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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
COMMISSION FILE NUMBER 000-27592
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SCANTEK MEDICAL INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-1090126
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
321 PALMER ROAD, DENVILLE, NEW JERSEY 07834
(201) 331-1766
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(Address and telephone number, including area code, of
registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g)
of the Act: COMMON STOCK, $.001 PAR VALUE
Indicate by check mark whether the Registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer had no revenues during its most recent fiscal year.
Aggregate market value of voting stock held by non-affiliates as of
September 15, 1997 was approximately $9,368,634 (based upon the closing sales
price of those shares reported on the National Association of Securities Dealers
Automated Quotation System for that day).
Number of shares of Common Stock outstanding as of
September 15, 1997: 17,220,200
DOCUMENTS INCORPORATED BY REFERENCE:
The information called for by Part III is incorporated by reference to the
Form 10-SB of the registrant dated September 17, 1996.
Transitional Small Business Disclosure Format
YES NO X
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SCANTEX MEDICAL INC.
INDEX
Part I Page
- ------ ----
Item 1. Business ................................................... 1
Item 2. Properties ................................................. 13
Item 3. Legal Proceedings .......................................... 13
Item 4. Submission of Matters to Vote of Security Holders .......... 14
Part II
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Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ............................... 15
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 15
Item 7. Financial Statements ....................................... 19*
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ................... 20
Part III
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Item 9. Directors and Executive Officers; Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act ...................................... 20
Item 10. Executive Compensation ..................................... 22
Item 11. Security Ownership of Certain Beneficial
Owners and Management .................................... 23
Item 12. Certain Relationships and Related Transactions ............. 24
Item 13. Exhibits and Reports on Form 8-K ........................... 25
Signatures ............................................................... 28
*Page F follows page 28.
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PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding anticipated growth in revenue, gross
margins and earnings, statements regarding the Company's current business
strategy, the Company's projected sources and uses of cash, and the Company's
plans for future development and operations, are based upon current
expectations. These statements are forward-looking in nature and involve a
number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; competitive factors; the ability of the
Company to adequately defend or reach a settlement of outstanding litigations
and investigations involving the Company or its management; changes in labor,
equipment and capital costs; changes in regulations affecting the Company's
business; future acquisitions or strategic partnerships; general business and
economic conditions; and other factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
ITEM 1. BUSINESS
GENERAL
Scantek Medical, Inc. (the "Company"), a Delaware corporation, was
organized under the name "Jenncor Acquisition Inc." on June 10, 1988, to obtain
funding for prospective business opportunities available to publicly held
entities. Until October 3, 1991, when the Company exchanged its shares with
Scantek Digital Systems Inc. ("SDSI"), the Company's only business activities
involved raising capital through a public offering pursuant to Regulation A of
the Securities Act of 1933, as amended (the "Act"). Pursuant to the share
exchange between the Company and SDSI, SDSI, the current holder of several
patents relating to a medical product known as the Breast Abnormality Indicator
("BAI"), became a wholly-owned subsidiary of the Company. The Company is a
development stage company and has not received any significant revenue to date.
Its accumulated deficit as of June 30, 1997 was $4,725,148.
The Company's business is to develop products and devices to assist in the
diagnosis and early detection of disease. In today's health care environment,
containment of medical care cost is a major priority. The Company has focussed
its business on easy to use low cost products and devices for its domestic and
international markets which will have an impact on preventive health care and
cost containment. The Company's first product, the BAI, is a product to be used
as an adjunctive, single-use, noninvasive means of testing for breast disease.
The BAI has United States Food and Drug Administration ("FDA") marketing
<PAGE>
clearance and can be used by physicians to detect and monitor breast disease,
alerting the physician to the possibility of a physiological condition,
including thermally active cancer.
The BAI can detect cellular abnormalities as small as one-half centimeter
in diameter. Because it is cost-effective and easy to use, the BAI when used
adjunctively with clinical examination, mammography and other examination
procedures will aid in the detection of breast cancer. The Company believes that
the technology upon which the BAI is based will also be useful for measuring
certain other body disorders.
THE PRODUCT
Breast cancer is the most common cause of cancer deaths for women worldwide
as was reported by the World Health Organization. The American Cancer Society's
1997 Cancer Facts and Figures states if breast cancer is detected when still
localized the 5-year survival rate is 97% today, and if you have distant
metastases at the time of diagnosis the 5-year survival rate drops to 20%. Early
detection and diagnosis of breast cancer are important in the reduction of
mortalities.
Management believes that the BAI can assist in the recognition of abnormal
early cellular development by recording the heat differentiation of
corresponding areas of the breast. The BAI is not a definitive test for cancer
(i.e., a biopsy, the removal and examination of, usually microscopic, tissue
from the living body, performed to establish a precise diagnosis) but is a risk
marker to identify and follow breast abnormalities by means of temperature
conductivity integration.
One of the important biological activities of malignant tumors is the
increased rate of growth as compared to the surrounding or "host" tissue. The
malignant propensities are directly related to the speed of cell division, this
in turn is reflected by accelerated local metabolism which is adequately
supported by increased blood and lymphatic vascularity. These biological
alterations can be detected by measuring temperature differences in the tumor
and its immediate environment versus other segments of the same breast, or by
comparing to the same area of the opposite breast. Heat energy is transferred by
process of convection, conduction (as with BAI) and radiation (as with
Thermography).
The BAI is designed to assist in the detection of pathology of the breast
by recognizing "significant" heat differences in the underlying tissue of a
particular area, by comparing corresponding (mirror-image) segments of one
breast to the other. The cause of the hyperthermia cannot be determined by this
test alone, so the BAI serves as an early warning signal to alert the doctor to
the fact that there is evidence of a pathological process, one of which could be
thermally active breast cancer, that should be evaluated further within a
particular area of the breast.
The device is designed to complement, not replace, conventional breast
abnormality screening methods and devices. It is intended for use by women of
all ages. The product will be available for a routine, primary office care
procedure used by physicians, gynecologists and other medical specialists as
part of a breast disease monitoring program adjunctively with Breast Self
Examination (BSE), Clinical Breast Examination (CBE), (depending on a patient's
age, family history, and other factors) mammography and other established
clinical procedures.
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The BAI measures underlying breast tissue temperature and not skin surface
temperature by retaining the emitted heat when the BAI is placed against the
breast. It differs from preexisting infrared and liquid crystal thermography
techniques which allow the heat to escape or radiate during measurement. The BAI
takes into consideration that the average temperature patterns of a healthy
woman's breasts are closely symmetrical. This method detects abnormalities by
comparing the temperature differences in the corresponding mirror image areas of
a woman's breasts or can be used to compare segments within one breast.
The BAI device consists of a pair of mirror-image, non-invasive,
lightweight, disposable soft pads, each of which has three wafer-thin foil
segments containing columns of heat sensitive chemical sensors that change color
from blue to pink reflecting an 8.5 degree temperature range between 90.5 and
99.0 Fahrenheit. When placed against a woman's breasts inside her brassiere for
a period of 15 minutes, the BAI device registers the temperature variations due
to heat conducted from within the breast tissue to the surface of the skin. The
result will be digitally, not analogically, indicated by color changes for each
temperature gradation. Significant temperature differences (2 degrees F. or
four bars) in the corresponding areas of the breasts may indicate an abnormal
unilateral thermal activity long before a lump is discovered by self-examination
or clinical examination or other detection methods such as mammography,
ultrasound, etc. By comparing the mirror-image temperature differences between
the two breasts registered by the BAI, a determination can be made as to whether
a sufficient abnormality is present to warrant further site-specific testing by
other diagnostic techniques including mammography and/or biopsy and other
methods. The BAI test does not replace recommended guidelines for scheduled
mammographic screening.
Development and clinical testing of the BAI were completed between 1980 and
1984. This testing showed the BAI capable of detecting lesions in the breast
earlier than possible through clinical examination by sensing metabolic changes
in the breast. Studies were undertaken to determine the efficacy of the device
at Georgetown University School of Medicine, Memorial Sloan-Kettering Hospital
in New York, at M.D. Anderson Memorial Hospital in Houston, at Brotman Memorial
Hospital at UCLA, and Guttman Breast Diagnostic Institute in New York. The
device proved to have a sensitivity index (86.5% to 88.1%) of unilateral breast
cancer patients. In the Guttman screening trials mammography sensitivity index
ranged between 78%-96%.
SCIENTIFIC BASIS
Infrared thermography for the evaluation of breast lesions was introduced
in 1956, and systems employing thermosensitive liquid crystal films have
generated renewed interest since 1978. Nevertheless, the relationship between
heat and breast disease remains a matter of controversy. Studies by Dr. Michael
Gautherie, University of Strasbourg, France and others dating from 1970 have
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directly evaluated the heat of cancerous breast tissue compared with that of
healthy breast tissue. These studies found that tumor temperature was always
higher than the surrounding temperature and suggested that the increase in tumor
heat resulted from an increased metabolism. Moreover, two other phenomena were
found to occur: tumor heat was found to be transported within the surrounding
breast tissue (principally by blood convection through the veins) resulting in
local or diffuse increases in skin temperature; and vascular changes were
observed in the tumor area and further in the subcutaneous breast tissues. In
short, both hyperthermia and hypervascularization were found to have occurred in
the tumor and at its periphery, in comparison to the temperature and blood flow
of healthy tissue in the contralateral breast. Further research by Dr. Gautherie
and others has demonstrated an unequivocal relationship between the metabolic
heat production of cancer tissue and the doubling time of tumor volume: the
faster the tumor grows the more heat it generates.
Recently, the scientific foundation for the BAI effectiveness has been
considerably strengthened. Comprehensive research has begun to establish in
detail the mechanisms by which malignancies radically alter the host tissue
environment, notably through two quantitatively measurable processes: (1) A
tumor significantly elevates overall rates of metabolic activity, and (2) A
tumor greatly intensifies capillary vascularization in host tissues. In
particular, this latter process of angiogenesis was a very critical finding,
because it is the probable mechanism by which cancers with an enhanced
metastatic potential prepare to invade the host. These are but two of a number
of measurable host alterations, and each is associated with asymmetric heat
distribution.
CLINICAL TRIALS
Biopsy and screening clinical trials were conducted at well-established
institutions to assess and validate BAI's usefulness in detecting breast cancer.
BAI was found to be very accurate in terms of the device's documented
sensitivity (true positives for cancer) and specificity (true negatives - no
cancer detectable by accepted medical methods) indices in relation to the biopsy
(the "Gold Standard" diagnostic procedure), and clinical breast examination and
mammography.
BAI Test Results vs. Biopsy Findings
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In the first study, BAI was the focus of a clinical trial involving 179
women who underwent a biopsy. This multi center study was conducted at three
prestigious cancer institutions: M.D. Anderson Hospital and Tumor Institute,
Memorial Sloan-Kettering Hospital, and Brotman Memorial Hospital. BAI tested
positive for the suspicion of cancer in 93 of the 112 women who were diagnosed
with cancer, for an overall sensitivity index of 83.0% and was notably stronger
in detecting unilateral cancers - a sensitivity index of 88.1% (that is, 74 of
the 84 unilateral cancers diagnosed). (Less than 3% of breast cancers are
believed to be bilateral generally).
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The biopsy results were subjected to a breakdown by the size of cancer
detected and the patient age. The threshold tumor size detectable with BAI is
five millimeters and up - an early-stage cancer; of a total of eight cancers
under 1.0 centimeters diagnosed during the screening study, seven tested
positive using the device. It appears that BAI has the proven ability to detect
small, early-stage cancers, which are most likely to be associated with
favorable treatment outcomes. Moreover, a breakdown of the BAI results by age
suggests an especially high efficacy in detecting suspicious abnormalities in
younger women. This is noteworthy, indeed, because a prescreening method is
critically needed for women under 50 who have not been urged or who choose not
to seek a mammogram on an annual basis, since fast-growing, potentially
aggressive cancers are associated with the women in this age distribution.
