UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-QSB
(Amendment 1)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1999 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 principalexecutive 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 7,233,275
- ----------------------------- ---------
Title of Class Number of Shares
Outstanding as of
September 30, 1999
SERIES A PREFERRED, $.001 PAR VALUE 8,077
- ----------------------------------- -----
Title of Class Number of Shares
Outstanding as of
September 30, 1999
SERIES B PREFERRED, $.001 PAR VALUE 19,236
- ----------------------------------- ------
Title of Class Number of Shares
Outstanding as of
September 30, 1999
SERIES C PREFERRED, $.001 PAR VALUE 500
- ------------------------------------ ----------------
Title of Class Number of Shares
Outstanding as of
September 30, 1999
SERIES D PREFERRED, $.001 PAR VALUE 318,644
- ----------------------------------- --------------
Number of Shares
Outstanding as of
September 30, 1999
Transitional Small Business Disclosure Format
YES NO X
----- -----
1
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
NO.
---
<S> <C>
ITEM 1. Financial Statements
- -------
Balance Sheets (unaudited) - September 30, 1999 and
December 31, 1998....................................................................................... 3
Statements of Operations (unaudited) for the three months and the nine
months ended September 30, 1999 and September 30, 1998 ................................................. 4
Statements of Cash Flows (unaudited) for the nine months
ended September 30, 1999 and September 30, 1998......................................................... 5
Notes to Financial Statements (unaudited)............................................................... 6
ITEM 2.
- -------
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................................................................. 9
PART II - OTHER INFORMATION
Other Information...................................................................................... 12
Signature Page......................................................................................... 15
</TABLE>
2
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(Unaudited) (Audited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 178,000 $ 114,000
Trade accounts receivable 565,000 580,000
Less: Allowance for doubtful accounts (30,000) (30,000)
Inventories 1,636,000 720,000
Current portion of note receivable 17,000 16,000
Prepaid expenses 65,000 15,000
------------ ---------
TOTAL CURRENT ASSETS 2,431,000 1,415,000
Capitalized engineering and design charges 210,000 235,000
Notes receivable 42,000 44,000
Ultrasound production rights and engineering 424,000 374,000
Property and equipment, net 224,000 173,000
------------ -----------
TOTAL ASSETS $ 3,331,000 $ 2,241,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 328,000 $ 209,000
Accounts payable - related parties 107,000 107,000
Accrued expenses 141,000 135,000
Note payable to bank - current 21,000 13,000
Purchase deposits 11,000 28,000
------------ ----------
TOTAL CURRENT LIABILITIES 608,000 492,000
------------ -------
Note payable, less current portion 5,000 8,000
Capital lease 26,000 25,000
------------ ----------
TOTAL LIABILITIES 639,000 525,000
------------ ---------
Stockholders' equity:
Preferred stock, authorized:
5,000,000 shares, $.001 par value
Series A
Authorized: 500,000 shares; issued and
outstanding: 8,077 shares at September 30, 1999 and
34,619 shares at December 31, 1998 - -
Series B
Authorized: 500,000 shares; issued and
outstanding: 19,236 shares at September 30, 1999
and 31,236 shares at December 31, 1998 - -
Series C
Authorized: 30,000 shares; issued and
outstanding: 500 shares at September 30, 1999
and 6,900 shares at December 31, 1998 - -
Series D
Authorized: 1,140,000 shares;
Issued and outstanding: 318,644 shares at
September 30, 1999 and 0 shares at December 31, 1998 - -
Common stock, authorized: 20,000,000 shares, $.001 per value;
issued and outstanding: 7,123,317 shares at June 30, 1999
and 5,500,306 shares at December 31, 1998 7,000 5,000
Additional paid-in-capital 21,409,000 17,704,000
Treasury stock, 2,600 shares, at cost (4,000) (4,000)
Stock subscription receivable (8,000) (8,000)
Unearned Compensation - (94,000)
Accumulated Deficit (18,712,000) (15,887,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,692,000 1,716,000
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,331,000 $ 2,241,000
=========== ===========
</TABLE>
3
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Gross Sales $ 253,000 $ 67,000 $1,458,000 $1,231,000
Sales Returns and Discounts** (337,000) (7,000) (435,000) (193,000)
----------- --------- ---------- ----------
Net Sales (84,000) 60,000 1,023,000 1,038,000
Cost of Sales 52,000 30,000 430,000 500,000
Amortization of Capitalized Engineering and
and Design Charges 22,000 19,000 60,000 56,000
Amortization of Ultrasound Production Rights 19,000 - 25,000 -
----------- --------- ---------- ----------
Net Cost of Sales 93,000 48,000 515,000 556,000
----------- --------- ---------- ----------
Gross Profit (177,000) 12,000 508,000 482,000
----------- --------- ---------- ----------
Operating Expenses:
Marketing and Selling 238,000 207,000 638,000 566,000
General and Administrative 359,000 361,000 1,103,000 1,072,000
Research and Development*** 487,000 38,000 727,000 264,000
----------- --------- ---------- ----------
Total Operating Expenses (1,084,000) (606,000) 2,468,000 1,902,000
----------- ---------- ---------- ----------
Operating Income (Loss) (1,261,000) (594,000) (1,960,000) (1,420,000)
------------ ----------- ----------- -----------
Other Income (Expense):
Interest Income 4,000 12,000 22,000 45,000
Interest Expense (3,000) (4,000) (13,000) (32,000)
Other Expense (2,000) - (3,000) 1,000
------------ ----------- ----------- -----------
Total Other Income (1,000) 8,000 6,000 14,000
------------ ----------- ----------- -----------
Net Income (Loss) $(1,262,000) ($ 586,000) $(1,954,000) $(1,406,000)
------------ ----------- ------------ ------------
Net Income (Loss) Per Common Share - Basic and
Diluted $ (0.18) $ (0.14) $ (0.30) $ (0.36)
============ =========== ============ ============
Weighted Average Outstanding Shares - Basic and
Diluted 7,181,000 4,046,000 6,517,000 3,892,000
============ =========== ============ ============
</TABLE>
** The majority of the sales returns for the third quarter of 1999 was a
one-time adjustment to Photon laser sales due to restructuring of Phase
II Clinical Study sites.
*** The majority of the increase in R&D expense for the three months and
the nine months ended September 30, 1999 versus the same periods in
1998 was the Black-Scholes valuation of Common Stock options and the
Value of Common Stock granted in a December 1998 consulting agreement,
vested in 1999.
4
<PAGE>
PARADIGM MEDICAL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(1,954,000) $(1,406,000)
Adjustments to Reconcile Net Loss to Net
Cash Used in Operating Activities:
Depreciation and Amortization 116,000 78,000
Issuance of Common Stock for Compensation, Services and
Payables 278,000 410,000
Interest and Stock Compensations Expense Related
to Common Stock Options/Warrants 144,000 -
(Increase) Decrease from Changes In:
Trade Accounts Receivable 15,000 (410,000)
Inventories (916,000) (135,000)
Prepaid Expenses (50,000) (20,000)
Debt Financing Cost - 165,000
Increase (Decrease) from Changes In:
Trade Accounts Payable 119,000 (191,000)
Trade Accounts Payable - Related Parties - (397,000)
Accrued Expenses and Deposits (11,000) (19,000)
------------ ------------
Net Cash Used in Operating Activities (2,259,000) (1,925,000)
------------ ------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (190,000) (22,000)
------------ ------------
Net Cash Used in Investing Activities (190,000) (22,000)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from Exercise of Warrants 348,000 -
Proceeds from Capital Lease 19,000 -
Principle Payments on Notes Payable (13,000) (3,000)
Net Proceeds for Series C Preferred Stock Issue - 1,747,000
Net Proceeds for Series D Preferred Stock Issue 1,649,000 -
Sale of Common Stock 510,000 -
------------ ------------
Net Cash Provided by Financing Activities 2,513,000 1,744,000
------------ ------------
Net Increase in Cash and Cash Equivalents 64,000 (203,000)
Cash and Cash Equivalents at Beginning of Period 114,000 887,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 178,000 $ 684,000
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $13,000 $32,000
</TABLE>
5
<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 September 30, 1999 and the
results of its operations for the three months ended September 30, 1998
and 1999, and its cash flows for the nine months ended September 30,
1998 and 1999. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the full
year period.
Net Income (Loss) Per Share
---------------------------
Net income (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 September 30, 1999 no shares of Series A
Preferred Stock and 12,000 shares Series B Preferred Stock were
converted into 14,400 shares Common stock.
In January 1998, the Company's Board of Directors authorized the
issuance of a total of 30,000 shares of non-voting Series 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.
In September 1998, the Company filed a registration statement with the
Securities and Exchange Commission on Form SB-2 under the Securities
Act of 1933, registering for resale the common shares underlying the
Series C Preferred Stock issue. During the three months ended September
30, 1999, no shares of Series C Preferred stock were converted into the
Company's Common stock.
6
<PAGE>
In January 1999, the Company's Board of Directors authorized the
issuance of a total of 1,140,000 shares of non-voting Series D
Preferred Stock, $.001 par value per share, $1.75 stated value. Each
share initially is convertible into one share of Common Stock. Each
share, which remains outstanding on January 1, 2002, shall be
automatically converted into one share of Common Stock. Holders of the
shares of Series D Preferred Stock are entitled to 10% non-cumulative
dividends.
In March 1999, the Company closed a private placement of Series D
Preferred Stock, selling 1,140,000 shares at a price of $1.75 per
share. The net proceeds to the Company from the private placement were
approximately $1.6 million.
During the three months ended September 30, 1999, 5,000 shares Series D
Preferred stock were converted to 5,000 shares of the Company's Common
stock.
In June 1999, the Company sold 199,908 shares Common stock at a price
of $2.75 per share. Net proceeds to the Company were approximately
$495,000.
4. 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, 2001. The Company has recorded the fair value of the warrant at
$336,000, which is being recognized as a cost of raising the capital in
the private placement.
In March 1999, in connection with the private placement of Series D
Preferred Stock, the Company issued to KSH Investment Group warrants to
purchase 208,000 shares Common Stock at an average price of $2.41 per
share, expiring February, 2004. The Company recorded the fair value of
the warrant at $361,580, which is being recognized as a cost of raising
the capital in the private placement. Also in connection with the
private placement, the Company issued 105,000 warrants to CynDel & Co.
and 35,000 warrants to Win Capital Corp., exercisable at $2.30 per
share, expiring January 2004. The Company has recorded the fair value
of these warrants at $229,600, which is being recognized as a cost of
raising the capital in the private placement.
In March, 1999, the Company issued a warrant to an officer of the
Company to purchase 125,000 shares of the Company's Common Stock at a
price of $2.63 per share, expiring March, 2004, in connection with his
retirement agreement.
In June 1999 CynDel & Co. exercised 105,000 warrants at $2.30 per
share. Net proceeds to the Company were $241,500.
In August 1999 Win Capital Corp. exercised 35,000 warrants at $2.30
per share. Net proceeds to the Company were $80,500.
In August 1999 a former officer of the Company exercised 10,000
warrants at $2.63 per share. Net proceeds to the Company were $26,300.
In September 1999 the Company issued warrants to members of the Board
of Directors: 75,000 each to the three outside directors and 50,000 and
20,000 to the officers, for a total of 295,000 warrants, at a price of
$4.00 per share, expiring September, 2004. Using the Black-Scholes
valuation, the fair value of the warrants to outside members of the
Board of Directors is $470,000, which, if recognized as expense, would
bring the year-to-date net loss to ($2,424,000).
7
<PAGE>
5. Related Party Transactions:
---------------------------
The Company has subcontracted the manufacturing of its Precisionist
ThirtyThousand and Photon laser cataract systems to an engineering firm
that is a shareholder. As of September 30, 1999, the Company owed that
firm $106,878, 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. On February
12, 1999, Win Capital agreed to accept 24,200 shares Common stock at
$2.50 per share for the balance of the contract. A new consulting
agreement replaced the prior agreement, which provides for twelve
months payments at $6,000 per month. In July 1999 Win Capital agreed to
accept 16,667 shares Common stock at $3.00 per share for the balance of
the new consulting agreement.
