Pachymeter measures corneal thickness for the new refractive
surgical applications that eliminate the need for eyeglasses and for
the optometric applications including contact lense fitting. The A/B
Scan System combines the Ultrasonic Biometer and ultrasound imaging for
advanced diagnostic testing throughout the eye, and is a viable tool
for retinal specialists. The Ultrasound Biomicroscope utilizes
microscopic digital ultrasound resolution for detection of tumors and
improved glaucoma management.
Item 6. 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 No. Document
2.1 Amended Agreement and Plan of Merger between Paradigm Medical
Industries, Inc., a California corporation and Paradigm Medical
Industries, Inc., a Delaware corporation(1)
3.1 Certificate of Incorporation(1)
3.2 Bylaws(1)
4.1 Warrant Agency Agreement with Continental Stock Transfer & Trust
Company(3)
4.2 Specimen Common Stock Certificate (2)
4.3 Specimen Class A Warrant Certificate(2)
4.4 Form of Class A Warrant Agreement(2)
4.5 Underwriter's Warrant with Kenneth Jerome & Co., Inc.(3)
4.6 Attorney's Warrant with Mackey Price & Williams(1)
4.7 Warrant to Purchase Common Stock with Win Capital Corp.
4.8 Specimen Series C Convertible Preferred Stock Certificate
4.9 Certificate of the Designations, Powers, Preferences and Rights of the
Series C Convertible Preferred Stock
10.1 Exclusive Patent License Agreement with Photomed(1)
10.2 Consulting Agreement with Dr. Daniel M. Eichenbaum(1)
10.3 Confidential Disclosure Agreement with Zevex, Inc.(1)
10.4 Indemnity Agreement with Zevex International, Inc.(1)
10.5 Manufacturing Agreement with Sunrise Technologies, Inc.(1)
10.6 Royalty Agreement dated January 30, 1992, with Dennis L. Oberkamp Design
Services(1)
10.7 Indemnity Agreement dated January 30, 1992, with Dennis L. Oberkamp
Design Services(1)
10.8 Royalty Agreement (for Ultrasonic Phaco Handpiece) with Dennis L.
Oberkamp Design Services(1)
10.9 Lease Agreement with Eden Roc
10.10 Settlement and Release Agreement with Douglas A. MacLeod(1)
10.11 Form of Indemnification Agreement(1)
10.12 1995 Stock Option Plan and forms of Stock Option Grant Agreements(1)
10.13 Form of Promissory Note between the Company and third parties(1)
10.14 Form of Warrant to Purchase Common Stock between the Company and third
parties(1)
10.15 Employee's Lock-Up Agreement(1)
10.16 Registering Shareholders Lock-Up Agreement(3)
10.17 Employment Agreement with Thomas F. Motter(1)
10.18 Employment Agreement with Robert W. Millar(1)
10.19 Employment Agreement with Jack W. Hemmer(1)
10.20 Amendment of Settlement and Release Agreement with Douglas A. MacLeod(3)
10.21 Design, Engineering and Manufacturing Agreement with Zevex, Inc.(5)
10.22 License and Manufacturing Agreement with O.B.F. Labs, Ltd.(6)
10.23 Settlement Agreement with Estate of H.L. Federman(6)
12
<PAGE>
10.24 Agreement with Win Capital Corp.(6)
10.25 12% Convertible, Redeemable Promissory Note(6)
10.26 Securities Exchange Agreement(6)
10.27 Stock Exchange for Satisfaction of Debt Agreement with Zevex
International, Inc.
10.28 Co-Distribution Agreement with Pharmacia & Upjohn Company and National
Healthcare Manufacturing Corporation
10.29 Agreement for Purchase and Sale of Assets with Humphrey Systems Division
of Carl Zeiss, Inc.
23.1 Consent of Medical Laser Insight(3)
23.2 Consent of Frost & Sullivan(3)
23.3 Consent of Ophthalmologists Times(3)
27 Financial Data Schedule
(1) Incorporated by reference from Registration Statement on Form SB-2, as
filed on March 19, 1996.
(2) Incorporated by reference from Amendment No. 1 to Registration Statement
on Form SB-2, as filed on May 14, 1996.
(3) Incorporated by reference from Amendment No. 2 to Registration Statement
on Form SB-2, as filed on June 13, 1996.
(4) Incorporated by reference from Amendment No. 3 to Registration Statement
on Form SB-2, as filed on June 28, 1996.
(5) Incorporated by reference from Annual Report on Form 10-KSB, as filed on
December 30, 1996.
(6) Incorporated by reference from Annual Report on Form 10-KSB, as filed on
April 16, 1998.
(b) Reports on Form 8-K
On January 7, 1998, the Company filed a report on Form 8-K regarding
pro forma financial statements as of November 30, 1997.
On February 18, 1998, the Company filed a report on Form 8-K regarding
pro forma financial statements as of December 31, 1997.
On February 27, 1998, the Company filed a report on Form 8-K regarding
pro forma financial statements as of January 31, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
REGISTRANT
PARADIGM MEDICAL INDUSTRIES, INC.
---------------------------------
Registrant
DATED: August 18, 1998 By: /s/ Michael W. Stelzer
------------------------
Michael W. Stelzer
Vice President of Operations, Secretary and
Chief Operating Officer
DATED: August 18, 1998 By: /s/ John W. Hemmer
------------------
John W. Hemmer
Vice President of Finance, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
14
STOCK EXCHANGE FOR SATISFACTION OF DEBT AGREEMENT
This Agreement executed at Salt Lake City, Utah , this 29 day of June,
1998, between ZEVEX INTERNATIONAL, INC. ("Zevex") and PARADIGM MEDICAL
INDUSTRIES, INC., ("Paradigm") a corporation existing under the laws of the
State of Delaware (the "Paradigm").
WHEREAS, Zevex is a designer, engineer and manufacturer of medical and
health care products, and;
WHEREAS, Paradigm, a supplier of technical products to the medical and
health care industry, contracted with Zevex to engineer and manufacture
phacoemulsification equipment for which Paradigm issued its purchase order for
future delivery of said machines, and;
WHEREAS, the Paradigm currently owes to Zevex the sum of $400,000.00
for the purchase of twenty -one (21) Precisionist Thirty Thousand machines, and;
WHEREAS, the Paradigm desires to exchange its common stock which is to
be registered, in full and complete satisfaction of said $400,000.00 debt owed
to Zevex.
NOW, THEREFORE, in consideration of the mutual promises and
undertakings of the parties, they agree as follows:
1. The Zevex sells, assigns, transfers, and sets over to the Paradigm, its
successors and assigns, all rights and interest without any further
claims of liens or ownership in the twenty-one Precisionist Thirty
Thousand machines with the following serial numbers:
97-021 through and including 97-041
1.1 It is agreed that the property is sold complete with
footswitches and accessories as set forth in the
Zevex-Paradigm contract dated September 23, 1996.
2. Paradigm shall transfer to Zevex the total of 90,000 shares of Paradigm
common stock, which Paradigm agrees to register with the Securities and
Exchange Commission within forty-five (45) days from the date of this
Agreement in full and complete satisfaction of all amounts owed to
Zevex for the aforementioned equipment.
2.1 Zevex agrees that subsequent to registration of the
aforementioned stock that it will not sell said stock in a
manner which would result in a material decrease in the market
value of the stock but in no event will exceed 5,000 shares in
any one trading day.
3. Paradigm agrees to issue certificates for the stock, or any part of it,
to Zevex, and to such persons as the Zevex may by writing designate,
and in the absence of any designation on the part of the Zevex to the
contrary, certificates for the stock shall be issued in the name of
Zevex.
3.1 The stock is declared fully-paid and non-assessable.
4. This agreement has the full force and virtue of a bill of sale, and is
intended to pass title from the Zevex to the Paradigm upon delivery.