BAI Test Results vs. Clinical Findings vs.
------------------------------------------
Mammography and Physical Examination
------------------------------------
In the second clinical trial study, the BAI was studied prospectively in
2,805 asymptomatic women for the test's ability to detect abnormalities
suspicious of breast cancer. Specifically, BAI data was compared to the
mammographic and clinical findings as well as to a limited number of cytological
findings. Of the 2,805 women screened, 99 were recommended for a biopsy based on
either suspicious mammogram and/or clinical examinations. BAI was positive for
the suspicion of cancer in 86 of the 99 women (a sensitivity index of 86.9%).
Fifty-nine biopsies were subsequently performed, and 13 of the 15 cancers
diagnosed were positive for the BAI test (a sensitivity index of 86.7% against
biopsy). Of the 2706 women who had no suspicion of cancer based on mammogram
and/or clinical examinations, 2340 had negative BAI results (a specificity index
of 86.5%).
BAI is very accurate, both in terms of sensitivity and specificity.
Notably, the very low false positive rate (true negatives with a positive BAI
test) of 13.5%* BAI for the initial screening trial actually assumes two
additional circumstances: (1)
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* In the screening study of 2,805 women at the Guttman Breast Diagnostic
institute, the observed 13.5% "false positive" index of the BAI test-on 366
women did not correlate with the Guttman clinical staff conclusion of any
breast abnormality indicating the positives of cancer. The observed 13.5%
"false positive" index does not mean that the BAI device yielded a positive
reading in 13.5% of women with no abnormalities of the breast. The clinic
staff screens for conditions that warrant investigation regarding the
possibility of breast cancer. Thus, breast abnormalities that produce
elevation of temperature in one breast may result in a positive BAI score,
but may be classified as nonmalignant by the clinic staff. Furthermore,
because the thermal signal will often proceed the tentative confirmation by
imaging or clinical findings by trained physicians, a number of women
classified as "false positive" could have cancer and would be confirmed by
biopsy at a later time. Various follow-up studies using other thermology
technologies have shown this to be true and unofficial 1-year follow-ups by
Sloan-Kettering of so-called BAI false positives were proven to be fast
growing fatal cancers. The 2,805 women in the Guttman study may not be
considered representative of the general population since many symptomatic
women were referred to this center by other concerned physicians. (In a
separate home study test of 200 asymptomatic women, only 5.5% had false
positives.)
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that no mammographically undetectable cancers occurred, and (2) that the rate of
subsequent cancers occurrence within this so-called false positive group is not
statistically higher than that of the population of women as a whole. A lower
true false positive rate for the device can be assumed if abnormal thermal
distribution is a risk marker for future disease incidences, as has frequently
been suggested. In fact, several publications have documented a positive
predictive value for thermographically-based tests to detect future cancers. The
screening study demonstrated reliability approaching that of mammography and
significantly greater than distantly related thermographic techniques.
Efficacy of treatment, both traditional and projected, demands early
detection of breast cancer. The impact of early detection on long-term survival
of breast cancer patients has been increasingly demonstrated.
The most favorable prognosis results from treating an early "preclinical"
or "occult" breast lesion, that is, a malignancy not yet detectable by touch or
sight in a physical examination but detectable by mammography or other imaging
techniques. In contrast, treatment of a malignancy after its clinical appearance
is usually much less effective. Manual detection of a tumor imparts only a
slight lead-time advantage, since the threshold size permitting detection of a
palpable mass is one centimeter or larger. Notably, tumors diagnosed by physical
examination are frequently associated with a systemic metastatic cancer
invasion. Cancers one centimeter or less, which are the threshold size for
physical detection, may already display significant nodal involvement and
metastasis. It is all the more critical, therefore, that a primary breast cancer
is detected before a point of no-return either before a long time-interval
passes during which a chance spread of micro metastases may occur unchecked by
host defenses, or before the tumor attains a critical size at which metastases
are typically widely disseminated.
LICENSING
The Company has granted HumaScan Inc. ("HumaScan") an exclusive license to
manufacture and sell the BAI in the United States and Canada. HumaScan completed
a public offering of its shares on August 9, 1996, the proceeds of which are
being used to build HumaScan's manufacturing facility and commence the marketing
of the BAI product. As the Company's initial licensee, HumaScan and its
exclusive distributor, Physician Sales & Service ("PSS"), are expected to begin
distribution of the BAI in the United States during the fourth calendar quarter
of 1997. PSS has agreed to purchase the BAI for $15.25 per unit and sell one
million units in 1997 and three and one-half (3.5) million units in 1998. This
first license agreement implements the Company's plan to manufacture and market
the BAI in certain key international markets.
Under its license agreement with HumaScan (the "License Agreement"),
HumaScan is required to pay to the Company (i) a $1.6
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million license fee of which $550,000 has been paid to date and (ii) royalty
payments ranging from 3% to 10% of HumaScan's annual net sales (as defined in
the License Agreement) such percentage maximizing when HumaScan achieves $10
million of annual net sales. Presently, the Company also owns 10% of the
outstanding shares of common stock of HumaScan, representing 779,063 shares.
HumaScan shares currently trade on the Nasdaq Small Cap Market under the symbol
HMSC.
The Company has also granted an exclusive license to Health Technologies
International Inc. ("HTI License Agreement") for the territories of Chile and
Singapore. Under its license agreement, HTI (i) paid a $250,000 license fee
during fiscal 1997 and (ii) will pay royalties of 15% of net sales (as defined
in the HTI License Agreement) with minimum royalties of $100,000 in 1998 and
increasing incrementally to at least $400,000 in the year 2000. Additionally,
HTI has agreed to pay 100% markup over product cost (as defined in the HTI
License Agreement) in exchange for the Company agreeing to operate HTI's
manufacturing facility. The Company is the beneficial owner of 1,000,000 shares,
representing approximately 20% of HTI's outstanding shares of common stock.
The Company entered into an exclusive license agreement, dated September
22, 1997 with Sandell Corp. S.A. (the "Sandell Agreement"), a Uruguyan
corporation ("Sandell"), pursuant to which the Company granted to Sandell an
exclusive license to market and distribute the product in Brazil, Venezuela,
Columbia, Costa Rica, Ecuador, Nicaragua, Paraguay, Panama, Peru, Bolivia,
Argentina and Uruguay. Sandell is required to maintain operations in Uruguay
Free Trade Zone. The Sandell Agreement is for a term of fourteen (14) years.
Under the Sandell Agreement, Sandell is to pay the Company a non-refundable
license fee of (i) $500,000 and (ii) thirty-five (35%) of the outstanding shares
of Sandell on a fully diluted basis. The cash portion of the fee is payable (i)
$100,000 upon execution of the Sandell Agreement which was paid by Sandell
subsequent to fiscal year end, (ii) $200,000 on or before April 30, 1998 and
(iii) $200,000 on or before January 30, 1999. Sandell is also required to make
minimum purchases of the BAI as follows: (i) $20,000 per month during calendar
1998, (ii) $35,000 per month during 1999, (iii) $65,000 during 2000 and (iv)
$90,000 per month during 2001 and thereafter during the term of the license.
REGULATIONS
The Company's development and manufacture of medical devices is controlled
by the Food, Drug and Cosmetic Act (the "Act"). The Food and Drug Administration
("FDA"), which administers the Act, has promulgated regulations pursuant to
Section 510(k) of the Act which permit certain new products to enter the U.S.
market through the submission of pre-market notification to FDA (Title 21, CFR,
Part 807, Subpart B) and for the documentation and control of manufacturing
processes (Title 21, CFR, Part 820 Good Manufacturing Practice for Medical
Devices: General).
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In that the Company intends to construct its manufacturing facilities
outside the U.S., the FDA will have no authority to regulate the Company's
proposed manufacturing operations.
Any products manufactured or distributed by a company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
FDA. Device manufacturers are required to register their establishments and list
their devices with FDA, and are subject to periodic inspections by FDA and
certain state agencies. The FDA Act requires device manufacturers to comply with
cGMP regulations which impose certain procedural and documentation requirements
upon a company with respect to manufacturing and quality assurance activities.
FDA has proposed changes to the cGMP regulations which, if finalized, would
likely increase the cost of complying with cGMP requirements.
Subject to the potential changes in regulatory status discussed above, the
Company believes that it is in full compliance with the requirements of Part 807
Premarket Notification, as promulgated under Section 510(k) of the Act and
therefore, has market rights for the BAI (which have been assigned to HumaScan
under the HumaScan License Agreement). Also included under Part 807 is a
requirement for product registration and listing, which the Company believes has
been satisfied.
FOREIGN REGULATION
Because the Company proposes to distribute its product in foreign
countries, the Company will be required to comply with the regulations of those
countries where its product is distributed by the Company through licensees. No
assurances can be given that the Company and/or its licensees will be able to
comply with the regulatory requirements of the foreign markets in which the BAI
will be sold.
PATENTS
The proprietary nature of the BAI is protected under patent rights issued
in the U.S. and foreign countries. However, in general, the level of protection
afforded by a patent is directly proportional to the ability of the patent owner
to protect and enforce his rights under the patent. Since the financial
resources of the Company are currently limited, and patent litigation can be
both expensive and time consuming, there is a risk that enforcing the patents
for the BAI will have a material adverse financial effect on the Company or the
Company will not have the financial resources necessary to enforce its patents.
Once the Company's existing patents expire, other companies may be able to
create substantially similar products. If this were to happen, the Company would
not be able to avail itself of the protection afforded by the patent laws.
In the U.S., Patent No. 4, 190,058 for a "Device For Use in Early Detection
of Breast Cancer" was granted and issued to Mr. Sagi on February 26, 1980.
Patent No. 4,651,749, granted on March
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24, 1987, entitled "Cancer Detection Patch for Early Detection of Breast Cancer;
Temperature, Indicators, Flexibility, Thermoconductivity, Webs", is a partial
continuation of Patent No. 4,190,058; Patent No. RE 4,624,264 granted November
24, 1986, has been reinstated and expires November 25, 2003. On October 8, 1985,
Patent No. RE32,000, a reissue of the 1980 patent, was granted and issued.
Foreign patents for the BAI include:
- -- Belgium Patent No. 884,382; issued July 18, 1980; expires
July 18, 2000
- -- Canada Patent No. 1,130,157; issued August 24, 1982; expires
August 24, 1999
- -- France Patent No. 7913059; issued July 15, 1986; expires
May 22, 1999
- -- Germany Patent No. 2920785; issued May 22, 1985;
- -- Israel Patent No. 58422; issued March 1, 1983; expires
October 9, 1999
- -- The Netherlands Patent No. 7,094,034; issued December 18, 1989; expires
May 22, 1999
- -- United Kingdom Patent No. 2023288; issued April 27, 1983; expires
May 21, 1999
- -- Venezuela Patent No. 44,664; registered April 20, 1987; expires
April 20, 1999.
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PROPOSED REGIONAL CENTERS AND PRODUCTION EQUIPMENT
For the Company's international marketing and distribution activities, the
Company intends to establish regional manufacturing centers ("RMCs"). The
Company will require funds to establish RMCs and to move expeditiously as
agreements are reached. Based on the arrangements through licensing agreements
or joint ventures, anticipated revenue will be through royalties and the direct
sales of the product.
Proposed Regional
Center Locations: Hungary, Ireland, India, South Korea, Israel/ Egypt,
China, Australia and Uruguay.