On May 6, 1999, the Company's Board of Directors authorized an
agreement to be entered into with John W. Hemmer, Vice President of
Finance, Treasurer and Chief Financial Officer of the Company,
regarding the remaining term of his Employment Agreement and the Change
of Control Agreement. Under the terms of the proposed agreement, Mr.
Hemmer's salary continued until June 1, 1999, at which time his
employment with the Company terminated. Thereafter, Mr. Hemmer became
an independent consultant to the Company and received an initial
payment of $12,500, with annual payments of $25,000 being paid on
January 2000 and each subsequent year for two additional years. The
final payment will be made in year number four in the amount of
$12,500, for a total consulting contract payment of $100,000. In
addition, the Company issued Warrants to Mr. Hemmer to purchase 125,000
shares of Common stock at an exercise price of $2.63 per share, with
the underlying Common stock to be registered in the Company's May 9,
1999 registration statement. Finally, the Company will issue Warrants
to Mr. Hemmer to purchase 75,000 shares of Common stock at the same
exercise price as the Class A Warrants, or $7.50 per share. In
consideration for the payments under the consulting contract and the
Warrants to be issued to Mr. Hemmer, the Employment Agreement and the
Change of Control Agreement with Mr. Hemmer was canceled as of June 1,
1999.
6. Subsequent Events:
------------------
On October 22, 1999, the Company finalized an Asset Purchase and
Transition Agreement with Mentor Corporation, Mentor Ophthalmics, Inc.,
and Mentor Medical Inc. (collectively "Mentor") to acquire all right,
title, and interest in and to Mentor's cataract surgery system product
line. This product line consists of the Phacoemulsification S.I.S.tem,
the Odyssey Phacoemulsification System, Surg-E-Trol System I and System
II and all accessories thereto. The purchase price of the acquisition
was $1,500,000, payable in the form of 485,781 shares of unregistered
Common stock of the Company. Mentor's book value of the assets acquired
by the Company was approximately $2,000,000, made up mainly of parts,
finished and refurbished products and disposables inventory. Under the
Transition Agreement Mentor agreed to retain several key employees to
assist the Company in training and to assemble 20 S.I.S.tems and carts
from existing inventory purchased by the Company under the Purchase
Agreement. The Company agreed to reimburse Mentor for all out of pocket
expenses related to the retention of the key employees and to purchase
all components needed to complete the assembly of the 20 S.I.S.tems.
The Mentor asset acquisition added an installed user base, which in the
prior year generated over $400,000 in consumable sales. The Mentor
S.I.S.tem is approved for sale in the European Community and can be
serviced at the Company's factory through a loaner program. Each member
of the Company's direct sales force has been issued a unit so that
demonstrations can be accomplished without the expense or delay of
shipping, thus affording the sales force the opportunity to vastly
increase its market exposure.
In October 1999, 520,000 shares of the Company's Common stock were sold
at $3.00 per share for net proceeds of $1,419,559.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
General
The following 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.
We are engaged in the design, development, manufacture and sale of high
technology eye care products. Our surgical equipment is designed to perform
minimally invasive cataract surgery and is comprised of surgical devices and
related instruments and accessories, including disposable products. Our
ultrasound diagnostic products include a pachymeter, an A-Scan, an A/B Scan and
a biomicroscope, the technology for which we acquired from Humphrey Systems in
1998. In addition, we market our Blood Flow Analyzer. Our activities for the
three months ended September 30, 1999, included domestic and international sales
of the Precisionist ThirtyThousand Ocular Surgery Workstation cataract surgery
systems, the Blood Flow Analyzer, the Humphrey Systems Ultrasound diagnostic
equipment, and research and development on the Photon laser cataract removal
system, which received FDA approval for expansion to Phase II Clinical Trials on
May 19, 1998.
We commenced delivery of the Pachymetric Analyzer, which measures
corneal thickness, in December 1998, and the Ultrasound A-Scan, which measures
the axial length of the eye, in March 1999. We began shipments of the Ultrasound
A/B Scan, which is used by retinal specialists to identify foreign bodies in the
posterior chamber of the eye and in evaluating the structural integrity of the
retina, in June 1999. We also commenced shipments of the Ultrasonic
Biomicroscope ("UBM"), which creates a high-resolution computer image of the
unseen parts of the eye providing a map for the glaucoma surgeon, in June 1999.
In summary, all four instruments were in production in the second quarter of
1999.
Results of Operations
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Gross sales increased by $186,000, or 278%, to $253,000 for the three
months ended September 30, 1999, from $67,000 for the comparable period in 1998.
Sales returns and discounts increased by $330,000, or 471%, to $337,000, from
$7,000. The majority of the $330,000 increase was a one-time adjustment to
Photon laser sales in third quarter 1999 due to restructuring of Phase II
clinical study sites. The large adjustment to the sales return account brought
net sales for the third quarter of 1999 to ($84,000), a decrease of $144,000, or
240%, from $60,000 in1998.
Marketing and selling expenses increased by $31,000, or 15%, to
$238,000 for the three months ended September 30, 1999, from $207,000 for the
comparable period in 1998. This increase was the result of increased sales
commissions expense for the third quarter of 1999 over the same period in 1998,
and expenses for Phaco training seminars held in August and September 1999.
General and administrative expenses decreased $2,000, or 0.5% to
$359,000 for the three months ended September 30, 1999, from $361,000 for the
comparable period in 1998.
Research and development expenses increased $449,000, or 118%, to
$487,000 for the three months ended September 30, 1999, from $38,000 for the
same period in 1998. The majority of this increase was attributed to the
Black-Scholes valuation of Common stock options and the value of Common stock
granted as compensation under a December 1998 consulting agreement and vested in
1999. Also contributing to the increase was additional expenses relating to
Phase II clinical site studies and an increase in personnel in 1999 versus1998.
Other income decreased $9,000 to ($1,000) for the quarter ended
September 30, 1999 from $8,000 for the same period in 1998. This was primarily
due to interest income received from various investment instruments held in
second quarter 1998.
9
<PAGE>
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Gross sales increased by $227,000, or 18%, to $1,458,000 for the nine
months ended September 30, 1999, from $1,231,000 for the same period in 1998.
Sales returns and discounts increased by $242,000, or 125%, to $435,000, from
$193,000 in 1998. The majority of the $242,000 increase in sales returns was a
one-time adjustment to Photon laser sales in the third quarter of 1999 due to
restructuring of Phase II clinical study sites. The large adjustment to the
sales return account brought net sales for the nine months ended September 30,
1999 to $1,023,000, a decrease of $15,000, or 1%, from $1,038,000 in 1998.
Marketing and selling expenses increased by $72,000, or 13%, to
$638,000 for the nine months ended September 30, 1999, from $566,000 for the
same period in 1998. This increase was primarily due to increased sales
commissions, August and September 1999 Phaco training seminars, and increased
travel for the international sales staff.
General and administrative expenses increased by $31,000, or 3%, to
$1,103,000 for the nine months ended September 30, 1999, from $1,072,000 for the
same period in 1998. This is primarily due to the expensing of vested stock
compensation for services of an officer and director of the Company in first
quarter 1999, and satisfaction of an investment banking agreement with
WinCapital Corp via stock transactions in February and August 1999.
Research and development expenses increased by $463,000, or 175%, to
$727,000 for the nine months ended September 30, 1999, from $264,000 for the
same period in 1998. The majority of this increase was attributed to the
Black-Scholes valuation of Common stock options and the value of Common stock
granted as compensation under a December 1998 consulting agreement and vested in
1999. Also contributing to the increase was additional expenses relating to
Phase II clinical site studies and an increase in personnel in 1999 versus1998.
Upgrades
To garner sales, we offer the ultrasonic Precisionist system with an
unconditional arrangement under which the customer may trade in its Precisionist
system to upgrade to a Precisionist ThirtyThousand Ocular Surgery System. Under
this arrangement, the customer receives full credit for the trade-in purchase
price of the Precisionist system against the price of the new Precisionist
ThirtyThousand Ocular Surgery System. As of September 30, 1999, we had
distributed approximately 51 Precisionist systems under this provision. The
gross margin on these original sales was approximately $295,000 or 32%. If all
of these customers were to exercise their upgrade privilege, we would exchange
the Precisionist system for our new Precisionist ThirtyThousand Ocular Surgery
System and refurbish the ultrasonic Precisionist system and sell them in the
international market. Any losses on the sale of the refurbished Precisionist
systems, which are not expected to be significant, would reduce the gross margin
on the Precisionist ThirtyThousand Ocular Surgery System sales. The total gross
margin on the upgrade sales is estimated to be $1,677,000, or 41%. During the
quarters ended September 30, 1999 and September 30, 1998 there were no trade-in
sales. There have been no trade-in sales for the year 1999, but there were in
the quarter ended June 30, 1998 two trade-in sales totaling $76,000, in which
the customer upgraded a Precisionist system to a Precisionist ThirtyThousand
Ocular Surgery Workstation, or Photon.
10
<PAGE>
Liquidity and Capital Resources
The Company used cash in operating activities of $2,259,000 for the nine months
ended September 30, 1999, compared to $1,925,000 for the nine months ended
September 30, 1998. The increase in cash used by operating activities for the
first nine months of 1999 is primarily attributable to purchase of inventory for
production preparatory to anticipated fourth quarter sales. The Company used
cash from investing activities of $190,000 for the nine months ended September
30, 1999, compared to $22,000 in the same quarter in 1998. The increase in cash
used in investing activities in 1999 is the result of purchases of production
and testing equipment relating to the Ultrasound diagnostic products. Net cash
provided by financing activities for the nine months ended September 30, 1999
was 2,513,000, compared to $1,744,000 for the similar period in 1998. In March
1998, the Company completed the private placement of 20,030 shares of Series C
Preferred Stock at $100 per share resulting in net proceeds of $1,747,000. In
addition, the Company exchanged $995,000 of promissory notes for 9,950 shares of
Series C Preferred Stock at $100 per share and converted a $75,000 note into
Common Stock.
In March 1999, the Company completed a private placement of 1,140,000 shares of
Series D Convertible Preferred Stock at $1.75 per share with the net proceeds
approximating $1.6 million. In June 1999, net proceeds of $241,500 were received
from the exercise of 105,000 warrants by CynDel Corp. Also in June 1999, 199,908
shares of Common stock were sold for net proceeds of $488,000. This amount was
held in a separate escrow account as "Restricted cash" pending receipt of
confirmation that all stock certificates had been received, and was deposited in
the Company account in July, 1999. In August 1999 net proceeds of $80,500 were
received from the exercise of 35,000 warrants by Win Capital. Also in August
1999 net proceeds of $26,300 were received from the exercise of 10,000 warrants
by a former director and officer of the Company. Based on our 1999 budget and
the net proceeds from the 1999 Preferred Stock offering and sale of Common
stock, the Company believes that funds are sufficient to continue operations
through December 31, 1999. However, no assurances can be given that our plan
will be successful in achieving positive cash flow or profitability.
The Company will seek funding to meet our working capital requirements through
collaborative arrangements and strategic alliances, additional public offerings
and/or private placements of our securities or bank borrowings. There can be no
assurance, however, that additional funds, if required, will be available from
any of these or other sources on favorable terms, if at all.
The Company's ratio of inventory to sales for the nine-month period ended
September 30, 1999 was 1.60 compared with .93 for a similar period in 1998. With
the launching of four new products within the past eighteen months, the Company
has had to build inventory in anticipation of sales. In addition, delays in
receiving the new fluidic system for the Precisionist ThiryThousand Workstation
have limited shipments of this product from inventory and the collection of
outstanding receivables.