5. The Zevex agrees to make, execute, and deliver any further writings
which may be necessary or convenient to vest a perfect and unclouded
title to the property in the Paradigm, and to secure to the Paradigm
the full benefit and enjoyment of the property purchased along with the
satisfaction of its debt.
6. Zevex represents and warrants that it is the sole owner of the above
described debt and that the same is free and clear of all liens and
encumbrances and that it has not sold or otherwise hypothecated said
debt to any third party.
7. Paradigm represents and warrants that its board of directors has
authorized the issuance of stock and its subsequent registration.
8. Miscellaneous.
8.1 This Agreement constitutes the entire agreement and
understanding of the parties with respect to the subject
matter hereof.
8.2 This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah
8.3 This Agreement may be executed by facsimile and may be
executed in one or more counterparts, each of which shall be
deemed an original, all of which, when taken together, shall
constitute one and the same instrument.
8.4 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.
8.5 This Agreement shall be binding on all successors and assigns
of the parties.
In witness whereof, the parties have executed this agreement at Salt
Lake City, Utah, on the day and year first written above.
ZEVEX INTERNATIONAL, INC. PARADIGM MEDICAL INDUSTRIES, INC.
By: /s/Phillip McStott By: /s/Michael Stelzer
Phillip McStott Michael Stelzer
Title: CFO, ZEVEX INTERNATIONAL, INC. Title: C0O, PARADIGM MEDICAL
INDUSTRIES, INC.
CO-DISIRIBUTION AGREEMENT
This CO-DISTRIBUTION AGREEMENT, effective as of 6-26-98, by and between
PHARMACIA & UPJOHN COMPANY, a corporation organized and existing under the laws
of the state of Delaware, with offices at 7000 Portage Road, Kalamazoo, MI,
49001, ("P&U"), and NATIONAL HEALTHCARE MANUFACTURING CORPORATION, a corporation
organized and existing under the laws of Manitoba, with offices at 251 Saulteaux
Crescent, Winnipeg, MB CANADA ("NHMC"), and PARADIGM MEDICAL INDUSTRIES, INC., a
corporation organized and existing under the laws of the state of Delaware, with
offices at 1127 West 2320 South, Suite A, Salt Lake City, UT 84119,
("PARADIGM").
WHEREAS, PARADIGM manufactures, markets, sells, and distributes Precisionist
30,00OTm phacoemulsification equipment ("Phaco Machine"), and
WHEREAS, P&U manufactures, markets, sells, and distributes Ceeon intraocular
lenses ("IOLs") and Healon lenses ("Viscoelastics"), and Cat Packs (CeeOn and
Healon combined); and
WHEREAS, NHMC manufactures custom procedural packs; and
WHEREAS, P&U , PARADIGM and NI-IMC wish to enter into a Co-Distribution
Agreement for the distribution of a package to physicians including IOL'S,
viscoelastics, custom procedural packs, and phaco kits , in conjunction with the
sale of a Phaco Machine.
NOW, THEREFORE, the Parties hereby agree as follows:
Section 1. Definitions
1.1 "Alliance" refers to the combined group of companies: P&U, NHMC and
PARADIGM supplying their respective products and or services to target
customers in the ophthahnic surgical supply market The trade name
utilized by the Alliance shall be PARADIGM Pharmacia & Upjohn Alliance
C'PPUI..
1.2 "Alliance Management Team" shall mean a group composed of a
representative from each of the three Alliance companies. Such Alliance
Management Team shall meet quarterly to develop a Business & Marketing
Plan and to manage Alliance activities. PARADIGM's representative shall
be charged with taking of minutes at each such meeting.
1.3 "Package" shall mean the products purchased by PARADIGM hereunder
including IOL's viscoelastics, custom procedural packs and phaco kits,
in conjunction with the sale of a Phaco Machine for sale to customers
on a per procedure basis.
1.4 "Consignment Inventory" shall mean the beginning inventory of IOL's
provided by P&U.
Section 2. Structure
The cooperation between the Parties as set forth in this Agreement will not
constitute nor be construed as constituting a partnership or a relationship of
agent and principal. No Party shall, under any circumstances act as or represent
itself to be a partner, agent or a representative of the other. No Party shall
have any responsibility for the firing, compensation, or employee benefits of
any Party's employees. No employee or representative of any Party shall have any
authority to bind or obligate the other Parties to this Agreement for any sum or
in any manner whatsoever, or to create or impose a contractual or other
liability on any other Party without said Party's authorized written approval.
For all purposes, and notwithstanding any other provision of this Agreement to
the contrary, the legal relationship of the Parties under this Agreement shall
be that of independent contractors.
Section 3. P&U Obligations
3.1 P&U will sell its IOLs and Viscoelastics directly to PARADIGM.
3.2 P&U will offer discount prices to PARADIGM based on the volume of
lenses ordered per Exhibit B attached hereto, and will note the
discount or the price, net discount on the product invoice. In the
event P&U has an obligation to provide this information to its
customers it shall so notify PARADIGM.
3.3 P&U will not be directly involved with the marketing or pricing of the
Package other than to ship directly the IOLs and Viscoelastics to
purchasers of the Packages and to assist PARADIGM in identifying
potential customers for the Package or selected components thereof, for
follow-up by PARADIGM's sales representatives.
3.4 P&U's role in this Agreement shall be confined to assisting in
distribution of the Package and providing limited marketing assistance
in the form of potential customer identification
3.5 P&U will set up a compliance program to review all correspondence and
sales documentation relating to this Agreement.
Section 4. PARADIGM's Obligations
4.1 PARADIGM shall secure and maintain all Regulatory Files and other
requirements necessary for marketing and selling the Package in
accordance with @ Agreement. PARADIGM shall promptly notify P&Us
Regulatory Affairs Department upon being contacted by the FDA or any
governmental agency for any regulatory purpose pertaining to the
Package as it affects this Agreement.
4.2 PARADIGM represents and warrants that the Package, its labels and
labeling as well as all sales, advertising, promotional and mailing
materials shall conform to the FDA approved labeling and will comply
with all applicable laws and regulations. Further PARADIGM will be
responsible for complying with any requirements under the anti-kickback
statute and regulations thereunder, and related health care fraud
statutes.
4.3 PARADIGM shall, at its sole discretion, develop and prosecute all
regulatory filings, labeling requirements, regulatory reporting duties,
price approvals for reimbursement purposes, and post-marketing
regulatory obligations.
4.4 Except as otherwise provided in this Agreement, PARADIGM shall retain
exclusive authority and responsibility for handling any disputes and
law suits with any regulatory agency, as well as with patients and
customers, and other third parties regarding advertising and promotion
provided by PARADIGM and other activity for which PARADIGM is
responsible hereunder.
4.5 Except for the setup and auditing of the Consignment Inventory,
PARADIGM shall be solely responsible for supplying components of the
Package and for the pricing of the Package and will sell the IOL's and
Viscoelastics to physicians as part of the Package, which may include
Viscoelastics, custom procedural packs and phaco kits.
4.6 PARADIGM will supply the Package to physicians as part of the Pack
Usage Agreement in the form set forth in Attachment "A", for purchasers
of PARADIGM's Phaco Machines.
4.7 PARADIGM or its Agent shall be solely responsible for billing of
customers, collecting payments from customers, and for all relations
with customers concerning the Package unless otherwise required by law
or regulation. Further, PARADIGM will include on its customer invoices
that it is charging for the IOL's as part of the Package for hospitals.
4.8 PARADIGM agrees not to distribute any promotional materials regarding
P&U's Products without P&U's prior written consent and approval.
4.9 PARADIGM shall promptly notify P&U and NHMC of changes in or affecting
the Package or its terms and conditions of sales.