Personnel: 20 to 25 people per plant for the first two years,
includes management, Administrative, clerical and
factory employees.
The Company has entered into a letter of intent with respect to the
acquisition of a Hungarian based manufacturer of plastic medical packaging
products and the manufacturing facility for an aggregate purchase price of
$1,750,000 and a number of shares of the Company, based upon the exchange rate
and the market price of the Company's shares at closing. The acquisition is
subject to the execution of a definitive agreement and the obtaining of
financing for the purchase of the Hungarian manufacturer.
In January 1991, the Company entered into an agreement with Zigmed Inc.
pursuant to which Zigmed Inc. will manufacture the production equipment needed
for the manufacturing of the BAI for the contract price of $1,750,680. Due to
the fact that the Company has had insufficient capital, the production of the
manufacturing equipment has been delayed. As a result of the delay, the price
for manufacturing the equipment was increased to $1,850,680, plus 100,000 shares
of the Company's common stock. See "CERTAIN TRANSACTIONS". The first production
equipment will be installed in the Company's initial facility which is presently
contemplated to be located in Budapest, Hungary. As of June 30, 1997, the
equipment was under construction. The manufacturing equipment is designed to
produce sufficient product to supply each geographical territory.
Accordingly, the Company will seek to raise additional capital through
public or private equity or debt financing by the end of 1997, to be operational
in 1998. In July and August 1996, the Company completed two private placements
of the Company's common stock, raising proceeds of $1,070,000 and in April,
1997, the Company margined the HumaScan common stock owned by the Company and
borrowed $1,000,000. Failure to raise additional capital, may adversely affect
the Company's operations and international projects.
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The Company's success is dependent on raising sufficient capital to
establish a production facility and manufacture production equipment to
manufacture the BAI for the international market. The Company does not have all
the financing in place at this time, nor may it ever, to meet these objectives.
However, the Company feels payments to be received on the initial license fees,
combined with the capital raised in the July and August private placements, and
proceeds from borrowing against the HumaScan common stock, will be more than
sufficient to cover the operations of the Company over the next twelve (12)
months.
SUPPLIES AND RAW MATERIALS
Supplies and raw materials for the manufacture of the BAI are available
from various sources. Historically, other than on a few rare occasions, the
supplies and raw materials for producing the BAI have been readily available and
the cost of such materials has not experienced any material fluctuation. The
Company has determined the inventory planning and control, as well as other
production management systems, it intends to use.
Key personnel for the management of the Company's production facility have
been identified and preliminary employment discussions are in progress. No
assurance can be given that the Company will be able to employ the personnel to
satisfy its needs.
MARKETING
The marketing of the BAI is dependent upon the ability of the Company to
raise the needed capital to build its manufacturing facilities. In the event
that the Company is unable to raise capital as planned, the marketing plans
discussed below may not occur, or, if they do occur, they may not occur when
anticipated.
UNITED STATES AND CANADA MARKETING -- HUMASCAN
Pursuant to the HumaScan Agreement, the Company granted HumaScan the
exclusive right to market and manufacture the BAI in the U.S. and Canada. As
part of the HumaScan Agreement, the Company, for a period of two years from the
effective date, will provide Mr. Sagi's consulting services for up to 90 hours
per calendar quarter to HumaScan in connection with marketing the BAI without
additional payment.
The target market for the BAI in the U.S. and Canada includes primary care
physicians, both in their own practices and as part of groups such as health
maintenance organizations (HMOs), and preferred provider organizations (PPOs),
gynecologists, obstetricians, internists and other general practitioners.
With respect to the U.S. and Canada, HumaScan has entered into an agreement
with Physician Sales and Service, a major U.S. distributor, regarding its
distribution of the BAI.
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SOUTH AMERICA AND SINGAPORE
As stated above, the Company granted an exclusive license to Sandell for
the territories of Brazil, Venezuela, Columbia, Costa Rica, Ecuador, Nicaragua,
Paraguay, Panama, Peru, Bolivia, Argentina and Uruguay. The Company has also
granted an exclusive license to HTI for Chile and Singapore.
DISTRIBUTION
The Company has focused on developing partnerships with various
international companies who have relationships with distributors throughout the
world and who have connections in the medical communities of target markets.
With respect to the distribution of the BAI in the international market,
the Company intends to enter new markets on a regional basis. The commencement
of the Company's international distribution of the BAI has been scheduled for
1998. There can be no assurance that the Company will be able to enter into
distribution agreements on favorable terms or at all.
COMPETITION
The breast cancer screening device industry is highly competitive and
fragmented. The Company is not aware of any low cost screening devices on the
market which would compete directly with the BAI for use by primary care
physicians.
The Company believes that the BAI, which provides digital quantitative
recordings of underlying tissue temperature, represents a significant
improvement over thermographic technology products because such other products
are subject to the inherent problems of subjective evaluation of heat patterns.
Based on these differences, the Company believes that the prospects for the BAI
as a supplement to currently existing diagnostic tests are very good.
The Company believes it is in a unique position because the BAI has no
known competing low cost screening devices. As a result, the Company believes
that the BAI will augment other existing forms of screening and technology.
Some of the Company's future competitors may be large, well-financed and
established companies that have greater resources for research and development,
manufacturing and marketing than the Company has and, therefore, may be better
able than the Company to compete for a share of the market, even in areas in
which the Company may have superior technology. There can be no assurance that
the Company will be able to produce a commercially acceptable product, or that
if produced, such a product will be competitive
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with existing or future products. It is also possible that there will be
technological changes or developments by competitors which will render the
Company's products noncompetitive or obsolete.
FUTURE PRODUCTS
The Company believes that the BAI may have applicability as a screening
device for other abnormalities, including measuring ovulation cycles for
infertile couples, measuring changes in the cardiovascular system to screen for
potential stroke victims, and detecting abnormalities in the kidneys and
testicles. Although some testing was performed during the BAI's development
stage, these initial tests were preliminary only, and in order to obtain FDA
approval, which would be required in order to market a future product. The
Company intends to further explore its initial findings and, perhaps, introduce
products in furtherance of these findings.
EMPLOYEES
As of September 30, 1997, the Company employed a total of two people, both
on a full-time basis. The Company also has three part-time employees.
None of the Company's employees are covered by a collective bargaining
agreement with a union. The Company considers its relationship with its
employees to be good.
RISK AND UNCERTAINTIES
The Company's business is subject to several risks and uncertainties,
including (a) the risk that it may be unable to raise enough capital to fund the
Company's operations, (b) the risk the BAI will not be accepted commercially,
(c) the Company's reliance on certain customers, and (d) the highly competitive
nature of the Company's industry and the impact that competitors' new products
and pricing may have on the Company. Such factors, as well as shortfalls in the
Company's results of operations as compared with analyst's expectations, capital
market conditions and general economic conditions, may also cause substantial
volatility in the market price of the Company's Common Stock.
ITEM 2. PROPERTIES
The Company occupies approximately 7,000 square feet of warehouse and
office space, all of which is leased through leases expiring in June, 2000. See
Note 12 of Notes to Consolidated Financial Statements for additional information
pertaining to leased properties.
ITEM 3. LEGAL PROCEEDINGS
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the year ending June 30, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock, par value $.001 per share (the "Common Stock"),
is traded in the over-the-counter market. The Common Stock is available for
quotation in the "pink sheets" published by the National Quotation Bureau,
Incorporated and on the "bulletin board" operated by NASDAQ. The following table
sets forth the periods indicated the high and low bid quotation for the Common
Stock:
High Low
------ ------
Fiscal Year Ended June 30, 1996
First Quarter ....................... 0.500 0.0625
Second Quarter ...................... 0.625 0.125
Third Quarter ....................... 0.750 0.375
Fourth Quarter ...................... 1.500 0.375
Fiscal Year Ended June 30, 1997
First Quarter ....................... 1.125 0.25
Second Quarter ...................... 1.25 0.5625
Third Quarter ....................... 4.0625 0.50
Fourth Quarter ...................... 2.4375 1.25
The Common Stock is reported under the Symbol SKML. As of the date of this
report, the Company's shares of Common Stock were "non-designated" securities as
defined under the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
These quotations reflected an inter-dealer price, without retail mark-up,
mark-down or commission, and may not necessarily reflect actual transactions.
(b) Holders
As of September 15, 1997 there were 358 shareholders of record of the
Company's Common Stock.
(c) Dividends
The Company has not paid any cash dividends and has no current plans to pay
any such dividends. There are no restrictions on the Company's ability to pay
dividends.
(d) Recent Sales of Securities
On July 1, 1997, the Company issued 60,000 shares to Reiner Auman for
services rendered. The shares were issued pursuant to an exemption under Section
4(2) of the Securities Act of 1933, as amended (the "Act").
On July 2, 1996, the Company completed a private placement of its Common
Stock. The Company sold 500 units for gross proceeds of $500,000. Each unit
consisted of 1,000 shares of the Company's Common Stock (500,000 shares in
total) at a purchase price of $1.00 per share. The shares were sold pursuant to
an exemption under Section 4(2) of the Act.
On August 14, 1996, the Company issued 100,000 shares of Zigmed, Inc. in
consideration for services rendered. The shares were issued pursuant to Rule 504
promulgated under the Act.
On September 16, 1996, the Company issued 17,500 shares in full
satisfaction of its obligations under a lease agreement between the Company and
Kabert Realty, Inc. The shares were issued pursuant to Rule 504 promulgated
under the Act.
On March 7, 1997, the Company issued 12,500 shares to Michael Gruen in
payment for legal services rendered. The shares were issued pursuant to Section
4(2) of the Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a high-tech development stage company organized to develop,
manufacture, sell and license products and devices to assist in the diagnosis
and early detection of disease. At the
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present time, the Company is focusing to manufacture, sell and license the BAI
device. The device has been patented and has Food and Drug Administration
("FDA") approval for sale. The BAI is a screening device which can detect breast
tissue abnormalities, including breast cancer. The Company has not generated any
revenues but has entered into three License Agreements whereby the licensees
purchased the right to manufacture and sell the BAI in the United States of
America, Canada, their territories and possessions, South America and Singapore.
The following table sets forth for the periods indicated, the percentage
increase or decrease of items included in the Company's consolidated statement
of operations:
% Increase (Decrease) from Prior Period
----------------------------------------
June 30, 1997 June 30, 1996
compared with 1996 compared with 1995
------------------ ------------------
General and administrative expense..... (20.3) 3.0
Amortization and depreciation.......... (15.3) --
Interest expense....................... (2.1) --
Research and development............... 36.4 33.6
Net loss............................... (3.7) 10.9
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased 20.3% to $300,845 for the
year ended June 30, 1997 from $377,625 for the year ended June 30, 1996. This
decrease is primarily due to one-time consulting expenses incurred in 1996
offset, in part, by increases in accounting, legal services and public relations
expenses.
General and administrative expenses increased 3.0% to $377,625 during the
year ended June 30, 1996 from $366,571 for the year ended June 30, 1995. This
increase was primarily due to professional fees the Company incurred during the
1996 period offset by settlements made by the Company on prior outstanding
balances.
AMORTIZATION AND DEPRECIATION EXPENSES
Amortization and depreciation expenses decreased 15.3% to $93,384 for the
year ended June 30, 1997 from $110,234 for the year ended June 30, 1996. The
decrease was primarily attributable to fully amortized or organization cost
occurring during the period.
Amortization and depreciation for the years ended June 30, 1996 and 1995
has remained relatively constant.