At September 30, 1999, the Company had net operating loss carryforwards (NOLs)
of approximately $10,200,000 and research and development tax credit carry
forwards of approximately $34,000. These carryforwards are available to offset
future taxable income, if any, and begin to expire in the year 2006. The
Company's ability to use NOLs to offset future income is dependant upon the tax
laws in effect at the time the NOLs can be utilized. The tax Reform Act of 1996
significantly limits the annual amount that can be utilized for certain of these
carryforwards as a result of change of ownership.
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.
11
<PAGE>
Impact of New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. The statement is effective for
fiscal years beginning after June 15, 1999. The Company believes the adoption of
SFAS 133 will not have any material effect on our financial statements.
The Company has reviewed all other recently issued accounting standards in order
to determine their effects, if any, on the results of operations or financial
position. 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
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&trade 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 and Healongv 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.
These include 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. The sum of the agreement was $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. 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, the Company is required
to issue additional shares of Common Stock, or pay additional funds to Humphrey
Systems as is necessary to increase Humphrey System's net proceeds from the sale
of the assets to $375,000. Since Humphrey Systems realized only $162,818 from
the sale of 78,947 shares of Paradigm's common stock, Paradigm issued 80,000
additional shares in January 1999, to enable Humphrey Systems to receive its
guaranteed amount. $21,431 was paid to the Company as excess proceeds from the
sale of this additional stock.
12
<PAGE>
The rights to the ophthalmic diagnostic instruments that have been
purchased from Humphrey Systems under the Agreement complement both the
Company's cataract surgical equipment and its ocular Blood Flow Analyze & trade.
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.
On October 22, 1999, the Company finalized an Asset Purchase and
Transition Agreement with Mentor Corporation, Mentor Ophthalmics, Inc., and
Mentor Medical Inc. (collectively "Mentor") to acquire all right, title, and
interest in and to Mentor's cataract surgery system product line. This product
line consists of the Phacoemulsification S.I.S.tem, the Odyssey
Phacoemulsification System, Surg-E-Trol System I and System II and all
accessories thereto. The purchase price of the acquisition was $1,500,000
payable in the form of 485,781 shares of unregistered Common stock of the
Company. Mentor's book value of the assets acquired by the Company was
approximately $2,000,000, made up mainly of parts, finished and refurbished
products and disposables inventory. Under the Transition Agreement, Mentor
agreed to retain several key employees to assist the Company in training and to
assemble 20 S.I.S.tems and carts from existing inventory purchased by the
Company under the Purchase Agreement. The Company agreed to reimburse Mentor for
all out of pocket expenses related to the retention of the key employees and to
purchase all components needed to complete the assembly of the 20 S.I.S.tems.
The Mentor asset acquisition added an installed user base, which in the
prior year generated over $400,000 in consumable sales. The Mentor S.I.S.tem is
approved for sale in the European Community and can be serviced at the Company's
factory through a loaner program. Each member of the Company's direct sales
force has been issued a unit so that demonstrations can be accomplished without
the expense or delay of shipping, thus affording the sales force the opportunity
to vastly increase its market exposure.
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>
<CAPTION>
TABLE NO. DOCUMENT
<S> <C>
2.1 Amended Agreement and Plan of Merger between Paradigm Medical
Industries, Inc., a California corporation and Paradigm Medical
Industries, Inc., a Delaware corporation (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 Warrant to Purchase Common Stock with Note Holders re bridge financing
(1)
4.7 Warrant to Purchase Common Stock with Mackey, Price & Williams (1)
4.8 Warrant to Purchase Common Stock with Win Capital Corp. (6)
4.9 Specimen Series C Convertible Preferred Stock Certificate (6)
4.10 Certificate of the Designations, Powers, Preferences and Rights of the
Series C Convertible Preferred Stock (6)
4.11 Specimen Series D Convertible Preferred Stock Certificate (10)
4.12 Certificate of the Designations, Powers, Preferences and Rights of the
Series D Convertible Preferred Stock (10)
4.13 Warrant to Purchase Common Stock with Win Capital Corp. (10)
4.14 Warrant to Purchase Common Stock with Cyn Del & Co. (10)
4.15 Warrant Agreement with KSH Investment Group, Inc. (10)
4.16 Warrant to Purchase Common Stock with John W. Hemmer (11)
5. Opinion of Mackey Price & Williams (10)
13
<PAGE>
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 (6)
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 with Note Holders re bridge financing (1)
10.14 Employee's Lock-Up Agreement (1)
10.15 Registering Shareholders Lock-Up Agreement (3)
10.16 Amendment of Settlement and Release Agreement with Douglas A. MacLeod
(3)
10.17 Design, Engineering and Manufacturing Agreement with Zevex, Inc. (5)
10.18 License and Manufacturing Agreement with O.B.F. Labs, Ltd. (6)
10.19 Settlement Agreement with Estate of H.L. Federman (6)
10.20 Agreement with Win Capital Corp. (6)
10.21 12% Convertible, Redeemable Promissory Note (6)
10.22 Securities Exchange Agreement (6)
10.23 Stock Exchange for Satisfaction of Debt Agreement with Zevex
International, Inc. (7)
10.24 Co-Distribution Agreement with Pharmacia & Upjohn Company and National
Healthcare Manufacturing Corporation (7)
10.25 Agreement for Purchase and Sale of Assets with Humphrey Systems
Division of Carl Zeiss, Inc. (7)
10.26 Employment Agreement with Thomas F. Motter (9)
10.27 Employment Agreement with Robert W. Millar (9)
10.28 Employment Agreement with John W. Hemmer (9)
10.29 Employment Agreement with Michael W. Stelzer (9)
10.30 Change of Control Termination Agreement with Thomas F. Motter (9)
10.31 Change of Control Termination Agreement with Robert W. Millar (9)
10.32 Change of Control Termination Agreement with John W. Hemmer (9)
10.33 Change of Control Termination Agreement with Michael W. Stelzer (9)
10.34 Promissory Note with Win Capital Corp. (10)
10.35 Promissory Note with Cyn Del & Co. (10)
10.36 Consulting Agreement with Win Capital Corp. (10)
10.37 Agreement with Win Capital Corp. (11)
10.38 Agreement with Cyn Del & Co. (11)
10.39 Asset Purchase Agreement with Mentor
10.40 Transition Agreement with Mentor
23.1 Consent of Medical Laser Insight (3)
23.2 Consent of Frost & Sullivan (3)
23.3 Consent of Ophthalmologists Times (3)
23.4 Consent of Mackey Price & Williams (10)
23.5 Consent of Tanner & Co. (11)
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 onJune 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.
(7) Incorporated by reference from Quarterly Report on Form 10-QSB, as
filed on August 19, 1998.
(8) Incorporated by reference from Registration Statement on Form SB-2, as
filed on June 15, 1998.
(9) Incorporated by reference from Quarterly Report on Form 10-QSB, as
filed on November 12, 1998.
(10) Incorporated by reference from Registration Statement on Form SB-2, as
filed on April 29, 1999.
(11) Incorporated by reference from Amendment No. 1 to Registration
Statement on Form SB-2, as filed on May 1999.
(b) Reports On Form 8-K
-------------------
</TABLE>
14
<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: NOVEMBER 15, 1999 BY: MICHAEL W. STELZER
------------------
Michael W. Stelzer
Chief Financial Officer,
Secretary and Chief
Operating Officer
DATED: NOVEMBER 15, 1999 BY: THOMAS F. MOTTER
----------------------------------
Thomas F. Motter
President and Chief
Executive Officer
15
Exhibit 10.39
ASSET PURCHASE AGREEMENT WITH MENTOR
This Asset Purchase Agreement (this "Agreement") is entered into as of
the date the last party signs as shown on the signature page hereto, by and
among Mentor Corporation, a Minnesota corporation, Mentor Ophthalmics, Inc., a
Massachusetts corporation, and Mentor Medical Inc., a Delaware corporation
(collectively "Seller") on the one hand, and Paradigm Medical Industries, Inc.,
a Delaware corporation ("Purchaser") on the other hand.
RECITALS
WHEREAS, Seller is engaged in the business of marketing and selling
ophthalmic products, including a cataract surgery system product line consisting
of the Mentor(TM) Phacoemulsification S.I.S.tem, the Odyssey(TM)
Phacoemulsification System, the Surg-e-trol(r) System I and System II, and all
accessories thereto (collectively, the "Phaco" product line); and
WHEREAS, in accordance with the provisions of this Agreement, Purchaser
desires to purchase from Seller and Seller desires to sell to Purchaser certain
assets described herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties set forth in this Agreement, the parties hereto
agree as follows.
1. PURCHASE AND SALE.
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions set forth in this Agreement, at the Closing (as defined in Section
1.4), Seller shall sell, transfer, assign, convey, delegate and deliver to
Purchaser, and Purchaser shall purchase and acquire from Seller, all of Seller's
right, title, obligation and interest in and to the assets (collectively, the
"Assets") which are used by Seller to develop, manufacture, market and sell the
Phaco product line and are owned by Seller or in which Seller has any right,
title or interest as of the Closing Date (as defined in Section 1.4). The Assets
include but are not limited to:
(A) SALES AND MARKETING. Copies (and originals if in
Seller's possession) of Seller's Phaco customer lists,
advertising materials and sales literature, sales booth
graphics, ad slicks, artwork, un-filled purchase orders and
supporting documents, and other marketing information and
records, warranty and/or warranty policies and/or other
records used exclusively for the Phaco, which are in Seller's
possession as of the Closing Date.
<PAGE>
(B) INVENTORIES. All inventories relating exclusively
to the Phaco product line, including finished goods and
products, goods and products in process and materials and
supplies on hand and in transit, as of the Closing Date.
(C) INTELLECTUAL PROPERTY. All patents, patent
applications, trade names, trademarks and copyrights used
exclusively for the Phaco product line. The list of
Intellectual Property transferred hereunder is set forth in
SCHEDULE 1.1(C) hereto.
(D) REGISTRATIONS. All governmental registrations,
registration applications, temporary registrations,
experimental use permits, applications and emergency use
exemptions used primarily for the Phaco product line,
including those listed on SCHEDULE 1.1(D) hereto (the
"Registrations").
(E) MATERIAL CONTRACTS. All contracts, agreements and
licenses which are listed ON SCHEDULE 1.1(E), together with
all consignment contracts with customers, but excluding any
such contracts that expire or are terminated prior to Closing
and such contracts where the Seller is unable to obtain an
assignment prior to the Closing (the "Contracts").
(F) EQUIPMENT. All machinery, tools, instruments and
personal property used exclusively in connection with the
Phaco product line (the "Equipment").
(G) TECHNICAL INFORMATION. All of the Seller's
technical information and data, including, but not limited to,
know-how, trade secrets, inventions, formulas, processes,
designs, drawings, technology, software (including source
codes), databases, manufacturing and quality control
procedures and records, product composition data and
specifications, packaging specifications, material safety data
sheets, customer specifications, product standards,
competitive samples and reports of analyses thereof, lab
notebooks, records of inventions, patent application drafts,
and research and development projects, materials, results and
records, wherever located, used exclusively for the Phaco
product line ("Technical Information").
(H) WARRANTIES. All manufacturers', vendors' and
suppliers' warranties, to the extent assignable, relating
directly to the Assets or the Phaco product line.
(I) GOODWILL. The goodwill of Seller relating
directly to the Assets or the Phaco product line.
1.2 EXCLUDED ASSETS. The Assets shall not include the
following (the "Excluded Assets"):
(a) Cash.
(b) Securities.
(c) Bank deposits.
(d) Accounts receivable.
(e) Assets, properties and rights of the Seller
(i) not currently used exclusively for the
Phaco product line or (ii) currently used
exclusively for the Phaco product line but
that are ancillary to the operation of the
Phaco product line, including, without
limitation, any office equipment, furniture
and fixtures of the Seller.
(f) Any and all rights and assets, including
without limitation intellectual property
rights, relating to product lines other than
the Phaco product line.