4.10 PARADIGM will pay P&U and NHMC within sixty (60) days of shipment of
Products to its Alliance customers.
4.11 PARADIGM will supply IOL model, serial number and label on each
reorder.
Section 5 NHMC Obligations
5.1 NHMC will sell its standard and custom procedure trays directly to
PARADIGM.
5.2 NHMC will provide quotes within three (3) to five (5) business days of
request.
5.3 NHMC will provide prototypes within two (2) to three (3) weeks from
request.
5.4 NHMC will maintain on hand inventory of "Standard trays" for immediate
delivery.
5.5 NHMC will produce and ship custom packs within sixty to ninety (60-90)
days of order.
5.6 NHMC will return at its expense any damaged or defective product caused
by them.
5.7 NHMC will provide no-charge prototypes on qualified opportunities.
5.8 NHMC will provide Alliance management and sales representative
training.
Section 6. Accounting Reports
PARADIGM and its Agent agree to keep true and accurate records. P&U and NHMC by
and through its authorized representatives shall have the right upon reasonable
notice, to conduct audits of all of the relevant books and records of PARADIGM
or its Agent which are directly related to the promotion and sale of the
Package.
Section 7. Adverse Reactions
7.1 PARADIGM shall be responsible for filing with the FDA any Package
related accident or incident reports which it receives directly from
third parties or from P&U and NHMC..
7.2 Product Recall
7.2.1 In the event that one of the Parties determines that an event,
incident, or circumstance has occurred which may result in the
need for a "recall" or "market withdrawal", as such terms are
defined in a 21 CFR 7.3, of any components of the Package,
such Party shall advise the others and the Parties shall
consult with respect thereto.
7.2.2 PARADIGM will be responsible for activities associated with
any recall or withdrawal from the market at PARADIGM's expense
for communication and notification. Each Party will be
responsible for expenses related to their Product.
Section 8. Warranties and Indemnification
8.1 Indemnification by PARADIGM. PARADIGM shall defend, indemnify and hold
harmless P&U and NHMC and their successors and assigns, Affiliates, and
the officers, directors, employees, and agents thereof, from and
against any and all third party suits, actions, causes of actions,
demands, losses, liabilities, money judgments, damages, fines,
penalties, assessments, costs, and expenses including reasonable
attorney's fees (for the purpose of this paragraph, collectively
Claims) which (i) arise out of PARADIGM's breach of this Agreement
including any representation or warranty made hereunder; or (ii) result
from the negligent acts or willful malfeasance of PARADIGM or
PARADIGM's employees or agents, in connection with the sale,
distribution, promotion, advertising, administration, or use of the
Package (including those relating to product liability and those
relating to infringement of patents, trademarks, copyrights, investor's
certificates or other intellectual or intangible property rights); or
(iii) result from use of promotional materials.
8.2 Indemnification by P&U P&U shall defend, indemnify and hold harmless
PARADIGM and NHMC their successors and assigns, Affiliates and
officers, directors, employees, and agents thereof, from and against
any and all third party suits, actions, causes of actions, demands,
losses, liabilities, money judgments, damages, fines, penalties,
assessments, costs, and expenses including reasonable attorney's fees
(for the purpose of this paragraph, collectively Claims) which (i)
arise out of P&U's breach of this Agreement including any
representation or Warranty made hereunder, or (ii) result from the
negligent acts or willful malfeasance of P&U.
8.3 Indemnification by NHMC NHMC shall defend, indemnify and hold harmless
PARADIGM and P&U their successors and assigns, Affiliates and officers,
directors, employees, and agents thereof, from and against any and all
third party suits, actions, causes of actions, demands, losses,
liabilities, money judgments, damages, fines, penalties, assessments,
costs, and expenses including reasonable attorney's fees (for the
purpose of this paragraph, collectively Claims) which (i) arise out of
NHMC's breach of this Agreement including any representation or
Warranty made hereunder, or (ii) result from the negligent acts or
willful malfeasance of NHMC.
8.4 Notice and Defense of Claims In the event that any indemnified Party
receives notice of, or is aware of, a claim, commencement of any suit,
action of proceeding, or the imposition of any penalty or assessment
(for purposes of this paragraph, collectively "Claims") in respect of
which indemnity may be sought hereunder, and the indemnified Party
intends to seek indemnity hereunder, the indemnified Party shall
promptly provide the indemnifying Party with notice of such Claims. The
failure by any indemnified Party to notify the indemnifying Party of
such Claims shall not relieve the indemnifying Party of responsibility
under this Section 8 except to the extent such failure adversely
prejudices the ability of the indemnifying Party to defend such Claims.
The indemnifying Party shall have the right at its option and its own
expense, to be represented by counsel of its own choice and to defend
against, negotiate, settle, or otherwise deal with any such Claims,
provided that the indemnifying Party shall not enter into any
settlement or compromise of any such Claims which could lead to
liability or create any financial or other obligation on the part of
the indemnified Party without the indemnified Party's prior written
consent. The indemnified Party may participate in the defense of any
Claims with counsel of its own choice and at its own expense. The
Parties agree to cooperate fully with each other in connection with the
defense, negotiation of settlement of any such Claims. In the event
that the indemnifying Party does not undertake the defense, compromise
or settlement of Claims, the indemnified Party shall have the right to
control the defense or settlement of such Claims with counsel of its
choosing provided, however, the indemnified Party shall not settle or
compromise any such Claims without the indemnifying Party's prior
written consent which consent shall not be unreasonably withheld.
Section 9. Confidentiality
All confidential information transmitted in contemplation of and while this
Agreement is in effect by and of the Parties to another Party shall be
identified with reference to this Agreement and the receiving Party shall, while
this Agreement is in effect and for a period of three (3) years after the
expiration or termination of this Agreement, make no use of such confidential
information except to advance the purposes of this Agreement in accordance with
the terms hereof, and shall use the same efforts to keep secret and prevent the
disclosure of such confidential information to Parties, other than its agents,
officers, employees, and representatives authorized to receive such confidential
information and bound by use and disclosure restrictions similar to those
provided herein, as it would use with respect to is own confidential and
proprietary information. Confidential information shall remain the sole and
absolute property of the disclosing Party, subject to the rights and licenses
granted herein. The above restrictions on the use and disclosure of confidential
information shall not apply to any confidential information which:
(a)is already lawfully known to the recipient at the time of disclosure
as documented by recipient; or
(b)is or becomes generally available to the public other than through
any act or omission of the recipient in breach of this Agreement; or
(c) is acquired by the recipient from a third Party having the lawful
right to disclose same; or
(d) is required by law to be disclosed; or
(e)is required to be disclosed in order to exercise rights granted or
retained p t to this Agreement, provided that any such disclosure will
be subject to use and disclosure restrictions similar to those provided
herein.
The term confidential information shall include any information that is, by its
nature, information that would give an entity in the business of the disclosing
Party a competitive advantage over another such entity not in possession of such
information.
In the event this Agreement is terminated for any reason by any of the Parties
as provided herein, the receiving Party agrees to return to the other, and
thereafter refrain from using, all confidential information given to it by
another Party; provided, however, one written copy may be retained by the
recipient solely for archival purposes to determine its legal obligations under
this Agreement All provisions of this Section 9 shall survive the expiration or
termination of this Agreement.
Section 10. Tradedress, Advertising, and Promotion
10.1 The Package will bear the Trademark and the trade dress of each
companies respective Products unless otherwise agreed to in writing by
the Parties.
10.2 P&U and NHMC may use the Trademark and the name PARADIGM and its logo
solely to the extent required to fulfill its obligations under this
Agreement and as agreed to by PARADIGM. PARADIGM and NHMC and their
Affiliates may use the name Pharmacia & Upjohn Company and its logo
solely to the extent required to fulfill their obligations under this
Agreement and as agreed to by P&U. All Parties and their agents shall
immediately cease all use of the others name and logo upon expiration
or termination of this Agreement.