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<PAGE>
INTEREST EXPENSE
Interest expense for the years ended June 30, 1997, 1996 and 1995 has
remained relatively constant.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expense increased 36.4% to $291,013 for the year
ended June 30, 1997 from $213,311 for the year ended June 30, 1996. The increase
is primarily attributable to increased salaries incurred by the Company in the
experimental area of development of its product.
Research and development expense increased 33.6% to $213,311 for the year
ended June 30, 1996 from $159,693 for the same period ending 1995. The Company
attributes this increase to those reasons set forth above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for funds has increased from period to period as it has
incurred expenses for among other things, research and development; applications
for domestic and international patent protection; licensing and pre-marketing
activities; and attempts to raise the necessary capital for initial production.
Since inception, the Company has funded these needs through private placements
of its equity and debt securities and advances from the Company's President,
Chief Executive Officer and principal shareholder. In addition, the Company's
auditors' report for the year ended June 30, 1997 dated September 29, 1997,
expressed an opinion as to the Company continuing as a going concern.
During 1996, the Company amended the October 20, 1995 License Agreement
whereby HumaScan purchased the right to manufacture and sell the BAI in the
United States and Canada and their respective territories and possessions. The
terms of the agreement require HumaScan to pay the Company a licensing fee of
$1,600,000, $550,000 of which has been received as of March 31, 1997 and the
issuance to the Company of 1,004,063 shares (after a three-for-four stock split)
of the outstanding Common Stock of HumaScan. The amount receivable of $1,050,000
from the licensing fee from HumaScan is payable to the Company (subject to
acceptance of various equipment installations by HumaScan) as follows: $300,000
is due immediately as the patents for the BAI have been extended to 2003,
$75,000 on December 31, 1997, $175,000 on March 31, 1998, $350,000 on October
31, 1998 and $150,000 on January 31, 1999. The Company shall also be entitled to
an advance payment if certain threshold financing creates surplus cash flows for
HumaScan as defined in the agreement.
In connection with the agreement, commencing with the first day of the
first month in which the Licensed Product is sold and for each year through and
including the termination date October 20, 2012, the Licensee agrees to pay the
Company a royalty based on net sales as follows: three (3%) percent of the
first $2
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million of net sales increasing to ten (10%) percent of net sales in
excess of $10 million with a minimum royalty of $150,000 in the first year
increasing to $600,000 in the fifth year and thereafter.
The Company's working capital and capital requirements will depend on
numerous factors, including the level of resources that the Company devotes to
the purchase of manufacturing equipment to support start-up production and to
the marketing aspects of its products. The Company intends to construct
production facilities abroad to manufacture, market and sell the BAI to the
international market. The Company entered into an agreement with Zigmed Inc.
pursuant to which Zigmed Inc. will manufacture the production equipment needed
for manufacturing of the BAI for the contract price of $1,850,680. In August
1996, the Company paid Zigmed Inc. an advance deposit of $200,000 to begin
production of the manufacturing equipment and in September 1996 issued Zigmed
Inc. 100,000 shares of the Company's Common Stock (valued at $1.00 per share)
against the contract price. An additional $50,000 was paid in May, 1997.
On August 15, 1996, the Company entered into a license agreement with
Health Technologies International Inc. ("HTI"), whereby HTI is to assemble,
market and sell the BAI in Chile and Singapore, and pay the Company a licensing
fee of $250,000, all of which has been received as of June 30, 1997. Pursuant to
the terms of the agreement, the licensee agrees to pay the Company minimum
royalties of $100,000 in 1998 with increasing royalties leveling out at a
minimum of $400,000 in the year 2000 and thereafter. Additionally, HTI has
agreed to pay the Company a one-hundred (100%) percent mark-up on product cost
for the Company's services in operating HTI's manufacturing line. As part of the
licensing agreement, the Company received a twenty (20%) percent equity interest
in HTI.
The Company entered into an exclusive license agreement, dated September
22, 1997 with Sandell Corp. S.A. (the "Sandell Agreement"), a Uruguyan
corporation ("Sandell"), pursuant to which the Company granted to Sandell an
exclusive license to market and distribute the product in Brazil, Venezuela,
Columbia, Costa Rica, Ecuador, Nicaragua, Paraguay, Panama, Peru, Bolivia,
Argentina and Uruguay. Sandell is required to maintain operations in Uruguay's
Free Trade Zone. The Sandell Agreement is for a term of fourteen (14) years.
Under the Sandell Agreement, Sandell is to pay the Company a non-refundable
license fee of (i) $500,000 and (ii) thirty-five (35%) of the outstanding shares
of Sandell on a fully diluted basis. The cash portion of the fee is payable (i)
$100,000 upon execution of the Sandell Agreement, which was paid by Sandell
subsequent to fiscal year end (ii) $200,000 on or before April 30, 1998 and
(iii) $200,000 on or before January 30, 1999. Sandell is also required to make
minimum purchases of the BAI as follows: (i) $20,000 per month during calendar
1998, (ii) $35,000 per month during 1999, (iii) $65,000 during 2000 and (iv)
$90,000 per month during 2001 and thereafter during the term of the license.
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The Company's success is dependent on raising sufficient capital to
establish a production facility and purchase manufacturing equipment to
manufacture the BAI for the international market. The Company does not have all
the financing in place at this time, nor may it ever, to meet these objectives.
However, the Company feels payments to be received on the initial license fees,
combined with the capital raised in the July and August private placements and
proceeds from borrowing against the HumaScan Common Stock, will be more than
sufficient to cover the operations of the Company over the next twelve (12)
months. The Company believes the BAI will be commercially accepted throughout
the international market.
As stated previously, the Company has financed its operations through
private placements of its equity and debt securities and advances from the
Company's President.
In a 1994 private placement, the Company raised $246,000 through unsecured
notes. Each noteholder received 2,000 shares of the Company's Common Stock as
additional consideration for their ten (10%) percent promissory note. The
promissory notes issued in connection with these bridge loans are due in full
upon the completion of a public offering by the Company. In March 1995, the
Company offered to convert the promissory notes into shares of the Company's
Common Stock at a conversion price of $1.00 per share. $121,000 of the notes
were converted including accrued interest of $30,084.
On June 30, 1996, the Company consolidated a $288,006 note, due June 30,
1996 and a $600,000 note, due August 20, 1996 into one note for $888,006 bearing
simple interest at eight (8%) percent per year. The first payment on the note
is due December 31, 1997 and the additional payments are subsequently due per
the payment terms of the note.
ACCOUNTING STANDARDS
For information regarding certain recently promulgated accounting
standards, see Note 1 of the Notes to the Company's Consolidated Financial
Statements.
OTHER MATTERS
This FORM 10-KSB, other than historical financial information, may consist
of forward-looking statements that include risks and uncertainties, including,
but not limited to, statements contained in "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". Such
statements are based on many assumptions and are subject to risks and
uncertainties. Actual results could differ materially from the results discussed
in the forward-looking statements due to a number of factors, including, but not
limited to, those set forth under "Business - Risks and Uncertainties" in this
FORM 10-KSB.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements Attached.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None to be reported.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table and biographical outlines set forth the directors,
positions and officers within the Company presently held by each executive
officer of the Company and a brief account of the business experience of each
such director and officer for the past five years.
Positions and Officers
within the Company/
Name and Age Age Business Experience
------------ --- -------------------
Zsigmond L. Sagi, Ph.D. ....... 64 Chairman of the Board, Chief Executive
Officer and Director
Maurice Siegel, Ph.D. ......... 66 Vice President, Research and Development
and Director
Patricia B. Furness ........... 49 Vice President, Secretary and Director
Carlo Civelli ................. 47 Vice President of Finance International
Louis Gottlieb ................ 68 Vice President of Corporate Development
Paul Nelson ................... 64 Director
ZSIGMOND L. SAGI, Ph.D., has served as Chairman of the Board, Chief
Executive Officer and Chief Scientist of the Company since October, 1991. Mr.
Sagi has over 25 years experience in the health-care field and has invented or
developed several commercial medical devices and technological products. From
1968 until 1977 he served as Executive Vice President and Chief Operating
Officer of Bio-Medical Sciences, Inc., a publicly held company of which he was
one of the founders. Thereafter, he organized and managed several companies,
including Zigmed Corp., a healthcare engineering firm. In 1974, he founded BCSI
Laboratories, Inc., the company which developed the BAI. From 1986 until 1991,
Mr. Sagi served as Chairman of the Board and President of SMC Corp., a company
he founded in 1986. Mr. Sagi has been issued numerous United States and foreign
patents in the fields of healthcare, chemical applications, electronics and
mechanics, including the disposable oral thermometer, the Zigzag sewing machine,
an ambulatory automated feeding device, and a sterilization indicator. He
received his doctorate in Physics from Stevens Institute of
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Technology, Newark, New Jersey, in 1968 and his master's in mechanical
engineering at Technical University of Hungary in 1954.
MAURICE SIEGEL, Ph.D., has served as the Company's Vice President of
Research and Development since 1991. From 1989 until 1991 he served in the same
capacity with Scantek Medical Corp., the Company's predecessor. He was employed
by Faberge, Inc. from 1957 through 1987, as Director of Research and Development
from 1957 to 1996, as Vice President of Research and Development from 1966 to
1977, and last holding the position of Executive Vice President of Research and
Development from 1977 to 1987. Since 1987, Mr. Siegel has served, and continues
to serve, as a consultant to numerous companies, including Tri-Scent, Imported
Beauty Lines, Telebrands and Sun Laboratories. Mr. Siegel received a Ph.D. in
Physical and Organic Chemistry from New York University in 1957.
PATRICIA B. FURNESS, has served as the Vice President, Secretary and
Director of the Company since 1991. In addition to managing marketing, finance
and public relations for the Company, Ms. Furness is also responsible for
coordinating market research, product testing programs and Clinical Research
follow-up studies. From 1988 until 1991 she served as Vice President and
Secretary of Scantek Medical Corp., and, in 1989, was elected to its Board of
Directors. In 1987, Ms. Furness became the Manager of Corporate Development of
Zigmed, Inc., a manufacturer of automated systems for the health care industry.
Ms. Furness received a Bachelor of Science Degree in education from Appalachian
State in Boone, North Carolina in 1969.
CARLO CIVELLI, has served as Vice President of Finance International since
March 7, 1995. Since 1980, Mr. Civelli has owned Clarion Finance, A.G., a Swiss
corporation which he founded. From 1969 to 1971, Mr. Civelli was an Assistant
Vice-President with New Province Securities in Zurich, Switzerland. From 1971 to
1978, he served as Vice President of a European NYSE brokerage firm. From 1978
to 1980, Mr. Civelli was a free-lance investment advisor. Mr. Civelli is a
graduate of the College of the Swiss Mercantile Society, London.
LOUIS GOTTLIEB, has served as Vice President of Corporate Development since
August 1996. Presently, he is on the Board of Directors at Brookdale Hospital
Medical Center, Linrock Nursing Home, and First Central Financial Corp. From
1992-1995, he was treasurer and a Board Member of South Shore Association for
Independent Living. From 1973 to present, he has been CEO of the Gottlieb Group,
one of the largest 500 construction firms in the U.S. From 1942 to 1945 Mr.
Gottlieb served in the US Air Corps. as a Commissioned Lt. Fighter pilot. Mr.
Gottlieb studied civil engineering at Brooklyn Polytechnical Institute.
PAUL NELSON, has served on the Company's Board of Directors since 1991.
From 1987 until 1991, he served as a Director of Scantek Medical Corp., the
Company's Predecessor. In 1968, Mr. Nelson founded Compressed Gas, Inc., a
wholesale supplier of medical and industrial compressed gases. Although Mr.