<PAGE>
1.3 PURCHASE PRICE. The aggregate consideration for the
transfer to Purchaser of the Assets hereunder (the "Purchase Consideration")
shall consist of 485,751 shares of Purchaser's common stock, par value $.001 per
share (the "Common Shares"). Such number of Common Shares represents the result
of the following calculation: (a) the sum of $1,500,000, divided by (b)
$3.08800, which is the product of (i) 90%, times (ii) $3.43125, which is the
average closing price of Purchaser's common stock on the Nasdaq National Market
System (as reported in The Wall Street Journal) for the twenty trading days
ending on October 13, 1999. Certain agreements of the parties as to registration
of the Common Shares and related matters are set forth in the Registration
Rights Statements attached hereto as Exhibit A and by this reference made a part
hereof.
1.4 CLOSING. The consummation of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Seller
located at 201 Mentor Drive, Santa Barbara, CA 93111 on October 22, 1999, at
11:59 p.m. local time or at such other time, date or place as Purchaser and
Seller may mutually agree upon (the "Closing Date").
1.5 LIABILITIES. Purchaser shall assume, pay, perform, defend
and discharge all liabilities and obligations relating to the Phaco product line
and the Assets which arise after the Closing Date and are based upon or arise
from any act, omission, transaction, circumstance, performance of services,
state of facts or other condition which occurred after the Closing Date.
Purchaser is not assuming or agreeing to pay or perform any liabilities or
obligations of Seller which existed on or before the Closing Date, including
without limitation any judgments, claims, actions or proceedings relating to the
Phaco product line or the Assets. Notwithstanding the foregoing, Purchaser
specifically assumes the following: (i) all of Seller's warranty obligations for
Phaco products previously sold; (ii) all of Seller's repair and maintenance
obligations for Phaco products previously sold; (iii) all liabilities and
obligations of the Seller under the Contracts and Registrations included in the
Assets; (iv) all accounts payable and accrued liabilities; (v) all liabilities
shown on the books and records of the business relating exclusively to the Phaco
product line as of the Closing Date; (vi) all liabilities or obligations to
third parties for personal injury, property damage, consequential damages,
punitive damages or incidental damages arising from any injury, event or damage
as a result of any product or good shipped, sold or manufactured by Purchaser or
by Seller pursuant to the Transition Services Agreement; (vii) all liabilities
or obligations to third parties with respect to the Intellectual Property; and
(viii) all obligations associated with open purchase orders on and as of the
Closing Date. All sales or transfer taxes, including but not limited to document
recording fees, transfer taxes, sales and excise taxes, arising out of or in
connection with the consummation of the transactions contemplated herein, shall
be paid by Purchaser. Purchaser acknowledges that Xomed, Inc. owns certain of
the accounts receivable for Phaco products previously sold by Mentor. In the
event of a customer dispute regarding a product for which Xomed, Inc. owns a
receivable, Purchaser will resolve the problem with Xomed, Inc.
1.6 INSTRUMENTS OF CONVEYANCE AND TRANSFER. Upon receipt of
the Purchase Consideration, Seller shall execute and deliver to Purchaser a Bill
of Sale with the appropriate schedules attached thereto that shall be reasonably
acceptable to Purchaser and necessary to effect the transfer to Purchaser of and
to vest in Purchaser a complete, valid and legal title and/or license to the
Assets.
1.7 TRANSITIONAL SUPPORT SERVICES. Concurrent with the
Closing, the parties will execute a Transition Services Agreement.
1.8 LIMITED LICENSE. Purchaser will acquire certain inventory
which displays the "Mentor" name and mark (the "Mark"). Seller grants to
Purchaser as of the Closing Date a limited license to use the Mark in an
informational sense only to identify the existing inventory transferred under
this Agreement and on any related advertising and promotional materials.
Purchaser agrees to comply with Seller's guidelines for use of the Mark, which
Seller will provide to Purchaser. Purchaser acknowledges that Seller is the
exclusive owner of the Mark. Purchaser agrees to refrain from any action which
is in any way inconsistent with Seller's ownership of the Mark, or which could
damage Seller's interest in the Mark or Seller's reputation, or to use the Mark
in connection with any other products. Seller retains the right to review and
pre-approve any written materials using the Mark.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES.
2.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each party
represents and warrants as follows:
(A) ORGANIZATION AND GOOD STANDING. It is a
corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation. It
is in good standing in each other state or jurisdiction in
which the ownership of its properties or where the conduct of
its business requires it to be qualified or registered.
(B) AUTHORITY AND STATUS. It has full power and
authority to execute and deliver this Agreement, to perform
its obligations hereunder, and to consummate the transactions
contemplated hereby without the necessity of any act or
consent of any other entity. It has taken all necessary and
appropriate corporate action, including, if necessary, Board
of Directors consents with respect to the execution, delivery
and performance by it of this Agreement and each and every
agreement, document and instrument provided for herein. This
Agreement and each and every agreement, document and
instrument to be executed, delivered and performed by each
party in connection herewith, constitute or will when executed
and delivered constitute, the valid and legally binding
obligations of each party enforceable against it in accordance
with their respective terms, except as enforceability may be
limited by applicable equitable doctrines or by bankruptcy,
insolvency, reorganization, moratorium or similar laws from
time to time in effect affecting the enforcement of creditors'
rights generally.
(C) NO FINDER OR BROKERS. Neither it, nor any party
acting on its behalf, has paid or has become obligated to pay
any fee or commission to any broker, finder or intermediary
for, or on account of, the transactions contemplated by this
Agreement.
(D) NO CONFLICT OR DEFAULT. Neither the execution and
deliver of this Agreement nor compliance with the terms and
provisions hereof, including, without limitation, the
consummation of the transactions contemplated hereby, will
violate any statute, regulation or ordinance of any
governmental authority or conflict with or result in the
breach of any term, condition or provision of its Articles of
Incorporation or By-Laws, or of any material agreement, deed,
contract, mortgage, indenture, writ, order, decree, legal
obligation or instrument to which it is or may be bound, or
constitute a default (or an event which, with the lapse of
time or the giving of notice, or both, would constitute a
default) thereunder.
(E) LITIGATION. There is no claim, litigation, suit
or proceeding, administrative or judicial, pending, or to its
knowledge, threatened, against it relating to this Agreement
or the transactions contemplated hereunder, at law or in
equity, before any federal, state, local or foreign court or
regulatory agency or other governmental authority which could
result in the institution of legal proceedings to prohibit or
restrain the consummation or performance of this Agreement or
the transactions contemplated hereby or claim damages as a
result of this Agreement or the transactions contemplated
hereby.
<PAGE>
2.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER.
(A) REVIEW OF DOCUMENTS. Purchaser has had the
opportunity to, and has reviewed to its satisfaction, all of
the documents it has requested prior to the Closing Date.
(B) ISSUANCE OF COMMON SHARES. The common shares of
Purchaser to be issued to Mentor Corporation at the Closing
(the "Common Shares") are duly authorized and, upon issuance,
will be validly issued, fully paid and non-assessable, free
and clear of any and all liens, claims and encumbrances. The
issuance of the Common Shares will be exempt from the
registration requirements of the Securities Act of 1933, as
amended (the "Securities Act") by reason of compliance with
the provisions of Securities Act Regulation D. The Common
Shares, when registered under an effective registration
statement under the Securities Act of 1933, as amended (the
"Securities Act") or upon compliance with Securities Act Rule
144, and when authorized for trading under the rules of the
Nasdaq (as defined below), will be entitled to be traded on
the National Association of Securities Dealers Automated
Quotation system ("Nasdaq"), and the holders of the Common
Shares shall be entitled to all rights and preferences
accorded to a holder of Purchaser's common stock. The
outstanding common stock of Purchaser is currently quoted on
the Nasdaq.
(C) NO CONFLICTS. The execution, delivery and
performance of this Agreement by Purchaser and the
consummation by Purchaser of the transactions contemplated
hereby and the issuance of the Common Shares to Mentor
Corporation do not and will not (i) result in a violation of
Purchaser's Articles or By-Laws, or (ii) conflict with, or
constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent
license or instrument to which Purchaser or any of its
subsidiaries is a party, or result in a violation of any
federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including Federal and state securities
laws and regulations) applicable to Purchaser or any of its
subsidiaries or by which any property or asset of Purchaser or
any of its subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in
the aggregate, have a material adverse effect). Except for
such filings as Purchaser has made or will make prior to the
Closing, Purchaser is not required under Federal, state, local
or foreign law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this
Agreement, or issue and sell the Common Shares in accordance
with the terms hereof.
<PAGE>
(D) SEC DOCUMENTS; FINANCIAL STATEMENTS. The
outstanding common stock of Purchaser is registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Purchaser has filed all
reports, schedules, forms, statements and other documents
required to be filed by it with the Securities and Exchange
Commission ("SEC") pursuant to the reporting requirements of
the Exchange Act (all of the foregoing, including filings
incorporated by reference therein, being referred to herein as
the "SEC Documents"). Purchaser has delivered or made
available to Mentor Corporation true and complete copies of
all SEC Documents (including, without limitation, proxy
information and solicitation materials) filed with the SEC
since December 31, 1996. Purchaser has not provided to Mentor
Corporation any material non-public information or any
information which, according to applicable law, rule or
regulation, should have been disclosed publicly by Purchaser
but which has not been so disclosed. As of their respective
dates, Purchaser's Form 10-K for the year ended December 31,
1998, and all documents subsequently filed with the SEC (the
"Current Filings"), together with Purchaser's second quarter
1999 earnings press release, dated September 1, 1999, complied
in all material respects with the requirements of the Exchange
Act and the rules and regulations of the SEC promulgated
thereunder and other federal, state and local laws, rules and
regulations applicable to such Current Filings, and none of
the Current Filings contained any untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The Current Filings contain all material
information concerning Purchaser, and no event or circumstance
has occurred which would require Purchaser to disclose such
event or circumstance in order to make the statements in the
Current Filings, taken as a whole, not misleading on the date
hereof or on the Closing Date but which has not been so
disclosed. The financial statements of Purchaser included in
the Current Filings complied as to form in all material
respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable
rules and regulations with respect thereto at the time of
filing. Such financial statements were prepared in accordance
with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in
all material respects the financial position of Purchaser as
of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
<PAGE>
(E) NO MATERIAL ADVERSE CHANGE. Since December 31,
1998, the date through which the most recent report of
Purchaser on Form 10-K has been prepared and filed with the
SEC, a copy of which is included in the SEC Documents, no
material adverse effect has occurred or exists with respect to
Purchaser or its subsidiaries, except as otherwise disclosed
or reflected in other SEC Documents filed or press releases
issued as of a date subsequent to December 31, 1998.
(F) NO UNDISCLOSED LIABILITIES. Purchaser and its
direct and indirect subsidiaries have no liabilities or
obligations not disclosed in the SEC Documents, other than
those liabilities incurred in the ordinary course of
Purchaser's or its subsidiaries' respective businesses since
December 31, 1998, which liabilities, individually or in the
aggregate, do not or would not have a material adverse effect
on Purchaser or its direct or indirect subsidiaries.
(G) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event
or circumstance has occurred or exists with respect to
Purchaser or its direct or indirect subsidiaries or their
respective businesses, properties, prospects, operations or
financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by
Purchaser but which has not been so publicly announced or
disclosed.
(H) NO GENERAL SOLICITATION. Neither Purchaser, nor
any of its affiliates, or, to its knowledge, any person acting
on its or their behalf has engaged in any form of general
solicitation or general advertising (within the meaning of
Regulation D under the Securities Act of 1933, as amended (the
"Act")) in connection with the offer or sale of the Common
Shares.
(I) NO INTEGRATED OFFERING. Neither Purchaser, nor
any of its affiliates, nor to its knowledge any person acting
on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy
any security, under circumstances that would require
registration of the Common Shares under the Act.
2.3 REPRESENTATIONS AND WARRANTIES OF SELLER.
(A) TITLE TO THE ASSETS. Except for permitted
encumbrances, Seller has good and marketable title and/or
license to the Assets free and clear of any pledges, liens,
encumbrances, security interests, equities, charges and
restrictions of any nature whatsoever. The term "permitted
encumbrances" shall mean liens for taxes not due and payable.