10.3 All advertising and public relation activities associated with the sale
of the Package, must be reviewed and pre-approved by P&U, PARADIGM and
NHMC prior to its use.
Section 11. Term-Termination
11.1 This Agreement shall be effective as of the Agreement effective date,
and, unless sooner terminated pursuant to provisions herein, shall
expire automatically on the date of December 31, 2000. Beginning ninety
(90) days prior to the expiration date, and each year thereafter, the
Parties shall discuss renewing the Agreement for additional one (1)
year periods or terminating the Agreement if so determined by the
Parties.
11.2 The Agreement and any agreements executed pursuant hereto may be
terminated by any Party before the expiration of the time period set
forth in Section 11.1 in the event of a substantial breach by either of
the Parties of its obligations under this Agreement or any agreements
executed pursuant hereto, if such breach is not remedied within sixty
(60) days from date on which the non-breaching Party gives notice to
the breaching Party of its breach.
11.3 Each Party hereto shall have the right to terminate the Agreement
without cause at any time during the Agreement with ninety (90) days
prior written notice to the non-terminating Parties.
11.4 Termination of this Agreement for whatever reason, shall not affect any
rights or obligations which may have accrued to the Parties prior to
the effective date of termination. Termination of the Agreement shall
be without prejudice to (a) any remedies which the Parties may then or
thereafter have hereunder or at law or in equity, and (b) that Party's
right to obtain performance of any obligations which expressly survive
termination of the Agreement.
Section 12. Patent and Trademark Infrini!ement
Each Party shall advise the other Parties promptly upon its becoming aware of
any infringement by a party of Patent Rights or Trademarks respectively covering
or identifying the product components of the Package. PARADIGK at its sole
discretion, shall take such legal action as is required to restrain or otherwise
prevent such infringement. P&U shall cooperate fully with and as requested by
PARADIGK at PARADIGM's expense, in PARADIGNTs attempt to restrain such
infringement. P&U may be represented by counsel of its own selection at its own
expense in any suit or proceeding brought by PARADIGM to restrain such
infringement
Suits brought by third parties alleging patent or trademark infringements shall
be governed by the provisions of Section 8.3 above.
Section 13. Miscellaneous
13.1 Notice Any notice required or permitted hereunder shall be in writing
and shall be sufficiently given when personally delivered,
telecommunicated, with receipt confirmed, delivered by overnight
courier or mailed prepaid first class registered or certified mail and
addressed to the party for whom it is intended at its record address,
and such notice shall be effective upon receipt if delivered
personally, telecommunicated, or by overnight courier, or shall be
effective five (5) days after it is deposited in the mail, if mailed.
The record addresses and facsimile number of the parties are set forth
below:
If to P&U: Pharmacia & Upjohn Company
Market Region North America
7000 Portage Road
Kalamazoo, MI 49001
Attn: Vice President, Chief Legal Counsel
Facsimile No.: 616-833-6332
If to PARADIGM: PARADIGM Medical Industries, Inc.
1127 West 2320 South, Suite A
Salt Lake City, UT 84119
Attn: Vice President Operations and C.O.O.
Facsimile No.: (801) 977-8973
If to NHMC: National Healthcare Manufacturing Corporation
251 Saulteaux Crescent
Winnipeg, MB, CANADA R3J 3C7
Attn: Vice President Sales and Marketing
Facsimile No.: (204) 885-5588
Any Party, at any time, may change its previous record address or
facsimile number by giving written notice of the substitution to the
other Parties as herein provided.
13.2 Force Majeure The performance by any one of the Parties of any covenant
or obligation on its part to be performed under this Agreement shall be
excused by floods, riots, fire, war, acts, injunctions, or restraints
of government (whether or not now threatened), or any cause preventing
such performance whether similar or dissimilar to the foregoing beyond
the reasonable control of the party bound by such covenant or
obligation ("force majeure").
13.3 Assignment This Agreement shall not be assigned by any of the Parties
without the written consent of the other Parties.
13.4 Modification No modification or amendment hereof shall be valid or
binding upon the Parties hereto unless made in writing and duly
executed on behalf of all of the Parties.
13.5 Waivers Failure of a Party to insist upon the strict performance of any
provision hereof or to exercise any right or remedy shall not be deemed
a waiver of any right or remedy with respect to any existing or
subsequent breach or default.
13.6 Governing Law and Venue This Agreement shall be construed and the legal
relations between the Parties hereto determined in accordance with the
laws of the State of Michigan.
13.7 Public Disclosure No Party shall issue a press release or in any other
way announce to the public the contents of this Agreement and the
negotiations preceding it without prior written consent of the other
Parties.
13.8 Headings The clause headings are placed herein merely as a matter of
convenience and shall not affect the construction or interpretation of
any of its provisions.
13.9 Partial Invalidity In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Agreement
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or provisions would result in such a material
change as to cause completion of the actions contemplated herein to be
impossible and provided that the performance required by this Agreement
with such clause deleted remains substantially consistent with the
intent of the Parties.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their respective duly authorized officers or representatives.
PHARMACIA & UPJOHN COMPANY PARADIGM MEDICAL INDUSTREES, INC.
By: Karl A. Brown By: Michael Stelzer
Title: National Sales Director Title: Chief Operating Officer
Date: 6/26/98 Date: 6/26/98
NATIONAL HEALTHCARE MANUFACTURING CORPORATION
By: G. J. Zimmerman
Title: Vice President Sales and Marketing
Date:
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
This Agreement for Purchase and Sale of Assets (the "Agreement") is
made and entered into as of July 23, 1998, by and between HUMPHREY SYSTEMS
DIVISION OF CARL ZEISS, INC., a New York corporation ("Humphrey"), and PARADIGM
MEDICAL INDUSTRIES, INC., a Delaware corporation ("Paradigm").
RECITALS
A. Humphrey is in the business of designing, developing, manufacturing
and selling ophthalmic diagnostic equipment.
B. On or about May 11, 1998, Humphrey retained Doug Adams as a
broker/consultant in connection with the sale of Humphrey's
discontinued ultrasonic product line. Pursuant to said retainer, Doug
Adams identified Paradigm as an interested party.
C. Paradigm is a high-tech ophthalmic equipment company whose stock is
publicly traded on the NASDAQ Small Cap market.
D. Paradigm desires to acquire from Humphrey and Humphrey desires to
sell to Paradigm, on the terms and subject to the conditions of this
Agreement, certain assets used in the manufacturing and production of
Humphrey's ultrasonic microprocessor based line of ophthalmic
diagnostic instruments.
E. On or about June 16, 1998, Paradigm and Humphrey signed a
non-binding Letter of Intent designed to cover the transactions which
are specifically set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties
agree as follows:
SECTION I
PURCHASE OF ASSETS
1. 1. Purchase of Assets. Subject to the terms and conditions
set forth in this Agreement and except as specifically
excluded herein, Humphrey agrees to sell, transfer, assign and
deliver to Paradigm, and Paradigm agrees to acquire from
Humphrey, certain assets of Humphrey that are used in the
manufacture and marketing of Humphrey's ultrasonic
microprocessor based line of ophthalmic diagnostic instruments
commonly known as:
a) Humphrey Ultrasonic Biometer Model 820*
b) Humphrey A/B Scan System Model 837*
c) Humphrey Ultrasound Pachymeter Model 855*
d) Humphrey Ultrasound Biomicroscope Model 840*
* including all accessories, packaging and end-user
collateral materials (manuals, etc.) for each of
the product lines.