Nelson has since sold his ownership in Compressed Gas, Inc., he has served as
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both President and Director of Compressed Gas, Inc. Mr. Nelson received a
Bachelor of Science Degree from the University of North Carolina in Chapel Hill,
North Carolina.
Compliance with 16(a) of the Securities and Exchange Act of 1934
----------------------------------------------------------------
To the Company's knowledge, based solely on a review of such materials as
are required by the Securities and Exchange Commission, no officer, director or
beneficial holder of more than ten (10%) percent of the Company's issued and
outstanding shares of Common Stock failed to timely file with the Securities and
Exchange Commission any form or report required to be so filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year
ended June 30, 1997.
ITEM 10. EXECUTIVE COMPENSATION
The following sets forth, for the fiscal years ended June 30, 1997,
1996 and 1995, the annual and long-term compensation paid or accrued of the
Company's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation --------------------------
Name and Principal ----------------------- Other Annual Long-Term
Position Year Salary Bonus Compensation Compensation
-------- ---- ------ ----- ------------ ------------
(1) (2)
Zsigmond L. Sagi 1997 $190,000 $ -- -- None
Chairman of the 1996 145,000 2,100 -- None
Board and Chief 1995 100,000 -- -- None
Executive Officer
- ----------
(1) On September 28, 1995, Mr. Sagi received 3,750,000 shares of the Company's
Common Stock in lieu of $375,000 of accrued salary through June 30, 1995.
(2) In April, 1996, Mr. Sagi received 210,000 shares of HumaScan's common
stock.
EMPLOYMENT AGREEMENTS
On February 26, 1993, Mr. Sagi and Ms. Patricia Furness each entered into
letters of employment (the "Letters of Employment") with the Company. Pursuant
to such Letters of Employment, Mr. Sagi and Ms. Furness earn annual salaries of
$100,000 and $50,000, respectively. These salaries were prorated from October 3,
1991, and were to be paid upon the completion of certain financing. On September
28, 1995, a portion of Mr. Sagi's accrued salaries were converted into shares of
the Company's Common Stock. Also on September 28, 1995, a portion of Ms.
Furness' accrued salaries were converted into shares of the Company's Common
Stock.
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In July 1996, the Company entered into agreements in principle with Mr.
Sagi and Ms. Furness. The agreements provide for base salaries of $190,000 and
$75,000, respectively. Ms. Furness' base salary was increased to $90,000
effective July 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company as
of the date of this Statement, with respect to beneficial ownership of: (i) each
person who is known by the Company to be the beneficial owner of more than five
(5%) percent of the Company's outstanding Common Stock; (ii) each of the
Company's directors and executive officers; and (iii) all officers and directors
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws, where applicable.
Name and Amount and
Title Address of Nature of Percent
of Beneficial Beneficial of Shares
Class Owner Ownership Outstanding
----- ---------- ---------- -----------
Commom SMC Corp.
Stock 19 Lockley Court
Mountain Lakes, NJ 07046 3,868,385(1) 22.46%
Common 361 Acquisition Corp.
Stock 885 W. Georgia St., Ste 1200
Vancouver, BC
Canada V6L 3E8 2,121,250(2) 12.32%
Common Zsigmond L. Sagi
Stock 19 Lockley Court
Mountain Lakes, NJ 07046 4,923,609(3)(4)(5)(6) 27.81%
Common Patricia B. Furness
Stock 25 Beechway Road
Mountain Lakes, NJ 07046 1,262,851(7)(8)(9) 7.19%
Common Paul Nelson
Stock 69 Lookout Road
Mountain Lakes, NJ 07046 127,000(10) 0.24%
Common Maurice Siegel
Stock 15 Sierra Court
Hillsdale, NJ 07642 22,500 0.13%
Common StockCarlo Civelli
Stock 19 Lockley Court
Mountain Lakes, NJ 07046 192,500(11)(12) 1.11%
Common Louis Gottlieb
Stock 20 North Central Avenue
Valley Stream, NY 11580 163,500(13) .95%
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Common All directors and executive
Stock officers as a group (consist-
ing of 6 persons) 12,681,595 69.55%
- ---------------------
(1) Includes 1,250,000 shares of the Company's Common Stock issued by the
Company to SMC Corp. on February 3, 1993, to replace shares of the
Company's Common Stock which SMC Corp. had transferred to third parties for
the benefit of the Company. (See "Certain Relationships and Related
Transactions"). Mr. Sagi owns eleven (11%) percent of SMC Corp.'s common
stock and currently serves as its President and Director.
(2) Includes 621,250 shares of the Company's Common Stock which 361 Acquisition
Corp. received as part of the 361 Acquisition Agreement. (See "Certain
Relationships and Related Transactions").
(3) Includes 3,750,000 shares of the Company's Common Stock issued to Mr. Sagi
upon conversion of an aggregate of $375,000 of accrued salaries.
(4) Does not include the 3,868,385 shares of the Company's Common Stock owned
by SMC Corp. Mr. Sagi, owner of approximately eleven (11%) percent of SMC
Corp., is the largest stockholder of Scantek. Mr. Sagi disclaims beneficial
ownership of the shares owned by SMC Corp.
(5) Does not include 45,000 shares of the Company's Common Stock owned by Mr.
Sagi's former wife, and 98,500 shares of the Company's Common Stock owned
by Mr. Sagi's children and their spouses, as to which Mr. Sagi disclaims
beneficial ownership.
(6) Includes 484,827 shares issuable to Mr. Sagi upon the exercise of options
granted on August 30, 1996 for the conversion of accrued salary to August
30, 1996.
(7) Includes 10,000 shares owned by Ms. Furness' children, as to which Ms.
Furness disclaims beneficial ownership.
(8) Includes 800,000 shares of the Company's Common Stock issued to Ms. Furness
upon conversion of an aggregate of $80,000 of accrued salaries.
(9) Includes 345,851 shares issuable to Ms. Furness upon the exercise of
options granted on August 30, 1996 for the conversion of accrued salary to
August 30, 1996 and 40,000 shares issuable to Ms. Furness upon the
exercise of options granted in August 1996.
(10) Includes 40,000 shares of the Company's Common Stock issued upon the
exercise of options granted on March 7, 1995 to such director.
(11) Includes 50,000 shares of the Company's Common Stock issued to Mr. Civelli
upon the exercise of options granted on March 7, 1995 and 142,500 shares
issuable upon the exercise of options granted October 31, 1996.
(12) Does not include the 2,121,250 shares of the Company's Common Stock owned
by 361 Acquisition Corp. Mr. Civelli is the largest stockholder of 361
Acquisition Corp. owning in excess of fifty (50%) percent of the
outstanding shares.
(13) Includes 40,000 shares of the Company's Common Stock issued upon the
exercise of options granted August 14, 1996 to Mr. Gottlieb.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) The Company has entered into an agreement dated August 25, 1996, as
amended, with Zigmed, Inc. ("Zigmed"), a company owned by Mr. Sagi's
son, pursuant to which Zigmed agreed to manufacture the production
equipment needed for the manufacturing centers for the contract price
of $1,850,680 plus 100,000 shares of the Company's Common Stock. In
August 1996, the Company paid Zigmed an advance deposit of $200,000 to
begin production of the manufacturing equipment, and in March 1997
issued Zigmed 100,000 shares of the
-24-
<PAGE>
Company's Common Stock (valued at $1.00 per share) against the
contract. An additional $50,000 was paid in May, 1997.
(b) The Company and SMC Corp. entered into various agreements with an
investment banking firm ("361") to, among other things, provide
financing for the Company in exchange for shares of Common Stock. In
exchange for terminating all prior agreements between 361 and the
Company and SMC Corp., the Company issued 621,250 shares of its Common
Stock to 361 representing services valued at approximately $78,000,
which was approved by the Board of Directors on March 7, 1995.
(c) The Company has borrowed funds from Mr. Sagi. The promissory note to
Mr. Sagi bears interest at prime plus one (1%) percent, 9 1/4% at June
30, 1997, and is payable on demand. The principal amount of the note
is $304,993 at June 30, 1997. Interest expense for the year ended June
30, 1997 was $28,212.
ITEM 13. Exhibits and Reports on Form 8-K
Page
----
(a)
1. Financial statements filed as part of this report:
Independent Auditors' Report F-1 - F-2
Consolidated Balance Sheets, June 30, 1997 and 1996 F-3
Consolidated Statements of Operations, Years Ended
June 30, 1997, 1996 and 1995, and the Period June
10, 1988 (Date of Formation) through June 30, 1997 F-4
Consolidated Statements of Stockholders' Equity
(Deficiency), Years Ended June 30, 1997, 1996 and
1995, and the Period June 10, 1988 (Date of
Formation) through June 30, 1997 F-5 - F-8
Consolidated Statements of Cash Flows, Years Ended
June 30, 1997, 1996 and 1995, and the Period June
10, 1988 (Date of Formation) through June 30, 1997 F-9 - F-10
Notes to Consolidated Financial Statements F-11 - F-24
2. Financial statement schedules filed as part of this
report:
All schedules are omitted because they are
inapplicable, not required or the information is
included in the financial statements or notes
thereto.
(b)
3. Exhibits filed as part of this report
-25-
<PAGE>
Exhibit No.:
- ------------
3.1 Certificate of Incorporation and Bylaws of the Registrant -- Incorporated
by reference to Exhibit 2.1 and 2.2 of the Company's Report on Form
10-SB/A-1 dated September 17, 1996.
3.2 Amendment to the Certificate of Incorporation filed March 31, 1997.
10.1 Private Placement Memorandum dated May 17, 1994 -- Incorporated by
Reference to Exhibit 3.1 of the Company's Report on Form 10-SB/A-1 dated
September 17, 1996.
10.2 Instrument defining shareholder rights regarding 18,000 shares of the
Company's Common Stock purchased on November 29, 1991 -- Incorporated by
Reference to Exhibit 3.2 of the Company's Report on Form 10-SB/A-1 dated
September 17, 1996.
10.3 Instruments defining shareholder rights regarding 18,000 shares of the
Company's Common Stock purchased between June and August, 1993
-- Incorporated by Reference to Exhibit 3.3 of the Company's Report on
Form 10-SB/A-1 dated September 17, 1996.
10.4 Agreement defining Bio-Life shareholders' rights regarding 35,000 shares
of the Company's Common Stock -- Incorporated by Reference to Exhibit 3.4
of the Company's Report on Form 10-SB/A-1 dated September 17, 1996.
10.5 Asset Transfer Agreement among SDSI (as SMC Acquisition Corp.), Mr. Sagi
and Scantek Medical Corp. dated August 12, 1991 -- Incorporated by
Reference to Exhibit 6.1 of the Company's Report on Form 10-SB/A-1 dated
September 17, 1996.
10.6 Letter Agreement between SMC Corp. and Zigmed Corporation dated January 8,
1991 ("Zigmed Agreement") -- Incorporated by Reference to Exhibit 6.2 of
the Company's Report on Form 10-SB/A-1 dated September 17, 1996.
10.7 Amendment to Zigmed Agreement dated August 25, 1996.
10.8 Purchase Order between SMC Corp. and Zigmed Corp. dated January 22, 1991
("Purchase Order Agreement") -- Incorporated by Reference to Exhibit 6.3
of the Company's Report on Form 10-SB/A-1 dated September 17, 1996.
10.9 Amendment to Purchase Order Agreement dated August 28, 1996.
10.10 Non-Disclosure Agreement between SMC Corp. and Zigmed Corp. dated January
7, 1990 -- Incorporated by Reference to Exhibit 6.4 of the Company's
Report on Form 10-SB/A-1 dated September 17, 1996.