(B) LITIGATION. There is no claim, litigation,
action, suit or proceeding, administrative or judicial,
pending or to Seller's knowledge threatened against Seller
relating to the Phaco product line or the Assets, at law or in
equity, before any federal, state, local or foreign court, or
regulatory agency or other governmental authority.
(C) LIMITATION. EXCEPT FOR THE EXPRESS
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS SECTION 2.3:
(I) NO REPRESENTATION OR WARRANTY WHATSOEVER IS MADE BY
SELLER, AND SELLER HEREBY DISCLAIMS ANY REPRESENTATIONS OR
WARRANTIES IMPLIED AS TO THE CONDITION, VALUE OR QUALITY OF
THE ASSETS AND SPECIFICALLY DISCLAIMS WITH RESPECT TO THE
ASSETS ANY REPRESENTATIONS AND WARRANTIES OF VALUE,
MERCHANTABILITY, USAGE OR FITNESS FOR ANY PARTICULAR PURPOSE
AND NON-INFRINGEMENT; AND (II) THE ASSETS BEING TRANSFERRED TO
THE PURCHASER ARE CONVEYED ON AN "AS IS" AND "WHERE IS" BASIS,
AND PURCHASER SHALL RELY UPON ITS OWN EXAMINATION THEREOF.
<PAGE>
(D) ADDITIONAL LIMITATIONS. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING:
(I) NONINFRINGEMENT. SELLER DOES NOT WARRANT
AND MAKES NO REPRESENTATION THAT PURCHASER'S EXERCISE
OF THE RIGHTS ASSIGNED UNDER THIS AGREEMENT IS OR
WILL BE FREE FROM CLAIMS OF INFRINGEMENT OR
MISAPPROPRIATION OF THIRD PARTY INTELLECTUAL PROPERTY
RIGHTS, AND SELLER WILL HAVE NO OBLIGATION WHATSOEVER
TO INDEMNIFY PURCHASER AGAINST ANY SUCH CLAIM.
(II) VALIDITY OR SCOPE. SELLER DOES NOT
WARRANT AND MAKES NO REPRESENTATION AS TO THE
VALIDITY, ENFORCEABILITY, OR SCOPE OF ANY OF THE
INTELLECTUAL PROPERTY RIGHTS LICENSED TO PURCHASER
PURSUANT TO THE ASSIGNMENT MADE UNDER SECTION 1.1.
(III) ENFORCEMENT. SELLER DOES NOT WARRANT
AND MAKES NO REPRESENTATION THAT ANY OF THE
INTELLECTUAL PROPERTY RIGHTS ASSIGNED TO PURCHASER
PURSUANT TO SECTION 1.1 WILL BE FREE OF INFRINGEMENT
OR MISAPPROPRIATION, AS APPLICABLE, BY THIRD PARTIES,
AND WILL HAVE NO OBLIGATION TO COOPERATE IN
ENFORCEMENT OF ANY SUCH INTELLECTUAL PROPERTY RIGHTS
OR OTHERWISE TAKE ACTION AGAINST THIRD PARTIES
ALLEGED TO HAVE COMMITTED INFRINGEMENT OR
MISAPPROPRIATION.
(IV) PROSECUTION. SELLER WILL HAVE NO
OBLIGATION TO PROSECUTE, MAINTAIN, OR OTHERWISE
SECURE INTELLECTUAL PROPERTY RIGHTS, INCLUDING
WITHOUT LIMITATION ANY PATENTS, PATENT APPLICATIONS,
INVENTION REGISTRATIONS, OR COPYRIGHT REGISTRATIONS,
WITH RESPECT TO THE ASSETS ASSIGNED TO PURCHASER
PURSUANT TO SECTION 1.1.
(V) NO OTHER ASSIGNMENT OR LICENSES.
PURCHASER OBTAINS NO ASSIGNMENTS OR LICENSES UNDER
ANY SELLER INTELLECTUAL PROPERTY RIGHTS NOT SPECIFIED
IN THIS AGREEMENT.
3. PURCHASER'S COVENANTS. So long as Seller holds any of the
Common Shares, Purchaser agrees to:
(a) Make and keep available at all times adequate
current public information, as those terms are understood and
defined in Securities Act Rule 144;
(b) File with the SEC in a timely manner all reports
and other documents required of Purchaser under the Securities
Act and the Exchange Act;
(c) Furnish to Seller promptly upon its written
request (i) a written statement by Purchaser that it has filed
all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the preceding 12 months and has been
subject to these filing requirements for the past 90 days, (b)
a copy of Purchaser's most recent annual or quarterly report
filed with the SEC, and (c) any other reports and documents
filed with the SEC by Purchaser that Seller may reasonably
request in order to sell the Common Shares without
registration under the Securities Act.
<PAGE>
4. INDEMNIFICATION
4.1 INDEMNIFICATION OF SELLER. Purchaser hereby agrees to
indemnify and hold Seller harmless from, against and in respect of (and shall on
demand reimburse Seller for):
(a) any and all loss, liability or damage resulting
from any untrue representation, breach of warranty or
non-fulfillment of any covenant or agreement by Purchaser
contained herein or in any certificate, document or instrument
delivered to Seller hereunder;
(b) any and all debts, liabilities or obligations
relating to the Phaco product line or the Assets, accrued,
absolute, contingent, unliquidated or otherwise which arise
after the Closing Date which are based upon or arise from any
act, omission, transaction, circumstance, performance of
services, state of facts or other condition which occurred
after the Closing Date, whether or not then known, due or
payable;
(c) any and all debts, liabilities or obligations
arising from the Assumed Liabilities; and
(d) any and all actions, suits, proceedings, claims,
demands assessments, judgments, costs and expenses (including,
without limitation, legal fees and expenses) incident to any
of the foregoing or incurred in investigating or attempting to
avoid the same or to oppose the imposition thereof or in
enforcing this Agreement.
4.2 INDEMNIFICATION OF PURCHASER. Seller hereby agrees to
indemnify and hold Purchaser harmless from, against and in respect of (and shall
on demand reimburse Purchaser for):
(a) any and all loss, liability or damage resulting
from any untrue representation, breach of warranty or
non-fulfillment of any covenant or agreement by Seller
contained herein or in any certificate, document or instrument
delivered to Purchaser hereunder;
(b) any and all debts, liabilities or obligations
relating to the Phaco product line or the Assets accrued,
absolute, contingent, unliquidated or otherwise which arise on
or before the Closing Date and are based upon or arise from
any act, omission, transaction, circumstance, performance of
services, state of facts or other condition which occurred or
existed on or before the Closing Date, whether or not then
KNOWN, DUE OR PAYABLE, EXCEPT for any such debts, liabilities
or obligations arising from the Assumed Liabilities; and
(c) any and all actions, suits, proceedings, claims,
demands assessments, judgments, costs and expenses, including,
without limitation, legal fees and expenses incident to any of
the foregoing or incurred in investigating or attempting to
avoid the same or to oppose the imposition thereof or in
enforcing this Agreement.
4.3 PROCEDURE FOR INDEMNIFICATION. In the event any damages or
expenses are incurred by the indemnified party for which the indemnified party
would be entitled to indemnification hereunder, the indemnified party shall
promptly notify the indemnifying party in writing of such damages and expenses.
The indemnifying party agrees that it will promptly reimburse and pay the
indemnified party for such damages and expenses. If any claim for
indemnification hereunder is based upon an action or claim filed or made against
the indemnified party by a third party, then the indemnifying party shall have
the sole right to negotiate a settlement or compromise of any such action or
claim subject to the indemnified party's approval, which approval shall not be
unreasonably withheld or delayed, or to defend any such action or claim at the
sole expense or cost of the indemnifying party with counsel selected by the
indemnified party. Provided, however, that the indemnified party at its expense
shall have the right to have its counsel participate in such proceedings and any
compromise or settlement of any claim other than for money damages shall be
subject to the prior written consent of the indemnified party.
<PAGE>
4.4 TIME TO ASSERT CLAIMS. All claims for indemnification must
be asserted no later than ONE YEAR AFTER THE CLOSING DATE, PROVIDED, HOWEVER,
that Mentor Corporation may assert claims for indemnification related to
Purchaser's representations and warranties set forth in Sections 2.2(b) through
2.2(i) and Purchaser's covenants set forth in Article 3, up to the applicable
statute of limitations.
4.5 DEDUCTIBLE. The Purchaser may make no claim against the
Seller for indemnification UNLESS AND UNTIL THE AGGREGATE AMOUNT OF SUCH CLAIMS
EXCEEDS $20,000.00 (THE "DEDUCTIBLE"), in which event the Purchaser may claim
indemnification for the amount of such claims in excess of the Deductible.
4.6 LIMITATION. The Seller's obligation for indemnity shall
only be up to a maximum aggregate liability of $225,000.00. In calculating any
amount of damages to be paid by the indemnifying party pursuant to this
Agreement, the amount of such damages will be reduced by all reimbursements
credited to or received by the indemnified party, relating to such damages, and
will be net of any tax benefits and insurance proceeds (after giving effect to
any premium increases or deductibles) received by the indemnified party with
respect to the matter for which indemnification is claimed.
4.7 EXCLUSIVE REMEDY; RELEASE.
(a) The indemnification provided pursuant to this
Agreement shall be the sole and exclusive remedy hereto for
any losses as a result of, with respect to or arising out of
breach of this Agreement, or any of the transactions or other
agreements or instruments contemplated or entered into in
connection herewith (including, but not limited to, all
schedules attached or referenced herein); PROVIDED, HOWEVER,
that such indemnification shall not be the sole and exclusive
remedy and shall in no way limit the rights of the parties for
fraud, willful breach, Purchaser's breach of the
representations and warranties set forth in Sections 2.2(b)
through Section 2.2(i), or Purchaser's failure to fulfill the
covenants set forth in Article 3.
(b) Except as specifically provided in this Article
4, neither party nor its affiliates or representatives shall
be liable to the other party for, and (except as so provided)
each party hereby releases and discharges the other party and
its affiliates and representatives from, any and all losses
incurred as a result of, with respect to or arising out of the
ownership or operation of the Assets.
5. CONFIDENTIALITY.
5.1 CONFIDENTIAL INFORMATION. The Confidentiality Agreement
between the parties dated August 30, 1999 shall remain in full force and effect
and shall be incorporated herein by this reference.
<PAGE>
5.2 PUBLIC ANNOUNCEMENTS. For the period beginning with the
Closing Date and ending thirty (30) days thereafter, no public announcement may
be made by either party with regard to the transactions contemplated by this
Agreement without the prior written consent of both the Seller and the
Purchaser; provided that either party may make such disclosure to the extent
required by applicable law or regulation of any governmental agency or stock
exchange upon which the securities of such party are registered. For the one
month period following the Closing Date, the Seller and the Purchaser will
discuss any public announcements or disclosures concerning the transactions
contemplated by this Agreement with the other party prior to making such
announcements or disclosures.
6. CONDITIONS PRECEDENT TO OBLIGATIONS.
6.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. Each and every
obligation of Purchaser to be performed at the Closing shall be subject to the
satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by Purchaser):
(A) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller set forth in Section
2 of this Agreement shall have been true and correct when made
and shall be true and correct at and as of the Closing Date as
if such representations and warranties were made as of such
date and time.
(B) PERFORMANCE OF AGREEMENT. All covenants,
conditions and other obligations under this Agreement which
are to be performed or complied with by Seller shall have been
fully performed and complied with at or prior to the Closing
Date, including the delivery of instruments and documents as
required herein.
(C) ABSENCE OF GOVERNMENTAL OR OTHER OBJECTION. There
shall be no pending or threatened lawsuit or any other legal
or regulatory proceeding challenging the transaction by any
body or agency of the federal, state or local government or by
any third party and the consummation of the transaction shall
not have been enjoined, or threatened to be enjoined, by a
court of competent jurisdiction as of the Closing Date.