Subject to the dollar limitations set forth in Section 6.13 and subject to the
quantity limitations set forth in Section 1.2, the assets to be purchased and
sold under this Agreement ("Assets") are specifically described in Exhibit "A"
which is attached hereto and by its reference incorporated herein. It is
understood and agreed that specifically excluded from the Assets to be purchased
and sold under this Agreement are any and all tools and "jigs" which may have
been used to manufacture the line of products described in a) through d), above.
It is specifically understood by Paradigm that the product line represented in
Section 1. 1.a) through d), above, has not been manufactured or sold by Humphrey
since approximately May, 1997. The parties agree that the Assets which are the
subject of this Agreement are purchased and sold "as is".
1.2. Limitation on Assets to be Acquired. Insofar as Humphrey
is reserving the right to provide sales of parts/components
and the right to provide service to its installed base of
customers, it is agreed that with regard to any single part or
component used in the manufacture or assembly of the Model 820
Biometer, the Model 837 A/B Scan System, and the Model 855
Pachymeter, Humphrey shall have the right to retain no less
than one-half (1/2) of its inventory of each of the parts or
component*. as of the date of Closing. With regard to the
Model 840 Biomicroscope, the Assets shall include only
sufficient parts/components to build two (2) complete units.
1.3. Right to Manufacture. It is understood and agreed that
with purchase of the assets set forth on Exhibit A, Paradigm
shall have the right to design, manufacture, market and sell
ultrasonic ophthalmic diagnostic instruments using the Assets
herein acquired.
2
<PAGE>
SECTION 2
PURCHASE PRICE
2. 1. Purchase Price. The purchase price for the Assets to be
transferred under this Agreement shall be Five Hundred
Thousand Dollars ($500,000.00).
2.2. Purchase Price to be Paid by Issuance of Common Stock.
Paradigm is a stock company whose common stock is publicly
traded on the NASDAQ Small Cap market. Subject to the
conditions set forth herein, Humphrey hereby agrees to accept
One Hundred Five Thousand Two Hundred Sixty Three (105,263)
shares of Paradigm's common stock as payment in full for the
Assets to be transferred from Humphrey to Paradigm under this
Agreement. With reference to the aforementioned Letter of
Intent of June 16, 1998, the parties hereby agree that the
number of shares is determined by the price of the Paradigm
common stock as of close of the market on June 16, 1998, which
price is $4.75 per share.
2.3. Issuance and Registration of Stock. The issuance of
shares of common stock to cover the payment of the purchase
price as called for herein shall concur with execution of this
Agreement. Immediately after execution of this Agreement and
issuance of such shares of stock, Paradigm shall properly
register the stock by preparing and filing all necessary
documents with the Securities Exchange Commission (SEC) and
any other State or Federal regulatory agency for which such
filing/registration is required. The stock issued by Paradigm
concurrent with execution of this Agreement shall bear a
legend indicating that such shares of stock may not be traded
until registration has been made and approved by the SEC
and/or such other regulatory agency as may be required.
Paradigm shall be solely responsible for payment of all fees
and costs connected with the preparation and filing of such
registration(s).
2.4. Condition to Transfer. It is understood and agreed that
transfer of title from Humphrey to Paradigm to the Assets set
forth on Exhibit A and transfer of the right to design,
manufacture, market or sell products utilizing or based on
such assets, shall be contingent upon:
a) the proper registration and/or approvals being
issued by the SEC and/or any other regulatory
agency from which registration and/or approval is
required; and
b) payment in full of the purchase price, from the
sale of the Paradigm shares of stock, in cash,
received by Humphrey, as set forth in Section
2.5.4. and/or 2.5.5, below. To provide for the
possibility of Humphrey having to reacquire
possession of the Assets due to failure of the
conditions set forth herein, Paradigm hereby agrees
that until they have received notice from Humphrey
(in writing), that the
3
<PAGE>
conditions set forth in Sections 2.5.4 and/or 2.5.5
have been satisfied, the Assets will be held by
Paradigm at a single location, namely their
principal place of business located at 1 127 West
2320 South, Suite A, Salt Lake City, Utah. Paradigm
further agrees that in the event Humphrey has to
reacquire possession of the Assets due to the
failure of the conditions set forth herein,
Humphrey shall acquire right, title and all
interest in any and all instruments, whether fully
or partially assembled, which contain parts or
components of the Assets which are the subject of
this Agreement. Humphrey shall file UCC I with the
appropriate agency in the state of Utah to perfect
the security interest reserved under this Section.
2.5. Payment of Purchase Price. The purchase price shall be
paid as follows:
2.5. 1. To Doug Adams. Paradigm shall issue and
deliver to Doug Adams, or his designee ("Adams"),
Twenty-Six Thousand Three Hundred Sixteen (26,316)
shares of Paradigm's common stock. By signing this
Agreement, Adams agrees to accept said shares of
Paradigm common stock as full compensation for his
services to Humphrey as a broker/consultant under
the aforementioned Letter Agreement made by and
between Adams and Humphrey as of May 11, 1998.
Adams further acknowledges that except as set forth
herein, he is entitled to no other compensation
either from Humphrey or Paradigm in connection with
the transaction called for in this Agreement.
2.5.2. To Humphrey. Paradigm shall issue and
deliver to Humphrey, or its designee, Seventy Eight
Thousand Nine Hundred Forty Seven (78,947) shares
of Paradigm's common stock.
2.5.3. Limitation on Sale. It is understood that
Humphrey and Adams shall have the right to sell
their respective shares of Paradigm common stock on
the open market at any time subsequent to the
proper registration of such stock as called for
under Section 2.3. Humphrey and Adams hereby agree
that each will limit their respective daily stock
sales to Five Thousand (5,000) shares or less for
each trading day the NASDAQ is open for business.
2.5.4. Guaranty of Net Proceeds. Paradigm hereby
guarantees that Humphrey shall receive total net
proceeds (after payment of stock brokers' fees
and/or commissions and payment of any sales or
transfer taxes connected with sale of shares) of at
least Three Hundred Seventy Five Thousand Dollars
($375,000) from the sale of the stock it receives
as consideration under this Agreement. In the event
that the sale of all Seventy Eight Thousand Nine
Hundred Forty Seven (78,947) shares of Paradigm
common stock issued to Humphrey yields less than
Three Hundred Seventy Five Thousand Dollars
($375,000) net to Humphrey, Paradigm agrees to
issue, at no cost to Humphrey, such additional
registered shares of Paradigm common stock as is
necessary to increase Humphrey's net proceeds to
Three Hundred Seventy Five Thousand Dollars
($375,000).
4
<PAGE>
2.5.5. Excess Proceeds. In consideration of
Humphrey's acceptance of shares of stock in lieu of
cash, the parties agree that Humphrey may retain
the proceeds from the sale of the aforementioned
shares of stock which may be in excess of Three
Hundred Seventy Five Thousand Dollars ($375,000).
SECTION 3
ALLOCATION OF PURCHASE PRICE
AND PAYMENT OF TAXES
3. 1. Allocation of Purchase Price. The parties agree that the
Purchase Price shall be allocated among the product lines as
follows:
a) Humphrey Ultrasonic Biometer Model 820 $100,000
b) Humphrey A/B Scan System Model 837 $100,000
c) Humphrey Ultrasound Pachymeter Model 855 $100,000
d) Humphrey Ultrasound Biomicroscope Model 840 $200,000
Total $500,000
3.2. Taxes. Paradigm shall be solely responsible for payment
of sales and use taxes, if applicable, arising out of the
transfer of the Assets. Paradigm shall not be responsible for
any business, inventory, income, employee-related withholding,
or any similar tax arising out of ownership or use of the
Assets incurred by Humphrey for any period prior to the
Closing Date.