10.11 Escrow Agreement among SMC Corp., 361 Acquisition Corp. and Chase Lincoln
First Bank dated August 20, 1991 -- Incorporated by Reference to Exhibit
6.5 of the Company's Report on Form 10-SB/A-1 dated September 17, 1996.
10.12 Termination Agreement among Scantek Medical Corp., Mr. Sagi, 361
Acquisition Corp., Dal Brynelsen, Douglas E. McRae and Scantek
-26-
<PAGE>
Exhibit No.:
- ------------
Medical Ltd. dated August 12, 1991 -- Incorporated by Reference to Exhibit
6.6 of the Company's Report on Form 10-SB/A-1 dated September 17, 1996.
10.13 361 Acquisition Agreement (Amendment No. 2) between SMC Corp., Mr. Sagi,
361 Acquisition Corp., Brynelsen, Scantek Medical Ltd. and Scantek
Medical, Inc. dated March 7, 1995 -- Incorporated by Reference to Exhibit
6.7 of the Company's Report on Form 10-SB/A-1 dated September 17, 1996.
10.14 HumaScan Inc. Licensing Agreement between Scantek Medical, Inc. and
HumaScan, Inc. dated October 20, 1995 -- Incorporated by Reference to
Exhibit 6.8 of the Company's Report on Form 10-SB/A-1 dated September 17,
1996.
10.15 Amendment to the HumaScan Inc. Licensing Agreement between Scantek
Medical, Inc. and HumaScan, Inc. dated April 29, 1996 -- Incorporated by
Reference to Exhibit 6.9 of the Company's Report on Form 10-SB/A-1 dated
September 17, 1996.
10.16 Lease between Scantek Medical, Inc. and Kabert Realty Corporation for
Storage and Office Space -- Incorporated by Reference to Exhibit 6.10 of
the Company's Report on Form 10-SB/A-1 dated September 17, 1996.
10.17 Lease between Scantek Medical, Inc. and Carol Yang for Office Space --
Incorporated by Reference to Exhibit 6.11 of the Company's Report on Form
10-SB/A-1 dated September 17, 1996.
10.18 Lease between Scantek Medical, Inc. and Pablito, L.L.C. for Warehouse
and Office Space dated June 13, 1997.
10.19 Letters of Employment for Mr. Zsigmond Sagi and Ms. Patricia Furness dated
February 26, 1993 -- Incorporated by Reference to Exhibit 6.12 of the
Company's Report on Form 10-SB/A-1 dated September 17, 1996.
10.20 Amendment to the HumaScan Inc. Licensing Agreement between Scantek
Medical, Inc. and HumaScan, Inc. dated May 31, 1996 -- Incorporated by
Reference to Exhibit 6.13 of the Company's Report on Form 10-SB/A-1 dated
September 17, 1996.
10.21 Licencing Agreement with Health Technologies International Inc. and
Scantek Medical Inc. dated August 15, 1996.
10.22 Amendment to Licensing Agreement dated August 15, 1996 between Health
Technologies International Inc. and Scantek Medical, Inc. dated
April 30, 1997.
10.23 Licensing Agreement with Scantek Medical, Inc. and Sandell Corp. S.A.
dated September 22, 1997.
11 A statement regarding the computation of earnings per share is omitted
because such computation can be clearly determined from the material
contained in this Annual Report on Form 10-KSB.
22 Subsidiaries of the Registrant.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
99 Reinstatement of Patent No. RE.4,624,264 United States, Extension to
November 25, 2003--dated August 12, 1997.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SCANTEK MEDICAL INC.
By: /s/ ZSIGMOND L. SAGI
-----------------------------------------
Zsigmond L. Sagi, President
Date: October 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Zsigmond L. Sagi
- ---------------------------------
Zsigmond L. Sagi
President, Chairman of the Board
and Director
/s/ Patricia B. Furness
- ---------------------------------
Patricia B. Furness
Vice President, Secretary and
Director
/s/ Paul Nelson
- ---------------------------------
Paul Nelson
Director
/s/ Maurice Siegel
- ---------------------------------
Maurice Siegel
Vice President and Director
-28-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
---------
Independent Auditors' Report .................................. F-1 - F-2
Financial Statements:
Consolidated Balance Sheets, June 30, 1997 and 1996 ......... F - 3
Consolidated Statements of Operations, Years Ended
June 30, 1997, 1996, 1995 and the Period June 10,
1988 (Date of Formation) Through June 30, 1997 ............ F - 4
Consolidated Statements of Stockholders' Equity
(Deficiency), Years Ended June 30, 1997, 1996, 1995
and the Period June 10, 1988 (Date of Formation)
Through June 30, 1997 ..................................... F-5 - F-8
Consolidated Statements of Cash Flows, Years Ended
June 30, 1997, 1996, 1995 and the Period June 10,
1988 (Date of Formation) Through June 30, 1997 ............ F-9 - F-10
Notes to Consolidated Financial Statements .................. F-11 - F-24
-F-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Scantek Medical, Inc.
We have audited the accompanying consolidated balance sheet of Scantek Medical,
Inc. and subsidiary (Development Stage Companies) (the "Company") as of June 30,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for each of the three years
ended June 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
Company's consolidated financial statements at June 30, 1994 and for the period
June 10, 1988 (Date of Formation) through June 30, 1994 were audited by other
auditors whose report, dated September 22, 1994, expressed an unqualified
opinion on those statements and included an explanatory paragraph concerning
substantial doubt about the Company's ability to continue as a going concern.
The other auditors' report has been furnished to us, and our opinion, insofar as
it relates to the amounts included for such prior periods, is based solely on
the report of such auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Scantek Medical,
Inc. and subsidiary at June 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the years ended June 30, 1997 and
for the period June 10, 1988 (Date of Formation) through June 30, 1997, in
conformity with generally accepted accounting principles.
F-1
<PAGE>
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company is a development stage
enterprise engaged in developing and ultimately manufacturing and marketing a
product that detects early breast tissue abnormalities including cancer. As more
fully explained in Note 1 of Notes to Consolidated Financial Statements, the
Company needs to obtain additional financing to fulfill its developmental
activities and achieve a level of sales adequate to support its cost structure.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Managements' plans are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties should the Company be unable to
continue as a going concern.
WIENER, PENTA & GOODMAN, P.C.
Certified Public Accountants
Eatontown, New Jersey
September 29, 1997
F-2
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
----------------------------
1997 1996
----------- -----------
Current Assets:
Cash ....................................... $ 918,393 $ 247,515
Marketable securities ...................... 6,860,371 638,832
Due from licensee .......................... 550,000 --
Prepaid expenses ........................... 70,708 --
----------- -----------
Total Current Assets ................... 8,399,472 886,347
----------- -----------
Equipment -- net ............................. 391,452 2,346
Other assets -- net .......................... 783,768 358,218
----------- -----------
TOTAL ASSETS ........................... $ 9,574,692 $ 1,246,911
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Short-term debt ............................ $ 966,000 $ 17,000
Current portion -- long-term debt .......... 350,000 --
Current portion -- deferred income ......... 2,129,082 --
Note payable to officer .................... 304,993 304,993
Accounts payable ........................... 121,901 351,279
Accrued interest ........................... 82,289 247,784
Accrued salaries ........................... 578,619 398,619
Accrued expenses ........................... 40,689 22,623
Deferred income taxes ...................... 609,000 --
----------- -----------
Total Current Liabilities ............... 5,182,573 1,342,298
----------- -----------
Deferred income .............................. -- 826,582
Long-term debt ............................... 568,006 938,006
----------- -----------
Total Liabilities ...................... 5,750,579 3,106,886
----------- -----------
Commitments and Contingencies
Stockholders' Equity (Deficiency):
Preferred stock, par value $.001
per share -- authorized 5,000,000
shares; none issued ....................... -- --
Common stock, par value $.001 per
share -- authorized 45,000,000;
outstanding 17,220,200 and 15,790,200 ..... 17,220 15,790
Additional paid-in-capital ................. 2,965,426 1,711,160
Unrealized gain on marketable
securities ................................ 5,566,615 364,500
Deficit accumulated during development
stage ..................................... (4,725,148) (3,951,425)
----------- -----------
Total Stockholders' Equity
(Deficiency) .......................... 3,824,113 (1,859,975)
----------- -----------
TOTAL LIABILITIES AND STOCK-
HOLDERS' EQUITY (DEFICIENCY) .......... $ 9,574,692 $ 1,246,911
=========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Period
June 10, 1988
(Date of
For the Years Ended June 30, Formation)
--------------------------------------------- Through
1997 1996 1995 June 30, 1997
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Income:
Interest income .......... $ 23,763 $ 212 $ 110 $ 29,712
Consulting ............... -- -- 15,000 15,000
Miscellaneous ............ 1,100 -- -- 26,100
----------- ----------- ----------- -----------
Total Income ......... 24,863 212 15,110 70,812
----------- ----------- ----------- -----------
Costs and Expenses:
General and administrative
expenses ............... 300,845 377,625 366,571 2,463,128
Amortization and
depreciation ........... 93,384 110,234 110,233 622,024
Research and
development ............ 291,013 213,311 159,693 1,231,743
Interest expense ......... 113,344 115,758 114,880 479,065
----------- ----------- ----------- -----------
Total Costs and
Expenses ............. 798,586 816,928 751,377 4,795,960
----------- ----------- ----------- -----------
Net Loss ................... $ 773,723 $ 816,716 $ 736,267 $ 4,725,148
=========== =========== =========== ===========
Loss per common share ...... $ .05 $ .06 $ .07 $ --
=========== =========== =========== ===========
Weighted average
number of common
shares outstanding ....... 16,802,145 14,214,138 10,189,513 --
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain on During the
--------------------- ---------------- Paid-In Marketable Development
Shares Amount Shares Amount Capital Securities Stage Total
---------- ------- ------ ------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original Capitalization:
Sale of stock ($.023
per share) ............... 2,000,000 $ 2,000 -- $ -- $ 44,094 $ -- $ -- $ 46,094
Issuance of
options for
services rendered
(valued at .10
per share) ............... 5,000 5,000
Net (loss)
June 10, 1988
(Date of Formation)
through June 30, 1991 .... (18,751) (18,751)
--------- ------ ------- ------- ------- --------- -------- ---------
Balance June 30, 1991 ........ 2,000,000 2,000 -- -- 49,094 -- (18,751) 32,343
.7 for 1 reverse
stock split .............. (600,000) (600) 600 --
Donated stock to
treasury ................. 500,000 -- --
Issuance of
stock to acquire
subsidiary ($.006
per share) ............... 7,100,000 7,100 -- 92,900 100,000
Sale of treasury
stock ($2.50 per
share) ................... (18,000) 45,000 45,000
Treasury stock exchanged
for services rendered
(valued at $.023
per share) ............... (433,000) 10,000 10,000
Net (loss), June 30, 1992 .. (485,314) (485,314)
---------- ------- ------ ------ ---------- ---------- ----------- ----------
Balance, June 30, 1992 ....... 8,500,000 8,500 49,000 -- 197,594 -- (504,065) (297,971)
See notes to consolidated financial statements. (Continued)
</TABLE>
F-5
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain on During the
--------------------- ---------------- Paid-In Marketable Development
Shares Amount Shares Amount Capital Securities Stage Total
---------- ------- ------ ------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Treasury stock
exchanged for
services rendered
(valued at $0.125
per share) .............. (49,000) 6,125 6,125
Issuance of stock
for professional
services rendered
(valued at $.25 to
$.50 per share) .......... 1,450,000 1,450 411,050 412,500
Issuance of stock
for contract
release (valued at
$1.00 per share) ......... 35,000 35 34,965 35,000
Net (loss), June 30, 1993 .. (924,969) (924,969)
---------- ------- ------ ------ ---------- ---------- ----------- ----------
Balance, June 30, 1993 ...... 9,985,000 9,985 -- -- 649,734 -- (1,429,034) (769,315)
Issuance of callable
warrants for
services rendered
(valued at $.125
per share) ............... 15,625 15,625
Issuance of stock
in connection
with bridge loan
financing (issued
at $1.00 per share) ...... 37,200 37 37,163 37,200
Net (loss), June 30, 1994 .. (969,408) (969,408)
---------- ------- ------ ------ ---------- ---------- ----------- ----------
Balance, June 30, 1994 ....... 10,022,200 10,022 -- -- 702,522 -- (2,398,442) (1,685,898)
See notes to consolidated financial statements. (Continued)
</TABLE>
F-6
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain on During the
--------------------- ---------------- Paid-In Marketable Development
Shares Amount Shares Amount Capital Securities Stage Total
---------- ------- ------ ------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock
in connection with
bridge loan financing
(issued at $1.00 per
share) ................... 12,000 12 11,988 12,000
Issuance of stock
for services rendered
(valued at $.125 per
share) ................... 621,250 621 77,035 77,656
Net (loss), June 30, 1995 .. (736,267) (736,267)
---------- ------- ------ ------ ---------- ---------- ----------- ----------
Balance -- June 30, 1995 .... 10,655,450 10,655 -- -- 791,545 -- (3,134,709) (2,332,509)
Issuance of stock
for accrued salaries
(valued at $.10 per
share) ................... 4,550,000 4,550 450,450 455,000
Notes payable conversions
to common stock
(at $1.00 per share) ..... 151,084 151 150,933 151,084
Issuance of stock
for services rendered
(at $.60 per share) ...... 433,666 434 273,232 273,666
Issuance of options
for services rendered
(at $.30 per share) ...... 45,000 45,000
Net unrealized gain
on marketable
securities ............... 364,500 364,500
Net (loss), June 30, 1996 .. (816,716) (816,716)
---------- ------- ------ ------ ---------- ---------- ----------- ----------
Balance -- June 30, 1996 ..... 15,790,200 15,790 -- -- 1,711,160 364,500 (3,951,425) (1,859,975)
See notes to consolidated financial statements. (Continued)
</TABLE>
F-7
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain on During the
--------------------- ---------------- Paid-In Marketable Development
Shares Amount Shares Amount Capital Securities Stage Total
---------- ------- ------ ------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock in
connection with private
placement offering
(issued at $1.00
per share) ............... 1,070,000 1,070 1,068,930 1,070,000
Issuance of stock
for professional
services rendered
(at $.167 to $1.00
per share) ............... 72,500 73 22,427 22,500
Issuance of stock in
lieu of payment on
equipment (at $1.00
per share) ............... 100,000 100 99,900 100,000
Stock options exercised
($.10 to $.375 per share) 170,000 170 27,830 28,000
Issuance of stock
for rent (at $2.01
per share) ............... 17,500 17 35,179 35,196
Net unrealized gain
on marketable
securities ............... 5,202,115 5,202,115
Net (loss) -- June 30, 1997. (773,723) (773,723)
---------- ------- ------ ------ ---------- ---------- ----------- ----------
Balance, June 30, 1997 ....... 17,220,200 $17,220 -- $ -- $2,965,426 $5,566,615 $(4,725,148) $3,824,113
========== ======= ====== ====== ========== ========== =========== ==========
See notes to consolidated financial statements.