6.2 CONDITIONS TO OBLIGATIONS OF SELLER. Each and every
obligation of Seller to be performed at the Closing shall be subject to the
satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by Seller):
(A) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Purchaser set forth in
Section 2 of this Agreement shall have been true and correct
when made and shall be true and correct at and as of the
Closing Date as if such representations and warranties were
made as of such date and time.
(B) PERFORMANCE OF AGREEMENT. All covenants,
conditions and other obligations under this Agreement which
are to be performed or complied with by Purchaser shall have
been fully performed and complied with at or prior to the
Closing Date, including the delivery of instruments and
documents as required herein.
(C) ABSENCE OF GOVERNMENTAL OR OTHER OBJECTION. There
shall be no pending or threatened lawsuit challenging the
transaction by any body or agency of the federal, state or
local government or by any third party and the consummation of
the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date.
<PAGE>
7. DELIVERIES AT CLOSING. All transactions at the Closing shall
be deemed to take place simultaneously and no transaction at
the Closing shall be deemed to have been completed until all
documents set forth herein have been delivered by the parties
hereto except as waived by the party to who such document is
to be delivered.
7.1 OBLIGATIONS OF SELLER. At the Closing, Seller shall
deliver to Purchaser:
(a) such good and sufficient bills of sale,
assignments, deeds and other good and sufficient instruments
of sale, conveyance, transfer and assignment as shall be
required or as may be appropriate in order to effectively vest
in Purchaser good and marketable title to the Assets;
(b) Mentor Corporation's irrevocable proxy to
Purchaser's Board of Directors to vote the Common Shares for a
period of one year following the Closing Date; PROVIDED,
HOWEVER, that if during such one year period Mentor
Corporation sells any of such Common Shares, following such
sale the proxy shall terminate and be of no force and effect
with respect to the Common Shares which are sold; and
(c) such other instruments or documents as may be
reasonably requested by Purchaser or Purchaser's counsel to
fully and effectively convey the Assets to Purchaser in
accordance with the provisions of this Agreement.
7.2 OBLIGATIONS OF PURCHASER. At the Closing, Purchaser shall
deliver to Seller:
(a) original share certificates (with the number of
and denomination of such certificates as reasonably requested
by Seller), representing the Common Shares registered in the
name of Mentor Corporation.
(b) an opinion of Purchaser's counsel, dated the
Closing Date, reasonably satisfactory in form and substance to
Seller.
(c) such other instruments or documents as may be
reasonably requested by Seller or Seller's counsel to fully
and effectively evidence Purchaser's compliance with the
provisions of this Agreement.
<PAGE>
8. MISCELLANEOUS.
8.1 EXPENSES. Each party to this Agreement shall bear its own
costs and expenses incurred in connection with the preparation, execution and
delivery of this Agreement and the transactions contemplated by this Agreement.
8.2 NOTICES. All notices, claims, certificates, requests,
demands and other communications under this Agreement shall be made in writing
and shall be delivered by hand or sent, postage prepaid by registered, certified
or express mail, or reputable overnight courier service, and shall be deemed
given when so delivered by hand or if mailed, three days after mailing, one
business day in the case of express mail or overnight courier service, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to Seller:
Mentor Corporation
Attention: Loren McFarland
201 Mentor Drive
Santa Barbara, CA 93111
Telephone: (805) 879-6000
Facsimile: (805) 964-2712
With a copy to:
Chief Counsel
Mentor Corporation
201 Mentor Drive
Santa Barbara, CA 93111
Telephone: (805) 879-6000
Facsimile: (805) 681-6006
If to Purchaser:
Paradigm Medical Industries, Inc.
Attention: Mike Stelzer
1127 West 2320 South, Suite A
Salt Lake City, UT 84119
8.3 AGREEMENTS AND WAIVERS. This Agreement may be amended or
modified only by a written instrument executed by the parties to this Agreement.
No failure or delay on the part of any party in exercising any of its respective
rights hereunder upon any failure by any other party to perform or observe any
condition, covenant or provision herein contained shall operate as waiver
thereof, nor shall any single or partial exercise of any such rights preclude
any other or further exercise thereof or the exercises of any other right
hereunder.
<PAGE>
8.4 NO ASSIGNMENT. The rights and obligations or each party
under this Agreement shall not be assigned prior to, on or after the Closing
without the written consent of the other party hereto. The obligations of Seller
and Purchaser hereunder shall be binding upon their respective successors and
permitted assigns.
8.5 BENEFITS. Nothing expressed or referred to in this
Agreement is intended or shall be construed to give any person or entity other
than the parties to this Agreement or their respective successors and permitted
assigns any legal or equitable right, remedy or claim under or in respect
thereof or any provision contained herein, it being the intention of the parties
that this Agreement is for the sole and exclusive benefit of such parties, and
such successors and permitted assigns of this Agreement, and for the benefit of
no other person or entity.
8.6 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning of interpretation of this Agreement.
8.7 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, the
documents referred to herein, and the documents executed contemporaneously
hereto on the Closing Date constitute the entire Agreement of the parties with
respect to the subject matter of this Agreement and supercede all prior oral or
written agreements, understandings or representations relating to the subject
matter of this Agreement (except the August 30, 1999 Confidentiality Agreement
entered into between the parties).
8.8 GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the internal laws of the State of California,
without regard to its conflict of law provisions.
8.9 CHOICE OF FORUM. Any suit, action or proceeding against
any party hereto with respect to the subject matter of this Agreement must be
brought in the United States District Court for the Central District of
California, and each party hereby irrevocably submits to the exclusive
jurisdiction of such court for the purpose of any such suit, action, proceeding
or judgment. Each party hereto irrevocably waives any objection which either of
them may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement, brought as provided in
this Section, and hereby further irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. The parties hereto agree that exclusive jurisdiction of all
disputes, suits, actions or proceedings between the parties hereto with respect
to the subject matter of this Agreement lies in the court as hereinabove
mentioned. Service of process by mailing (by certified mail, return receipt
requested) or delivering a copy of such process to a party in accordance with
Section 8.2 hereof will be deemed good and sufficient service thereof.
<PAGE>
8.10 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same Agreement.
8.11 SEVERABILITY. If any provision of this Agreement or any
covenant, obligation or agreement contained herein is determined by a court of
competent jurisdiction to be invalid or unenforceable, such determination shall
not affect any other provision, covenant, obligation or agreement, each of which
shall be construed and enforced as if such valid or unenforceable provision were
not contained herein. Such invalidity or unenforceability shall not affect any
valid and enforceable application thereof, and each such provision, covenant,
obligation or agreement shall be deemed to be effective, operative, made,
entered into or taken in the manner to the full extent permitted by law.
8.12 TERMINATION. This Agreement may be terminated and the
transactions herein contemplated may be abandoned at any time without liability,
but not later than the Closing Date:
(a) by mutual written consent of the parties; or
(b) by Seller or Purchaser if the Closing has not
occurred by November 15, 1999, through no fault of the party
who initiates termination.
8.13 OBLIGATIONS AFTER TERMINATION. Termination of this
Agreement pursuant to section 8.12 will terminate all obligations of the parties
hereto, except for the obligations under Section 2.1(c) (Brokerage), Section 4
(Indemnity), and Section 5 (Confidentiality).
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have caused their respective,
duly authorized officers to execute this Agreement as of the day and year first
above written.
<TABLE>
<S> <C>
MENTOR CORPORATION PARADIGM MEDICAL INDUSTRIES, INC.
BY Anthony R. Gette BY Thomas F. Motter
---------------- ----------------
CEO and President CEO and President
MENTOR MEDICAL INC.
BY Loren McFarland
---------------
Secretary/Treasurer
MENTOR OPHTHALMICS, INC.
BY Loren McFarland
---------------
Secretary/Treasurer
</TABLE>
<PAGE>
SCHEDULE 1.1(C)
INTELLECTUAL PROPERTY
See attached schedules of patents, patent applications, trademarks and trademark
applications.
COPYRIGHTS
All unregistered copyrights to written materials transferred hereunder.
<PAGE>
SCHEDULE A
- --------------------------------------------------------------------------------
PATENTS ISSUED OPHTHALMIC FOREIGN AND DOMESTIC ISSUED PHACO PATENTS
Sorted by Patent Name and Country
September 28, 1999
- --------------------------------------------------------------------------------
OPHTHALMIC FOREIGN AND DOMESTIC ISSUED PATENTS
<TABLE>
<S> <C> <C> <C> <C>
PATENT NO. LONG MATTER COUNTRY INVENTORS ISSUANCE
NAME DATE
APPLICATION INTERNAL INTERNAL OWNER
DATE REFERENCE 4 ORGANIZATION LEVEL 2
- ----------------------------------------------------------------------------------------------------------------
5,580,347 CONTROLLING OPERATION OF US Harry Reimels 12/3/96
HANDPIECES DURING SURGERY
9/15/94 F&R 2888/16001 Mentor Ophthalmics, Inc. Mentor Ophthalmics, Inc.
- ----------------------------------------------------------------------------------------------------------------
5,910,110 CONTROLLING PRESSURE IN US David Bastable 6/8/99
THE EYE DURING SURGERY
6/7/95 F&R 02888/20001 Mentor Ophthalmics, Inc. Mentor Ophthalmics, Inc.
</TABLE>
<PAGE>
SCHEDULE B
- --------------------------------------------------------------------------------
PATENTAPPS OPHTHALMIC FOREIGN AND DOMESTIC PHACO PATENT APPLICATIONS
Sorted by Patent Name and Country
September 29, 1999
- --------------------------- ----------------------------------------------------
CONFIDENTIAL INFORMATION--TRADE SECRET
<PAGE>
SCHEDULE C
- --------------------------------------------------------------------------------
TRADEMARKREG OPHTHALMIC FOREIGN AND DOMESTIC PHACO TRADEMARK REGISTRATIONS
Sorted by Trademark Name and Country
September 28, 1999
- --------------------------------------------------------------------------------
OPHTHALMIC FOREIGN AND DOMESTIC ISSUED PATENTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LONG MATTER REGISTRATION COUNTRY OWNER REGISTRATION CLASS SECTION RENEWAL INTERNAL INTERNAL
NAME NUMBER DATE 8/15 ORGANIZATION LEVEL 2 REFERENCE 4
- ------------------------------------------------------------------------------------------------------------------------------------
INLAY 2,234,942 US Mentor 3/23/99 10 3/23/2009 Mentor Legal Dept.
Corporation Ophthalmics, Inc.
SURG-E-TROL 1,618,632 US Mentor 10/23/90 10 10/23/2000 Mentor Legal Dept.
Ophthalmics, Inc. Ophthalmics, Inc.
</TABLE>
<PAGE>
SCHEDULE D
TRADEMAPP OPHTHALMIC DOMESTIC AND FOREIGN PHACO TRADEMARK APPLICATIONS
AND UNREGISTERED TRADEMARKS
Sorted by Trademark Name and Country
September 28, 1999
- --------------------------------------------------------------------------------
CONFIDENTIAL INFORMATION--TRADE SECRET
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SCHEDULE 1.1(D)
REGISTRATIONS
o TUV Product Service Gmbh ISO 9001 and EN 46001 Certificate No. Q1 97 04
28718 006 (Norwell) (as it relates to the Phaco product line but not as
it relates to other products)
o EC Certificate No. G1 98 10 28718 005 (as it relates to the Phaco
product line but not as it relates to other products)
o FDA 510(k) No. K912904 (Odyssey Phacoemulsification System)
o FDA 510(k) No. K955245 (Meridian Phacoemulsification System)
o FDA 510(k) No. K974469 (Phacoemulsification SIStem Remote Control)
o FDA 510(k) No. K890622 (Surg-E-Trol System I and System II)
o International permits and approvals:
o Mentor SIStem: Argentina, Austria, Belgium, Brazil, Bulgaria, Canada,
Chile, Colombia, Denmark, Egypt, Finland, France, Germany, Greece,
Iceland, India, Ireland, Israel, Italy, Korea, Liechtenstein,
Luxembourg, Malaysia, Netherlands, Norway, Pakistan, Peru, Portugal,
Puerto Rico, Singapore, Spain, South Africa, Sweden, Switzerland,
Taiwan, Thailand, Turkey, United Kingdom, Venezuela. Pending: China
o Odyssey System: Russia.
o Surg-E-Trol System I and System II: Australia.