SECTION 4
ASSIGNMENT OF LICENSES AND REGULATORY APPROVALS
4. 1. License Agreements. Attached hereto as Exhibit B is a
list of the individuals and organizations to whom Humphrey
paid royalties under license agreements prior to the time it
discontinued manufacturing and selling the product line which
is the subject of this Agreement. Such royalties were paid for
technology or formulas which were acquired or utilized in
connection with the manufacture and sale of one or more of the
models in the line of products. Humphrey makes no
representation and provides no warranty that Paradigm will be
able to use the technology or formulas which are the subject
of said license agreements on any products which Paradigm may
manufacture and sell utilizing the Assets purchased under this
Agreement. Paradigm shall be solely
5
responsible for obtaining any consents from licensors that may
be desired or required in connection with Paradigm's use of
proprietary information from such licensors. Humphrey hereby
authorizes and consents to the release of information directly
from such licensors to Paradigm. It is further understood that
Paradigm shall have the right to enter into new license
agreements with any of the listed licensors for use of
technology or formulas in connection with Paradigm's
manufacture of products utilizing the Assets acquired herein.
4. 1. 1. License Agreement with Sunnybrook. As to
that certain License Agreement of September 27,
1990, entered into by and between Humphrey and
Sunnybrook Health Science Center, a copy of which
is attached hereto as Exhibit F, Humphrey hereby
assigns to Paradigm any right Humphrey may have
acquired under said License Agreement to
manufacture the Ultrasound Biomicroscope Model 840.
Paradigm hereby agrees to indemnify and hold
harmless Humphrey from any royalties, claims, or
liabilities of any kind arising out of Paradigm's
manufacture and sale of an ultrasound biomicroscope
based on the technology deployed in the Model 840.
4.2. Regulatory Approvals. To the extend allowed by the
relevant regulatory agency and the regulations pertaining
thereto, Humphrey hereby assigns and transfers to Paradigm all
of its right, title and interest to the following regulatory
approvals:
a) any and all CE Marks in Europe applicable to the
products set forth in Section 1. I a) through d);
and
b) any and all 5 1 OK FDA approvals in the United
States applicable to the products set forth in
Section 1. I a) through d).
c) Paradigm shall bear sole responsibility for
applying to any relevant regulatory agency and for
following the pertinent regulations for the
effective transfer of the Marks and approvals set
forth in Section 4.2.a) and b), above.
SECTION 5
USE OF HUMPHREY NAME AND TRADEMARKS
5. 1. No Right To Use of Humphrey Name. Except as is
specifically excepted in this Section, nothing in this
Agreement shall be construed so as to give Paradigm any right
or license to use the Humphrey name in connection with any
future development, manufacture, marketing, promotion,
distribution or sale of products utilizing the Assets acquired
herein. The Humphrey name shall be removed from the exterior
of any products produced by Paradigm. Any existing inventory
purchased from
6
<PAGE>
Humphrey may be used on the interior of the products without
the removal of the Humphrey name. Any news or press release to
be disseminated by Paradigm which contains the Humphrey name
shall be approved by Humphrey prior to its dissemination to
the public. It is understood that Paradigm will be required to
disclose in a public record in connection with its 10K / 10Q
filings with the SEC, the fact that Paradigm has acquired from
Humphrey the technology and the right to manufacture
instruments which is the subject of this Agreement. Paradigm
is hereby authorized to utilize the Humphrey name in the
ordinary course of reporting transactions as a public company
to the various regulatory agencies. Paradigm shall not, in any
form, communicate that they have purchased Humphrey's
ultrasound business, but rather communicate only that they
have purchased the right to manufacture instruments utilizing
the Assets purchased from Humphrey. Any use of the Humphrey
name other as set forth in this Section is strictly prohibited
unless authorized in writing by Humphrey.
5.2. Trademarks. Paradigm shall have no right to use any
trademarks, symbols or logos of Humphrey in connection with
its manufacture and sale of products utilizing the
assets/technology acquired under this Agreement.
SECTION 6
REPRESENTATIONS AND WARRANTIES OF HUMPHREY
6. Representations and Warranties of Humphrey. Humphrey
represents and warrants as of the Closing Date that:
6. 1. Organization and Standing. Humphrey is a division of
Carl Zeiss, Inc., a corporation duly organized and validly
existing under the laws of the State of New York and is in
good standing as a domestic corporation under the laws of said
State. Humphrey has all the requisite power and authority to
own and further, has the power and authority to validly sell,
transfer and assign all of the Assets to Paradigm.
6.2. Authorization. The execution and delivery of this
Agreement and the consummation of this transaction by Humphrey
has been duly authorized, and no further authorization is
necessary on the part of Humphrey or Carl Zeiss, Inc.
6.3. Title To Assets. Humphrey has good and marketable title
to the Assets. Except as may arise out of the license
agreements with individuals/organizations set forth in Section
4, all of the Assets are free and clear of mortgages, liens,
pledges, charges, encumbrances, claims, conditions, or
restrictions.
6.4. Compliance With Law. Humphrey is, to the best of its
knowledge, in compliance in all material respects with all
foreign, federal, state and local laws and regulations as they
apply to the ownership of the Assets. To the best of its
knowledge, there are no pending or threatened claims or audits
by any foreign, federal, state or local
7
<PAGE>
government authority with respect to the Assets or with
respect to Humphrey's (presently discontinued) ultrasonic
business.
6.5. Employees. Humphrey represents that none of its employees
have or will have any written or oral contracts of employment
that will be binding upon Paradigm as of the Closing Date.
6.6. Litigation. There is no legal, administrative,
governmental, arbitration or other action, proceeding or
investigation, pending or, to be best knowledge of Humphrey,
threatened against or involving Humphrey which questions or
challenges the validity of this Agreement or the Assets which
are the subject of this Agreement.
6.7. Tax Matters. Humphrey has filed all tax returns required
to be filed by law and all taxes that relate to the Assets
being sold herein have been paid. As it relates to the Assets,
there are no tax liabilities, interest or penalties due.
6.8. Financial Records. With respect to the "Ultrasound
Product Line P&L" which has previously been provided to
Paradigm and is attached hereto as Exhibit C, the Total
Revenue figures set forth accurately reflect revenues from
sales and service; all other figures pertaining to cost of
goods sold, variances, and expenses are "reasonable management
estimates" related to the line of products being sold herein.
Such financial information has been prepared on a consistent
basis and fairly presents the matters set forth therein.
6.9. Liabilities. Except as may arise under relevant license
agreements with individuals/organizations, as set forth in
Section 4, there are no liabilities of any nature, known or
unknown, accrued or unaccrued, nor will there be any
liabilities accruing in the future, relating to the Assets
that might impose transferee liability against Paradigm.
6.10. Trade Names, Trademarks, Trade secrets and copyrights.
To the best of Humphrey's knowledge Humphrey has not
infringed, and is not now infringing, on any trade name,
trademark, service mark, copyright or trade secret belonging
to any other person, firm or corporation. Except as set forth
herein, Humphrey is not a party to any license, agreement or
arrangement, whether as licensor, licensee, franchisor,
franchisee or otherwise, with respect to any trademarks,
service marks, trade secrets, trade names or applications or
any copyrights relating to the Assets. Humphrey owns or holds
adequate licenses or other rights to use all proprietary
information in connection with the Assets.
6.11. Brokerage Fees. Aside from the communications and the
assistance they may have received from Doug Adams, Humphrey
has not engaged or otherwise involved any broker, finder or
similar intermediary in the negotiation of this Agreement or
in the transactions contemplated hereby.
8
<PAGE>
6.12. Full Disclosure. None of the representations and
warranties made by Humphrey contained in this Agreement and no
statement contained in any of the exhibits and schedules to
this Agreement will contain any untrue statement of a material
fact, or omit to state a material fact.