</TABLE>
F-8
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Period
June 10, 1988
(Date of
For the Years Ended June 30, Formation)
----------------------------------------------- through
1997 1996 1995 June 30, 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $ (773,723) $ (816,716) $ (736,267) $(4,725,148)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization .......................... 93,384 110,234 110,233 622,022
Net gain on sale of marketable securities .............. (1,100) -- -- (1,100)
Non-employee stock based compensation .................. -- 318,666 77,656 845,574
Non-cash officers compensation ......................... -- 457,250 -- 457,250
Other non-cash items ................................... 157,696 54,684 24,600 271,980
Changes in operating assets and liabilities ............ (28,140) 25,615 400,042 1,651,013
----------- ----------- ----------- -----------
Net Cash Provided by (Used in) Operating
Activities ......................................... (551,883) 149,733 (123,736) (878,409)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of marketable securities .............. 22,868 -- -- 22,868
Purchases of patents ..................................... -- -- -- (76,069)
Organization costs ....................................... -- -- -- (199,672)
Purchase and deposits of equipment ....................... (394,915) -- -- (402,226)
Purchase of marketable securities ........................ (432,192) -- -- (432,192)
----------- ----------- ----------- -----------
Net Cash (Used in) Investing Activities .............. (804,239) -- -- (1,087,291)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings ................................ 966,000 17,000 60,000 1,502,006
Proceeds from officer loans ............................. -- 138,000 82,700 306,993
Repayment of officer loans .............................. -- (2,000) -- (2,000)
Repayment of notes ...................................... (37,000) (75,000) -- (112,000)
Proceeds from sale of options ........................... 28,000 -- -- 28,000
Proceeds from sale of common and treasury stock ......... 1,070,000 -- -- 1,161,094
----------- ----------- ----------- -----------
Net Cash Provided by Financing Activities ............ 2,027,000 78,000 142,700 2,884,093
----------- ----------- ----------- -----------
Net Increase in Cash ....................................... 670,878 227,733 18,964 918,393
Cash -- beginning of period ................................ 247,515 19,782 818 --
----------- ----------- ----------- -----------
Cash -- end of period ...................................... $ 918,393 $ 247,515 $ 19,782 $ 918,393
=========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
F-9
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
For the Period
June 10, 1988
(Date of
For the Years Ended June 30, Formation)
-------------------------------------------- through
1997 1996 1995 June 30, 1997
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Changes in Operating Assets
and Liabilities Consist of:
(Increase) in due from licensee ............................. $ (550,000) $ -- $ -- $ (550,000)
(Increase) in prepaid expenses .............................. (70,708) -- -- (70,708)
(Increase) in other assets .................................. (513,025) -- -- (513,025)
Increase (decrease) in accounts payable
and accrued expenses ...................................... (196,907) (416,961) 293,018 932,345
Increase in deferred income ................................. 1,302,500 450,000 100,000 1,852,500
Increase (decrease) in accrued franchise tax ................ -- (7,424) 7,024 (99)
----------- ---------- ----------- -----------
$ (28,140) $ 25,615 $ 400,042 $ 1,651,013
=========== ========== =========== ===========
Supplementary information:
Cash paid during the year for:
Interest ................................................... $ 278,838 $ 15,340 $ -- $ 294,178
=========== ========== =========== ===========
Income taxes ............................................... $ -- $ -- $ -- $ --
=========== ========== =========== ===========
Non-cash investing activities:
Debt incurred for asset transfer agreement
of patents ................................................. $ -- $ -- $ -- $ 600,000
=========== ========== =========== ===========
Acquisition of subsidiary for common stock ................... $ -- $ -- $ -- $ 100,000
=========== ========== =========== ===========
Acquisition of marketable securities in connection
with licensing agreement ................................... $ -- $ 276,582 $ -- $ 276,582
=========== ========== =========== ===========
Unrealized (gain) on marketable securities .................. $(5,202,115) $ (364,500) $ -- $(5,566,615)
=========== ========== =========== ===========
Deposit on equipment for common stock ........................ $ 100,000 $ -- $ -- $ 100,000
=========== ========== =========== ===========
Non-Cash Financing Activities:
Conversion of long-term debt to common stock ................. $ -- $ 121,000 $ -- $ 121,000
=========== ========== =========== ===========
Other Non-Cash Activities:
Conversion of accounts payable and accrued
expenses to common stock ................................... $ 57,696 $ 303,750 $ 89,656 $ 900,802
=========== ========== =========== ===========
Conversion of accounts payable to stock options .............. $ -- $ 45,000 $ -- $ 50,000
=========== ========== =========== ===========
Conversion of accounts payable to warrants ................... $ -- $ -- $ -- $ 15,625
=========== ========== =========== ===========
Conversion of accounts payable to treasury stock ............. $ -- $ -- $ -- $ 16,125
=========== ========== =========== ===========
Conversion of accrued officers salaries to
common stock ............................................... $ -- $ 457,250 $ -- $ 457,250
=========== ========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
F-10
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Scantek Medical, Inc. and subsidiary, (the "Company"), was
incorporated under the laws of the State of Delaware on June 10, 1988 and
is engaged in developing and ultimately manufacturing and marketing the
Breast Abnormality Indicator ("BAI"). The BAI is an early screening device
which can detect certain breast tissue abnormalities, including cancer.
This device has been patented and has Food and Drug Administration ("FDA")
approval for sale.
The development activities of the Company are being financed through
the sale of its common stock and debt securities. The Company's continued
existence is dependent upon its ability to obtain needed working capital
through additional equity and/or debt financing, and the commencement of
its planned operations. Management is actively seeking additional capital
to ensure the continuation of its development activities. However, there is
no assurance that additional capital will be obtained. These matters raise
substantial doubt about the ability of the Company to continue as a going
concern.
At June 30, 1997, planned principal operations have not yet commenced
and no revenue has been derived therefrom; accordingly, the Company is
considered a development stage company. There is no assurance that
commercially successful products will be developed nor that the Company
will achieve a profitable level of operations. Operations to date have been
devoted primarily to acquiring all of the necessary patents relating to the
BAI; attending a variety of medical seminars; research and development;
medical follow-up studies; pre-marketing activities; and attempting to
raise the necessary capital for the initial production. The Company has
entered into two License Agreements whereby the licensees purchased the
right to manufacture and sell the BAI in the United States of America,
Canada, their territories and possessions, Chile and Singapore. (See Note 6
of Notes to Consolidated Financial Statements).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Scantek
Medical, Inc. and its wholly-owned subsidiary (the "Company"). All
intercompany transactions have been eliminated.
USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-11
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
AMENDMENT TO CERTIFICATE OF INCORPORATION
On March 11, 1997, the Company, with the consent of the majority of
the Company's shareholders amended the Certificate of Incorporation as to
the aggregate number of common and preferred shares of stock the Company
shall have the authority to issue. A total of 50,000,000 shares (5,000,000
shares of preferred stock, par value $.001 per share and 45,000,000 shares
of common stock, par value $.001 per share) may be issued. All prior
periods presented have been restated to reflect this amendment.
MARKETABLE SECURITIES
The Company classifies its investment in equity securities, as
"available for sale", and accordingly, reflects unrealized gains, net of
deferred taxes, as a separate component of stockholders' equity
(deficiency).
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments. The Company places its temporary cash investments with high
credit quality financial institutions and by policy, in the future, will
limit the amount of credit exposure with any one financial institution.
DEPRECIATION
Equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the assets which are between 5 and 10 years.
PATENT COSTS
The costs associated with the acquisition and filings of United
States, French, English, Dutch and other patents have been capitalized. The
patents are amortized using the straight-line method over their respective
lives, not to exceed ten (10) years. The carrying value of intangible
assets is periodically reviewed by the Company and impairments are
recognized when the expected future operating cash flows to be derived from
such intangible assets is less than their carrying value.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
F-12
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
Deferred taxes are provided to reflect the tax effect of temporary
differences between financial reporting and tax basis of assets and
liabilities. The principal items giving rise to deferred taxes are certain
deferred start-up expenses which have been deducted for financial reporting
purposes which are not currently deductible for income tax purposes and
taxes on unrealized gains on marketable securities.