<PAGE>
SCHEDULE 1.1(E)
MATERIAL CONTRACTS
o October 4, 1999 License Agreement with Xomed, Inc.
o July 4, 1997 Software License Agreement with Dialogue Technology, Inc.
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS STATEMENT
This Registration Rights Statement (this "Statement") sets forth the
registration rights granted by Paradigm Medical Industries, Inc. (The "Company")
to Mentor Corporation ("Mentor"), under the asset purchase agreement dated as of
october 15, 1999 by and among the Company, Mentor and Mentor's subsidiaries
(the "Purchase Agreement"). Capitalized terms defined in the Purchase Agreement
and used herein without definition have the same meanings herein as in the
Purchase Agreement.
In consideration of the agreements contained in the Purchase Agreement,
the Company hereby grants to Mentor the rights set forth herein:
1. DEFINITIONS. For purposes of this Statement, "Registrable
Securities" means (i) the Common Shares issued to Mentor pursuant to the
Purchase AGREEMENT, OR (II) SHARES OF COMMON STOCK OR OTHER SECURITIES OF THE
COMPANY ISSUED AS A DIVIDEND OR OTHER DISTRIBUTION ON OR IN EXCHANGE FOR ANY OF
THE SHARES OF COMMON STOCK SPECIFIED IN CLAUSE (I).
2. COMPANY REGISTRATION.
(A) NOTICE OF REGISTRATION. If at any time or from time to
time, the Company shall determine to register any of its Common Stock,
whether or not for its own account, other than a registration relating
to employee benefit plans or a registration effected on Form S-4, the
Company shall:
(i) provide to Mentor written notice thereof at least
twenty (20) days prior to the filing of the registration
statement by the Company in connection with such registration;
and
(ii) include in such registration, and in any
underwriting involved therein, all those Registrable
Securities specified in a written request by Mentor received
by the Company within fifteen (15) days after the Company
mails the written notice referred to above, subject to the
provisions of Section 2(b) below.
(B) UNDERWRITING. The right of Mentor to registration pursuant
to this Section 2 shall be conditioned upon the participation by Mentor
in the underwriting arrangements specified by the Company in connection
with such registration and the inclusion of the Registrable Securities
in such underwriting to the extent provided herein. If Mentor proposes
to distribute its Registrable Securities through such underwriting, it
shall (together with the Company) enter into an underwriting agreement
in customary form with the managing underwriter selected for such
underwriting by the Company and take all other actions, and deliver
such opinions and certifications, as may be reasonably requested by
such managing underwriter. Notwithstanding any other provision of this
Section 2, if the managing underwriter determines that marketing
factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of
Registrable Securities to be included in such registration. The Company
shall so advise Mentor, and there shall be excluded from such
registration and underwriting, to the extent necessary to satisfy such
limitation, shares held by Mentor, but only after there has been
excluded from such registration and underwriting shares for the account
of any person other than Company or Mentor.
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(C) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it
under this Section 2 prior to the effectiveness of such registration
whether or not Mentor has elected to include Registrable Securities in
such registration.
(D) EXPENSES. The Company shall bear all expenses in
connection with the Company's performance of or compliance with its
obligations under this Statement, including, without limitation, all
(i) registration, qualification and filing fees; (ii) fees, costs and
expenses of compliance with securities or blue sky laws (including
reasonable fees, expenses and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the
Registrable Securities under the laws of such jurisdictions as the
managing underwriter or underwriters in a registration may designate,
subject to the limitation as set forth in subsection (h) of Section 3
hereof); (iii) printing expenses; (iv) fees, expenses and disbursements
of counsel for the Company and Mentor and of all independent certified
public accountants retained by the Company; and (v) fees, costs and
expenses incurred in connection with the listing of the Registrable
Securities on each national securities exchange or automated quotation
system on which the Company has made application for the listing of its
common stock; but excluding selling commissions, discounts or other
compensation paid to underwriters or other agents or brokers to effect
the sale of Registrable Securities, or any other expenses incurred by
Mentor in connection with any registration that are not specified in
the immediately preceding sentence.
3. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of this Statement to effect the registration of Registrable
Securities, the Company shall:
(a) promptly prepare and file with the SEC a registration
statement with respect to such Registrable Securities on any form that
may be utilized by the Company and that shall permit the disposition of
the Registrable Securities in accordance with the intended method or
methods of disposition thereof, and use its reasonable diligent efforts
to cause such registration statement to become effective as promptly as
practicable and remain effective thereafter as provided herein,
provided that prior to filing a registration statement or prospectus or
any amendments or supplements thereto, including documents incorporated
by reference after the initial filing of any registration statement,
the Company will furnish to Mentor, its counsel and the underwriters
copies of all such documents proposed to be filed sufficiently in
advance of filing to provide them with a reasonable opportunity to
review such documents and comment thereon;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and current and
to comply with the provisions of the Securities Act with respect to the
sale or other disposition of all Registrable Securities covered by such
registration statement, including such amendments (including
post-effective amendments) and supplements as may be necessary to
reflect the intended method of disposition by the prospective seller or
sellers of such Registrable Securities, but (except for a shelf
registration) for no longer than 120 days subsequent to the effective
date of such registration statement;
(c) provide customary indemnity and contribution arrangements
to any underwriters;
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(d) subject to receiving reasonable assurances of
confidentiality, for a reasonable period after the filing of such
registration statement, and throughout each period during which the
Company is required to keep a registration effective, make available
for inspection by Mentor, and any underwriters, and their respective
counsel, such financial and other information and books and records of
the Company, and cause the officers, directors, employees, counsel and
independent certified public accountants of the Company to respond to
such inquiries as shall be reasonably necessary, in the judgment of
such counsel, to conduct a reasonable investigation within the meaning
of Section 11 of the Securities Act;
(e) promptly notify Mentor and any underwriters and confirm
such advice in writing, (i) when such registration statement or the
prospectus included therein or any prospectus amendment or supplement
or post-effective amendment has been filed, and, with respect to such
registration statement or any post-effective amendment, when the same
has become effective, (ii) of any comments by the SEC, by the National
Association of Securities Dealers Inc. ("NASD"), and by the blue sky or
securities commissioner or regulator of any state with respect thereto
or any request by any such entity for amendments or supplements to such
registration statement or prospectus or for additional information,
(iii) of the issuance by the SEC of any stop order suspending the
effectiveness of such registration statement or the initiation or
threatening of any proceedings for that purpose, (iv) if at any time
the representations and warranties of the Company cease to be true and
correct in all material respects, (v) of the receipt by the Company of
any notification with respect to the suspension of the qualification of
the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, or (vi)
at any time when a prospectus is required to be delivered under the
Securities Act, that such registration statement, prospectus,
prospectus amendment or supplement or post-effective amendment, or any
document incorporated by reference in any of the foregoing, contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading;
(f) furnish to Mentor, and any underwriters, prospectuses or
amendments or supplements thereto, in such quantities as they may
reasonably request and as soon as practicable, that update previous
prospectuses or amendments or supplements thereto;
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(g) permit Mentor to rely on any representations and
warranties made to any underwriter of the Company or any opinion of
counsel or "cold comfort" letter delivered to any such underwriter, and
indemnify Mentor to the same extent that it indemnifies any such
underwriter;
(h) use reasonable diligent efforts to (i) register or qualify
the Registrable Securities to be included in a registration statement
hereunder under such other securities laws or blue sky laws of such
jurisdictions within the United States of America as Mentor or any
underwriter of the securities being sold shall reasonably request, (ii)
keep such registrations or qualifications in effect for so long as the
registration statement remains in effect and (iii) take any and all
such actions as may be reasonably necessary or advisable to enable
Mentor or underwriter to consummate the disposition in such
jurisdictions of such Registrable Securities owned by such holder;
PROVIDED, HOWEVER, that the Company shall not be required for any such
purpose to (x) qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not otherwise be
required to qualify but for the requirements of this Section 5(h), (y)
subject itself to taxation in any such jurisdiction, or (z) consent to
general service of process in any such jurisdiction;
(i) cause all such Registrable Securities to be listed or
accepted for quotation on each securities exchange or automated
quotation system on which the Company's Common Stock then trades; and
(j) otherwise use reasonable diligent efforts to comply with
all applicable provisions of the Securities Act, and rules and
regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering a period
of at least twelve months which shall satisfy the provisions of Section
11(a) of the Securities Act.
4. INFORMATION BY MENTOR. Mentor shall furnish to the Company such
information regarding itself and the distribution proposed by it as the Company
may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Statement.
5. INDEMNIFICATION. In the event any of the Registrable Securities are
included in a registration statement under this Statement:
(a) the Company will indemnify Mentor, each of its officers
and directors and Mentor's separate legal counsel and independent
accountants, and each person controlling Mentor within the meaning of
Section 15 of the Securities Act, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section
15 of the Securities Act, against all expenses, claims, losses, damages
or liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation
by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will
reimburse Mentor, each of its officers and directors and Mentor's
separate legal counsel and independent accountants and each person
controlling Mentor, each such underwriter and each person who controls
any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by
Mentor or such underwriter and stated to be specially for use therein.
<PAGE>
(b) Mentor will, indemnify the Company, each of its directors
and officers and its legal counsel and independent accountants, each
underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statement therein not misleading, and will reimburse the Company, such
directors, officers, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with
written information furnished to the Company by an instrument duly
executed by Mentor and stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section
5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought provided that failure to give such prompt
notice shall not relieve the Indemnifying Party of its obligations
hereunder unless it is materially prejudiced thereby, and shall permit
the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld). Such Indemnified Party shall have
the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be that of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii) the
Indemnifying Party shall have failed to assume the defense of such
action or proceeding and employ counsel reasonably satisfactory to such
Indemnified Party in any such action or proceeding or (iii) the named
parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying Party
and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to such Indemnified
Party which are different from or additional to those available to the
Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing of an election to employ separate
counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, it being understood,
however, that the Indemnifying Party then shall have the right to
employ separate counsel at its own expense and to participate in the
defense thereof, and shall not, in connection with any one such action
or proceeding or separate but substantially similar or related actions
or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for
all Indemnified Parties, which firm shall be designated in writing by a
majority of the Indemnified Parties who are eligible to select such
counsel). No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. No Indemnified Party
may consent to entry of any judgment or enter into any settlement
without the prior written consent of the Indemnifying Party.
<PAGE>
(d) If the indemnification provided for in this Section 5 is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying the Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party with respect to such loss,
liability, claim, damage or expenses in the proportion that is
appropriate to reflect the relative fault of the Indemnifying Party and
the Indemnified Party in connection with the statements or omissions
that resulted in such loss, liability, claim, damage, or expense, as
well as any other relevant equitable considerations. The relative fault
of the Indemnifying Party and the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged
untrue statement of material fact or the omission to state a material
fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
6. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC which may permit the sale of the
Registrable Securities to the public without registration, the Company shall use
reasonably diligent efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the
Exchange Act;
(c) Furnish to Mentor promptly upon request a written
statement as to its compliance with the reporting requirements of Rule
144, and of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as Mentor may
reasonably request in availing itself of any rule or regulation of the
SEC allowing Mentor to sell Registrable Securities without
registration.
7. TERMINATION OF REGISTRATION RIGHTS. Mentor shall not be entitled to
exercise any right provided for in this Statement after two years following the
Closing Date.
8. MISCELLANEOUS.
(A) PART OF PURCHASE AGREEMENT. This Statement constitutes a
part of the Purchase Agreement and is subject to all provisions
thereof.