6.13. Value/Sufficiency of Components. Humphrey hereby
represents and warrants that included in the Assets, as
related to the product line price allocations (as set forth in
Section 3), for the Ultrasonic Biometer Model 820 line, for
the A/B Scan System Model 837 line, and for the Ultrasonic
Pachymeter Model 855 line, that included in the price for the
three combined product lines, will be $ 1 00,000 worth of
parts and components, valued at Humphrey's cost. Humphrey
further represents and warrants that with regard to the
Ultrasound Biomicroscope Model 840 product line, the Assets,
as related to the product line price allocation (as set forth
in Section 3), will be parts and components sufficient to
build two complete units. In the event Humphrey has in its
inventory as of the Closing, insufficient parts or components
to build two complete Model 840 units, Humphrey shall as soon
as is practicable, acquire at its cost such missing
parts/components, provided such missing parts/components can
still be reasonably obtained from existing vendors or
suppliers.
SECTION 7
REPRESENTATIONS AND WARRANTIES OF PARADIGM
7. Representations and Warranties of Paradigm. Paradigm represents and
warrants as of the Closing Date that:
7.1. Good Standing. Paradigm is a corporation duly organized,
existing and in good standing under the laws of the State of
Delaware.
7.2. Authorization. The execution, delivery and performance by
Paradigm of this Agreement and all other instruments to be
executed and delivered by Paradigm in connection with the
transactions contemplated under this Agreement are within the
power of Paradigm, have been duly authorized by all necessary
action of the Board of Directors of Paradigm, and no further
approval or ratification is necessary.
7.3. No Consent Required. Except as set forth herein, no other
consent, approval or authorization of, or declaration, filing
or registration with, any federal, state or local governmental
or regulatory authority is required to be made or obtained by
Paradigm in connection with the execution, delivery or
performance of this Agreement and the consummation of the
transactions contemplated in this Agreement.
7.4. Absence of Restrictions. Paradigm is not subject to any
provision of any agreement, order, judgment or decree which
prohibits the execution or delivery of this Agreement by
Buyer, or which would prevent or impair the consummation of
the transactions contemplated under this Agreement.
9
<PAGE>
7.5. Brokerage Fees. Aside from the communications and the
assistance they may have received from Doug Adams, Paradigm
has not engaged or otherwise involved any broker, finder or
similar intermediary in the negotiation of this Agreement or
in the transactions contemplated hereby.
SECTION 8
CLOSING
8. 1. Time and Place. The transfer of Assets by Humphrey to
Paradigm (the "Closing") shall take place at the Humphrey
facility located at 5160 Hacienda Drive, Dublin, California,
at 10:00 a.m. on -, 1998, or at such other time and place as
the parties may agree in writing (the "Closing Date").
8.2. Obligations of Humphrey At Closing. At the Closing
Humphrey shall deliver, or cause to be delivered, to Paradigm:
8.2. 1. A bill of sale (the form of which is
attached hereto as Exhibit D evidencing the
transfer of the Assets. Humphrey, at any time
before or after the Closing Date, will execute,
acknowledge and deliver any further documents and
instruments of transfer, reasonably requested by
Paradigm and will take any other action consistent
with the terms of this Agreement that may
reasonably be requested by Paradigm for the purpose
of assigning, transferring, conveying and
confirming to Paradigm any and all property to be
conveyed and transferred under this Agreement.
8.3. Obligations of Paradigm at Closing. At the Closing,
Paradigm shall deliver, or cause to be delivered:
8.3. 1. Seventy Eight Thousand Nine Hundred Forty
Seven (78,947) shares of Paradigm common stock
issued to Humphrey, as called for under Section
2.5.2.
8.3.2. Twenty Six Thousand Three Hundred Sixteen
(26,316) shares of paradigm common stock issued to
Doug Adams, as called for under Section 2.5. 1.
SECTION 9
OBLIGATIONS OF PARTIES AFTER CLOSING
9. 1. Indemnification By Humphrey. Humphrey agrees to
indemnify and hold Paradigm harmless from and against any and
all known or unknown liabilities, claims, demands, losses and
expenses, of any kind or nature (including, without
limitation, interest, penalties and reasonable attorneys' fees
incidental thereto) related to, 10 resulting from or in any
way arising out of the ownership of the Assets or sale of the
line of products set forth in Section 1. I that accrued or
occurred prior to the Closing Date.
10
<PAGE>
9.2. Indemnification By Paradigm. Paradigm agrees to indemnify
and hold Humphrey harmless from and against any and all known
or unknown liabilities, claims, demands and expenses, of any
kind or nature (including, without limitation, interest,
penalties and reasonable attorneys' fees incidental thereto)
related to, resulting from or in any way arising out of (i)
the ownership of the Assets that accrued or occurred on or
after the Closing Date, or, (ii) the design, development,
manufacture, marketing, and/or sale of any product or products
by Paradigm utilizing the Assets and/or technology acquired
under this Agreement.
9.3. Competition by Humphrey. In consideration for the payment
of the purchase price by Paradigm at the Closing Date,
Humphrey agrees that Humphrey will not at any time within the
next sixty (60) month period following the Closing Date,
directly or indirectly, engage in or have any interest in any
person, firm, corporation or business that engages in the
design, production and/or sale of ultrasonic products
utilizing technology which is substantially identical to the
technology utilized by the products identified in Section 1.
1, in the United States or internationally; provided, however,
no provision of this Section, or of this Agreement, shall be
construed so as to prevent Humphrey from reentering the
ultrasound market or from engaging in the design, development,
manufacture, marketing, distribution and/or sale of any line
of ultrasonic products in the field of
ophthalmology/optometry, or any other medical, industrial or
commercial field, so long as such products are not utilizing
technology which is substantially identical to the technology
utilized by the products set forth in Section 1. 1. This right
applies regardless of whether Humphrey's reentry into such
field results in the manufacture, distribution and/or sale of
products which compete in the marketplace with ultrasound
products manufactured and sold by Paradigm.
9.3. 1. Trade-Ins. Notwithstanding the provisions
set forth in Section 9.3., above, Humphrey shall
have the right for a period of three (3) years
following the Closing Date, to take trade-ins and
to resell such trade-ins as pre-owned equipment, of
any and all models of ultrasound instruments set
forth in Section 1. 1. Paradigm shall have the
right, the same as would any other customer, to
purchase pre-owned instruments from Humphrey.
9.4. Consultation. For a period of ninety (90) days following
the Closing Date, Humphrey shall make available, at any time
during regular work hours upon reasonable verbal notice, those
of its employees with knowledge of the ultrasound products to
provide consultation to Paradigm, its officers and employees,
in the design, production, or construction of any jigs which
are not being transferred as part of this sale but are clearly
necessary to the manufacturing and production process. Such
consultation shall not exceed one hundred twenty (120)
man-hours over the ninety (90) day period.
11
<PAGE>
Consultation of up to one hundred twenty (120) man-hours shall
be provided by Humphrey at no additional cost to Paradigm,
provided, however, Paradigm shall be responsible for payment
of any travel and travel-related expense incurred by Humphrey
personnel in providing such services. Any consultation
Paradigm may require beyond the one hundred twenty man-hours,
may be provided by separate agreement of the parties at a
compensation rate to be negotiated.
9.5. Use of International Distributors. Humphrey hereby agrees
that Paradigm may utilize and enter into contracts with, any
third party international distributor which previously
distributed the Humphrey ultrasound product line prior to
Humphrey's discontinuance thereof, for the purpose of
distributing internationally any ultrasound products Paradigm
may manufacture using the Assets acquired under this
Agreement. It is understood, however, this provision shall not
be construed so as to give Paradigm the right to utilize or
contract with Carl Zeiss Affiliates for purposes of such
international distribution. A list of such non-Zeiss
international distributors is attached hereto as Exhibit E.