(B) SEVERABILITY. Any provision of this Statement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof,
and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
Exhibit 10.40
TRANSITION SERVICES AGREEMENT
This Transition Services Agreement (the "Transition Agreement") is
entered into as of the date the last party signs as shown on the signature page
hereto, by and among Mentor Corporation, a Minnesota corporation, Mentor
Ophthalmics, Inc., a Massachusetts corporation, and Mentor Medical Inc., a
Delaware corporation (collectively "Seller") on the one hand, and Paradigm
Medical Industries, Inc., a Delaware corporation ("Purchaser") on the other
hand.
RECITALS
WHEREAS, concurrent with the execution and delivery of this Transition
Agreement, Seller is selling and Purchaser is purchasing a cataract surgery
system product line consisting of the Mentor(tm) Phacoemulsification S.I.S.tem,
the Odyssey(tm) Phacoemulsification System, the Surg-E-Trol(r) System I and
System II, and all accessories thereto (collectively, the "Phaco" product line)
pursuant to that certain Asset Purchase Agreement, of even date herewith,
between Seller and Purchaser (the "Asset Purchase Agreement"); and
WHEREAS, Purchaser has requested and Seller has agreed to provide
certain transition services after the Closing subject to the terms and
conditions of this Transition Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS. All capitalized terms used in this Transition Agreement
which are not otherwise defined herein shall have the meaning set forth for such
term in the Asset Purchase Agreement.
2. COOPERATION OF THE PARTIES. Purchaser has requested Seller to
perform the Services (defined below) to assist Purchaser in its efforts to
maintain the CE on the acquired products. To help Purchaser achieve this result
and to minimize any disruption to the ongoing operations of Seller, the parties
agree to cooperate in good faith and shall direct their respective employees to
work with the representatives of the other party and to provide such information
and other assistance as may be reasonably required in order to fulfill the terms
of this Transition Agreement.
<PAGE>
3. ACCESS TO FACILITIES, ASSETS AND PERSONNEL. During the term of this
Transition Agreement, Seller shall:
(a) Allow Purchaser's employees, agents and contractors to
enter onto the premises of Seller as needed, following reasonable prior notice
and during normal business hours, or such other time or times as the parties may
mutually agree, for the purpose of identifying the Assets, utilizing the Assets
for the operation of the business, and arranging for the relocation of the
Assets (provided that Purchaser shall be solely responsible for the costs of
shipping any such Assets); and
(b) Allow Purchaser's employees, agents and contractors to
have reasonable access to employees who remain employed by Seller having
knowledge or information relevant to the Assets, provided that such access shall
not unreasonably interfere with the continued performance of such employees'
duties for Seller. Seller shall instruct such employees to cooperate fully with
Purchaser. Access to Seller employees shall include the opportunity to hold in
person meetings at the facilities of either Seller or Purchaser, provided that
Purchaser shall reimburse Seller employees for any expenses reasonably incurred
by such employees related to travel undertaken at Purchaser's request, and
Seller shall allow such employees the necessary and reasonable time off from
work for such travel.
4. TRANSITION SERVICES. During the term of this Transition Agreement,
Seller shall use commercially reasonable efforts to provide on behalf of
Purchaser the services set forth in Attachment "A" (the "Services"). The
Services shall be performed in a timely and professional manner consistent with
service and quality levels maintained by Seller prior to Closing. Purchaser
acknowledges that Seller's ability to manufacture products is dependent upon
circumstances that are outside of Seller's control, including the availability
of materials and components, timing of delivery of such items to Seller, and the
willingness of personnel to remain employed by Seller.
5. KEY EMPLOYEES. On or before October 18, 1999, Purchaser will provide
Seller with a list of Key Employees to be attached hereto as Exhibit "B." Seller
will use its best efforts to retain the Key Employees pursuant to the
termination schedule set forth therein. "Best efforts" shall mean (i) the
continuation of the retention packages which Seller previously offered to the
Key Employees through termination hereunder, and (ii) not terminating or
decreasing the compensation or benefits of any Key Employee except, in each
case, for good cause and, except in an emergency, with Purchaser's consent,
which consent will not be unreasonably withheld or delayed. In the event the
termination schedule changes, Purchaser will notify Seller as soon as practical,
and in any case, Purchaser will be responsible for paying the Key Employees for
their final two weeks of employment, regardless of whether they received two
weeks notice.
<PAGE>
6. COMPENSATION. Purchaser shall reimburse Seller for: (i) incremental,
out-of-pocket costs incurred by Seller in providing the Services and such other
cooperation and assistance provided by Seller pursuant to this Transition
Agreement; (ii) labor costs, which will be based on an hourly rate that reflects
the actual salary and benefits for those Key Employees providing Services; (iii)
retention benefits for Key Employees accruing between October 22, 1999 and each
Key Employee's termination date; and (iv) severance for Key Employees which
accrues after October 22, 1999. Purchaser shall not be responsible for: (i) any
retention benefits accrued before October 22, 1999, for any of Seller's
employees; (ii) any expenses relating to Seller's facilities for any
time-period; or (iii) severance for any Seller employee accrued before October
22, 1999. Seller shall submit a monthly invoice for Services rendered during the
previous calendar month. Each monthly invoice shall include a detailed
accounting of charges and expenses. Purchaser shall remit payment within thirty
days from receipt of each monthly invoice.
7. COMPLIANCE WITH POLICIES AND PROCEDURES. While on the premises of
Seller, Purchaser's employees, agents and contractors shall observe all rules,
policies and procedures applicable to the employees of Seller working at such
site.
8. CONTINUATION OF FACILITIES AND COMPLIANCE WITH LAW. Seller shall
maintain in effect, at its own expense, all leases relating to the facilities,
offices and equipment required to provide the Services, and shall, as available
resources permit, maintain the same in a reasonable state of repair and
operation consistent with past practices and in compliance with all laws, rules
and regulations, including, but not limited to, the Occupational Safety and
Health Act of 1970, as amended, and all Environmental Laws.
9. CONFIDENTIALITY. The parties acknowledge that confidential
information belonging to a party may be disclosed to the other parties'
employees, agents and contractors as a result of the activities contemplated by
this Transition Agreement. Each party agrees that the terms of the
Confidentiality Agreement, dated August 30, 1999 by and between Seller and
Purchaser (the "Confidentiality Agreement") shall apply to any confidential
information disclosed pursuant to this Transition Agreement and each party shall
cause its employees or contractors to comply with the terms thereof.
<PAGE>
10. STATUS. Seller shall provide the Services as an independent
contractor and Seller's employees shall not for any purpose act as employees or
agents of Purchaser.
11. INDEMNIFICATION. Purchaser shall indemnify and hold harmless
Seller, and the officers, directors, employees, agents, successors and assigns
of Seller, from and against any liabilities, losses, damages, costs and expenses
(including reasonable attorney's fees) ("Damages") incurred by Seller arising
out of or related to (i) the use or occupation of the premises or any facilities
or equipment of Seller by any employees, agents or contractors of Purchaser, and
(ii) any acts or omissions by any employee, agent or contractor of Purchaser,
except and to the extent such Damages are attributable to the negligence or
misconduct of Seller.
12. TERM AND TERMINATION. This Transition Agreement shall commence on
the Closing Date and terminate on November 30, 1999. Purchaser may earlier
terminate this agreement upon written notice to Seller subject only to
completion of its obligations in this Transition Agreement. Purchaser shall have
no responsibility for costs incurred after termination in connection with the
Services. Seller's sole responsibility is to perform the Services specified
herein, in the manner described herein, up to the termination date; Seller shall
have no responsibility for maintaining the CE mark on the products during the
term of this Transition Agreement or thereafter.
13. INDEPENDENT SALES REPRESENTATIVES AND DISTRIBUTORS. The parties
acknowledge and agree that the agreements between Seller and its Independent
Sales Representatives ("ISRs") and International Distributors ("Distributors")
have not been assigned to, and no obligations arising under those agreements
will be assumed by Purchaser. In order to facilitate Seller's exit from the
business, Purchaser will continue to sell Phaco products to those Distributors
identified by Seller through and including December 31, 1999.
14. GENERAL PROVISIONS. Except for the Asset Purchase Agreement and any
documents reference therein and the Confidentiality Agreement, this Transition
Agreement is the entire agreement between the parties relating to the subject
matter hereof, superceding any and all prior agreements between the parties.
This Transition Agreement may not be amended except by a written agreement
signed by an authorized representative of each party, and is for the benefit of
the parties and their permitted assigns. It is not intended to create a benefit
for any third parties.
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have caused their respective,
duly authorized officers to execute this Agreement as of the day and year first
above written.
MENTOR CORPORATION PARADIGM MEDICAL INDUSTRIES, INC.
BY Anthony R. Gette BY Thomas F. Motter
---------------- ----------------
CEO and President CEO and President
MENTOR MEDICAL INC.
BY Loren McFarland
---------------
Secretary/Treasurer
MENTOR OPHTHALMICS, INC.
BY Loren McFarland
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Secretary/Treasurer
<PAGE>
ATTACHMENT A
TRANSITION SERVICES
I. CUSTOMER SERVICE FUNCTIONS:
Receive and process customer orders, provide technical customer
support, including complaint handling and Medical Device Reporting as
requested by Purchaser.
II. LOGISTICS, DISTRIBUTION AND INVENTORY CONTROL:
In response to customer orders, ship products to such customers and
also process returns, maintain consignment inventory records, maintain
customer master and item master files, as directed by Purchaser. Upon
request from Purchaser, pack and ship to Purchaser the remaining
product inventory located at Seller's Norwell and Rockland facilities.
III. SYSTEMS MAINTENANCE AND SUPPORT:
Consistent with available resources, maintain and operate all systems,
equipment and facilities required to perform the Services, including
but not limited to voice and data networks, and desktop applications;
provided that Seller shall not be required to purchase additional
hardware or software nor shall it be required to employ additional
personnel to maintain or support the systems, equipment or facilities.
IV. Manufacturing and Repair Operations:
Utilizing materials and components provided by Purchaser,
Seller will use commercially reasonable efforts to manufacture up to 20
phacoemulsification SIStem consoles and carts (subject to the available
resources and access to available materials and components) and repair
products to the same standards, specifications and quality as
previously maintained by Seller.
V. NOTIFICATIONS:
Notify all current Phaco-related vendors of the acquisition and further
notify vendors in writing that ownership to any Phaco inventory in
their possession has been transferred to Purchaser under this
Agreement.
<PAGE>
ATTACHMENT B
KEY EMPLOYEES
OPHTHALMIC EMPLOYEES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Last Name First Name Position Tentative Term date
- --------------------------------------------------------------------------------
Herrera Debra Customer Service Rep. 11/30/99
Baldwin Bob Product Specialist 11/30/99
Bird Michael Repair Ship/Rec 11/30/99
Federico Dick Purchasing 11/30/99
Gardner John RA/QA/Doc. Control 11/30/99
Johnson Chris Mfg. Engineer 11/30/99
Kerwin Dolores Repair Technician 11/30/99
Lindquist Susan Prod Specialist Equip. Build 11/30/99
Paananen Terry Tech. Serv. Rep./Supervisor 11/30/99
Sprows William Director 11/30/99
Warren Richard IT Manager 11/30/99
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PARADIGM
MEDICAL INDUSTRIES, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 178,000
<SECURITIES> 0
<RECEIVABLES> 565,000
<ALLOWANCES> (30,000)
<INVENTORY> 1,636,000
<CURRENT-ASSETS> 2,431,000
<PP&E> 347,000
<DEPRECIATION> (123,000)
<TOTAL-ASSETS> 3,331,000
<CURRENT-LIABILITIES> 608,000
<BONDS> 31,000
0
0
<COMMON> 7,000
<OTHER-SE> 2,685,000
<TOTAL-LIABILITY-AND-EQUITY> 3,331,000
<SALES> 1,023,000
<TOTAL-REVENUES> 1,045,000
<CGS> 515,000
<TOTAL-COSTS> 2,983,000
<OTHER-EXPENSES> 3,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,000
<INCOME-PRETAX> (1,954,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,954,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,954,000)
<EPS-BASIC> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