Humphrey agrees to prepare a letter on its letterhead
announcing to such international distributors the sale of the
Assets and further agrees to waive any potential conflicts of
interest which may be included in existing distribution
agreements such that said international distributors shall be
allowed to distribute products manufactured by Paradigm.
Nothing in this Section or this Agreement shall be construed
so as to prevent Humphrey from utilizing and contracting with
any international distributor, including distributors which
had previously distributed the Humphrey line of products which
are the subject of this Agreement, from distributing any
future line of ultrasound products.
SECTION 10
SERVICE
10. 1. Installed Base. Humphrey hereby reserves for its own
account the right to provide sales of parts and components and
the overall right to provide service to the installed base of
customers who purchased ultrasound instruments from Humphrey
prior to its discontinuance of the product lines which are the
subject of this Agreement.
10.2. Service on Paradigm Products. Paradigm shall have the
right to determine who shall provide service to the line of
products it intends to manufacture and sell from the
Assets/technology acquired under this Agreement. In the event
Paradigm wants to offer "Humphrey Service Agreements" to
customers that purchase Paradigm ultrasound products, Paradigm
and Humphrey will negotiate a separate agreement under which
such service may be provided, but neither party shall be
obligated to enter into any such agreement.
12
<PAGE>
SECTION I I
MISCELLANEOUS
11. 1. Expenses. Each party shall pay all of its own costs and
expenses, including attorney's fees, incurred in connection or
to be incurred by it in negotiating and preparing this
Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
11.2. Subject. Headings of the paragraphs and subparagraphs of
this Agreement are included for convenience only and shall not
affect the construction or interpretation of any of its
provisions.
11.3. Entire Agreement: Modification and Waiver. This
Agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained herein and
supersedes all prior and contemporaneous agreements,
representations and understandings of the parties. No
supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by the parties. No
waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed
in writing by the party making the waiver.
11.4. Parties in Interests. Nothing in this Agreement whether
expressed or implied, is intended to convey any rights or
remedies under or by reason of this Agreement on any persons
other than the parties to it and their respective successors
and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third
person to any party to this Agreement, nor shall any provision
give any third persons any right of subrogation or action over
or against any party to this Agreement.
11.5. Binding on Successors. This Agreement shall be binding
on and shall inure to the benefit of the parties to it and
their respective heirs, legal representatives, successors and
assigns.
11.6. Dispute Resolution.
1 1.6. 1. Arbitration of Disputes. Any dispute or
claim in law or equity arising out of this
Agreement or any transaction resulting from this
Agreement shall be decided by neutral binding
arbitration, held in Alameda County, California, in
accordance with the rules of the American
Arbitration Association, and not by court action
except as provided by California law for judicial
review of arbitration proceedings. Judgment upon
the award rendered by the Arbitrator(s) may be
entered in any court
13
<PAGE>
having jurisdiction thereof. The parties shall have
the right to discovery in accordance with Code of
Civil Procedure Section 1283.05 in connection with
any arbitration proceeding held hereunder. The
filing of a judicial action for an order of
attachment, an injunction, or other provisional
remedies, shall not constitute a waiver of the
right to arbitrate under this provision.
11.6.2. Recovery of Arbitration/Litigation Costs.
If any legal action or any arbitration or other
proceeding is brought for the enforcement of this
Agreement or because of an alleged dispute, breach,
default or misrepresentation in connection with any
of the provisions of this Agreement, the successful
or prevailing party or parties shall be entitled to
recover reasonable attorney's fees and other costs
and expenses (including costs and expenses related
to retaining experts and consultants) incurred in
any such action or proceeding, in addition to any
other relief to which it or they may be entitled.
11.7. Survival. All representations, warranties, covenants and
agreements of the parties contained in this Agreement or in
any instrument, certificate, opinion or other writing provided
for in it shall survive any investigation made by any party
hereto and the Closing of the transactions contemplated
hereby.
11. 8. Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and
shall be deemed to have been duly given on the date of service
if served personally or sent by facsimile transmission on the
party to whom notice is to be given or on the third business
day after the postmark if mailed to the party to whom notice
is to be given, by first-class mail, registered or certified,
postage prepaid and properly addressed as follows:
If to Humphrey: Humphrey Systems, a division of
Carl Zeiss, Inc.
5160 Hacienda Drive Dublin, CA 94568
Attn.: Dr. Michael Patella
Phone:(800) 227-1508 x4l8l
Fax: (925) 556-9497
If to Paradigm: Paradigm Medical Industries, Inc.
1127 West 2320 South, Suite A
Salt Lake City, Utah 84119
Attn.: Michael W. Stelzer
Phone: (801) 977-8970
Fax: (801) 977-8973
If notice is given by facsimile transmission a duplicate copy
of the notice shall promptly be given by personal delivery,
first-class or certified mail, or overnight delivery. Any
14
<PAGE>
party may change its address for purposes of this section by
giving the other party written notice of the new address in
the manner set forth above.
11.9. Independent Contractor. The relationship between
Paradigm and Humphrey is that of independent contractors, and
not of principal-agent, partner or joint venturer. Paradigm is
not the legal representative of Humphrey, nor is Humphrey the
legal representative of Paradigm. Neither Paradigm nor
Humphrey has the right or authority to assume or undertake any
obligation or make any representation on behalf of the other,
and neither shall hold itself out as having such right or
authority.
11.10. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of
California as applied to contracts that are executed and
performed entirely in California. Neither party shall be
considered the draftsman of this Agreement and no provision
shall be construed either for or against Humphrey or Paradigm,
but this Agreement shall be interpreted in accordance with the
general terms of the language in an effort to reach an
equitable result.
11. 11. Severability. If any of the provisions of this
Agreement are held invalid or unenforceable by any court of
competent jurisdiction, it is the intent of the parties that
all other provisions of this Agreement be construed to remain
fully valid, enforceable and binding on the parties.
11. 12. Necessary Acts. The parties shall at their own cost
and expense execute and deliver such further documents and
instruments and shall take such other actions as may be
reasonably required or appropriate to evidence or carry out
the intent and purposes of this Agreement.
11. 13. Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument.
11. 14. Facsimile Signature. The parties agree that this
Agreement, will be considered signed when the signature of a
party is delivered by facsimile transmission. Such facsimile
signature shall be treated in all respects as having the same
effect as an original signature.
15
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
on the day and year first above written.
Humphrey: HUMPHREY SYSTEMS, a division
of Carl Zeiss, Inc., a New
York corporation
By: Lothar Koob, President
Paradigm: PARADIGM MEDICAL INDUSTRIES, INC.
a Delaware corporation
By: Thomas F. Motter, President
and CEO
I hereby agree to be bound by the terms and conditions set forth in
Sections 2.5.1 and 2.5.3 of this Agreement.
Doug Adams, Individually
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PARADIGM
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE OT SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,324,885
<SECURITIES> 0
<RECEIVABLES> 638,639
<ALLOWANCES> 0
<INVENTORY> 892,438
<CURRENT-ASSETS> 2,891,732
<PP&E> 186,265
<DEPRECIATION> 76,589
<TOTAL-ASSETS> 3,273,676
<CURRENT-LIABILITIES> 369,758
<BONDS> 88,864
0
99
<COMMON> 3,922
<OTHER-SE> 2,814,652
<TOTAL-LIABILITY-AND-EQUITY> 3,273,676
<SALES> 977,536
<TOTAL-REVENUES> 1,021,365
<CGS> 477,932
<TOTAL-COSTS> 1,731,775
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,888
<INCOME-PRETAX> (740,298)
<INCOME-TAX> 0
<INCOME-CONTINUING> (740,298)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (740,298)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