DEFERRED INCOME
Deferred income consists of initial payments of licensing fees and
marketable securities, valued as of the date of the licensing agreements,
received by the Company in connection with the licensing of the BAI. The
Company has substantially performed all material conditions of the
licensing agreement giving the licensee the right to manufacture and sell
the BAI. This revenue will be recognized in income when the licensees
commence operations, since substantial performance is presumed to occur at
that point.
Receivables due from the licensees are recognized upon the acceptance
of the equipment by the licensees. Prior to the acceptance of the
equipment, the amount due from the licensees will be offset against the
deferred income.
LONG-LIVED ASSETS
Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to be disposed of". This statement establishes accounting standards
for the measurement of the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets. This
Statement requires that an asset to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Long-lived assets are assessed for recoverability on an ongoing basis. In
evaluating the value and future benefits of long-lived assets, the carrying
value would be reduced by the excess, if any, of the long-lived assets over
management's estimates of the anticipated undiscounted future net cash
flows of the related asset. The adoption of this Statement did not have a
material effect on the Company's financial position or results of
operations.
F-13
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK-BASED COMPENSATION
Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
The standard encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on fair value accounting rules. The Company
has adopted the disclosure only provisions of SFAS No. 123 for pro forma
information.
RECENTLY ISSUED ACCOUNTING STANDARD
In February, 1997, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share",
which establishes new standards for computing and presenting net income per
share and replaces the standards previously found in Accounting Principles
Board Opinion No. 15, "Earnings Per Share". The Company will begin
reporting per share information according to this new standard in the
second quarter of fiscal 1998. The Company does not expect the
implementation of SFAS No. 128 regarding the restatement of prior periods
per share data to have a material effect on the Company's computation.
LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Loss per common and common equivalent share for the years ended June
30, 1997, 1996, and 1995 were computed using the weighted average number of
common shares outstanding during each year. The effect of outstanding stock
options and warrants were not considered as their effect is antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1997, the fair value of cash, amounts due from licensee,
prepaid expenses, notes payable to officer, accounts payable, accrued
interest, accrued salaries and accrued expenses approximated their carrying
values because of the short-term nature of these instruments. The fair
value of marketable securities are based on quoted market prices. It is not
practicable to estimate the fair value of the non-publicly traded long-term
debt.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances in
order to conform with the current year's presentation.
F-14
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
2. INVESTMENT IN SUBSIDIARY
On September 6, 1991, the Company acquired all of the issued and
outstanding common stock of Scantek Digital Systems, Inc. ("SDSI") in
exchange for 7,100,000 shares of the Company's common stock. The
acquisition has been accounted for as a purchase and the results of SDSI
are included in the consolidated financial statements from the date of
acquisition.
3. MARKETABLE SECURITIES
Estimated Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
-------- ---------- ---------- --------
June 30, 1997:
Equities:
Common stock (1) .... $684,756 $6,860,371 $6,175,615 $ --
======== ========== ========== ======
June 30, 1996:
Equities:
Common stock (1) .... $274,332 $ 638,832 $ 364,500 $ --
======== ========== ========== ======
----------
(1) Includes 779,063 shares of Humascan, Inc. ("Humascan"), common
stock at a cost of $274,332.
Gross realized gains in 1997 were $1,100. There were no realized gains
or losses in 1996.
4. EQUIPMENT
June 30,
--------------------------
1997 1996
---------- ----------
Equipment ................................ $ 48,914 $ 4,000
Furniture and fixtures ................... 9,462 9,462
Deposit on equipment ..................... 350,000 --
---------- ----------
408,376 13,462
Less accumulated depreciation ............ 16,924 11,116
---------- ----------
$ 391,452 $ 2,346
========== ==========
5. OTHER ASSETS
June 30,
--------------------------
1997 1996
---------- ----------
Patent costs ............................. $ 676,069 $ 676,069
Organization costs ....................... -- 199,672
Long-term portion of amount
due from licensee ...................... 500,000 --
Security deposits ........................ 13,125 --
---------- ----------
1,189,194 875,741
Less accumulated amortization ............ 405,426 517,523
---------- ----------
$ 783,768 $ 358,218
========== ==========
F-15
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
6. LICENSE AGREEMENTS
a). On May 31, 1996, the Company entered into an Amended License
Agreement with Humascan, Inc. ("Humascan" or "Licensee"), amending the
October 20, 1995 License Agreement whereby Humascan purchased the right to
manufacture and sell the BAI in the United States and Canada and their
respective territories and possessions. The terms of the agreement require
Humascan to pay the Company a licensing fee of $1,600,000, $550,000 of
which has been received as of June 30, 1997 and the issuance to the Company
1,004,063 shares (after a three for four stock split) of the outstanding
common stock of Humascan. The amount receivable in the amount of $1,050,000
from the licensing fee from Humascan is payable to the Company (subject to
acceptance of various equipment installations by Humascan)as follows:
$300,000 is due immediately as the patents for the BAI have been extended
to 2003, $75,000 is payable on December 31, 1997, $175,000 on March 31,
1998, $350,000 on October 31, 1998 and $150,000 on January 31, 1999. The
Company shall also be entitled to an advance payment if certain threshold
financing creates surplus cash flows for Humascan as defined in the
agreement.
In connection with the agreement, commencing with the first day of the
first month in which the Licensed Product is sold and for each year through
and including the termination date of October 20, 2012, the Licensee agrees
to pay the Company a royalty based on net sales as follows: three (3%)
percent of the first $2 million of net sales increasing to ten (10%)
percent of net sales in excess of $10 million with a minimum royalty of
$150,000 in the first year increasing to $600,000 in the fifth year and
thereafter. In addition, the agreement will automatically terminate if the
aggregate earned royalties for the first three years the product is sold do
not exceed $950,000.
Humascan entered into an agreement with Zigmed Corporation ("Zigmed")
for the manufacture of equipment necessary for the production of the BAI.
Zigmed is owned and controlled by the son of Mr. Zsigmond Sagi, the
President, Chairman of the Board and Chief Executive Officer of the Company
("Sagi"), who prior to 1990, owned Zigmed. As of this date, Humascan has
accepted the equipment but distribution of the BAI will not commence until
the latter part of 1997.
The Company has delivered to the Licensee a detailed description of
the production procedures necessary for the production of the Licensed
Product. The Company and the Licensee have agreed to the cost of production
of each pair of the Licensed Product sold during any two consecutive
quarters in which at least 500,000 units are produced for sale. If such
cost exceeds $2.25 per unit, then the royalty payments owing with respect
to such period shall be reduced by such cost overruns.
F-16
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
6. LICENSE AGREEMENT (Continued)
(b) On August 15, 1996, and as amended on April 30, 1997, the Company
entered into a license agreement with Health Technologies International,
Inc., ("HTI"), whereby, HTI is to assemble, market and sell the BAI
in Chile and Singapore, and pay the Company a licensing fee of $250,000,
which has been received as of June 30, 1997. The licensing fee will be
recognized in income when the licensee commences operations.
Pursuant to the terms of the agreement, HTI agrees to pay the Company
minimum royalties of $100,000 in 1998 increasing to a minimum of $400,000
in the year 2000 and thereafter. Additionally, HTI has agreed to pay the
Company a fee equal to 100% of the unit cost of production for overseeing
the production process. Additionally, the Company received a twenty (20%)
percent equity interest in HTI.
7. DEBT
Short-term debt at June 30, is as follows:
1997 1996
-------- --------
Unsecured note, interest at 6%
per year. This note was repaid
on December 12, 1996 (1) ..................... $ -- $ 17,000
Secured margin loan, due on demand
if Humascan common stock falls below
$5 per share, margin interest rates
vary based upon debt range ($8.75%
at June 30, 1997). This loan is secured
by 779,063 shares of Humascan
common stock. ................................ 966,000 --
-------- --------
$966,000 $ 17,000
======== ========
Long-term debt at June 30, is as follows:
1997 1996
-------- --------
Unsecured notes, due upon
completion of a secondary
public offering, interest at
10% per year (2) ............................. $ 30,000 $ 50,000
Unsecured note, interest at 8%
per year, due December 31,
1999 (3) ..................................... 888,006 888,006
-------- --------
918,006 938,006
Current portion of long-term debt .............. 350,000 --
-------- --------
$568,006 $938,006
======== ========
F-17
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
7. DEBT (Continued)
Annual maturities on long-term debt as of June 30, 1997 during the
next five years are:
1998 ........................ $350,000
1999 ........................ 568,006
2000 ........................ --
2001 ........................ --
2002 ........................ --
--------
$918,006
========
----------
(1) The holder of the note is Clarion Finanz, AG (a foreign company)
controlled by Carlo Civelli, the Company's Vice-President of Finance
International.
(2) Each noteholder received shares of the Company's common stock, 49,200
shares in total, as additional consideration for their 10% interest
promissory note. This resulted in additional interest expense in the
amount of $49,200 that was amortized over the expected life of the
promissory notes, twenty-one (21) months through March 31, 1996. The
promissory notes issued in connection with these bridge loans are due
in full upon the completion of a public offering by the Company. In
March, 1996, the Company offered a one-time option to convert the
promissory notes into shares of the Company's common stock at a
conversion price of $1.00 per share. $121,000 of the notes were
converted including accrued interest of $30,084.
An officer of the Company is owed $10,000 at June 30, 1997 and 1996
and received 2,000 shares of the Company's common stock under the
terms of this note agreement. Accrued interest at June 30, 1997 and
1996 was $3,292 and $2,292, respectively.
In March 1996, a director of the Company converted his note and
accrued interest in the amount of $12,500 for 12,500 shares of the
Company's common stock. Additionally, the director received 2,000
shares of the Company's common stock.
(3) On June 30, 1996, the Company consolidated the $288,006 note, due June
30, 1996 and the $600,000 note, due August 20, 1996 into one note for
$888,006 bearing simple interest at eight (8%) percent per year. The
holder of the note is a corporation controlled by Mr. Sagi. Accrued
interest at June 30, 1997 and 1996 was $35,520 and $168,806,
respectively. Interest expense for the fiscal years ended June 30,
1997, 1996, 1995 and for the period June 10, 1988 (Date of Formation)
through June 30, 1997 amounted to $71,040, $47,280, $47,281 and
$239,846, respectively.
F-18
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
8. INCOME TAXES
At June 30, 1997, the Company has a net operating loss ("NOL")
carryforward of approximately $4,725,000 for financial reporting purposes
and approximately $1,902,000 for tax purposes. The difference between
financial reporting and tax purposes results from the temporary difference
caused by the capitalization of start-up expenditures for tax purposes
required by Internal Revenue Code Section 195 and the net unrealized gain
on marketable securities. The Company has not reflected any benefit of such
net operating loss carryforwards in the accompanying financial statements
in accordance with Financial Accounting Standards Board Statement No. 109
as the realization of this deferred tax benefit is not more than likely.
The tax NOL carryforwards expire in the years 2005 through 2010.
The types of temporary differences between the tax basis of assets and
liabilities and their financial reporting amounts that give rise to a
deferred tax asset and deferred tax liability and their approximate tax
effects are:
June 30,
----------------------------------------------------
1997 1996
------------------------- -----------------------
Temporary Tax Temporary Tax
Difference Effect Difference Effect
----------- ----------- ----------- ----------
Net operating
loss carryforward .. $(1,902,000) $ (761,000) $(1,467,000) $ (587,000)
Deferred start-up
expenses ........... (2,751,000) (1,100,000) (2,484,000) (994,000)
Unrealized gains
on marketable
securities ......... 6,176,000 2,470,000 364,000 146,000
Valuation allowance . -- -- 3,587,000 1,435,000
----------- ----------- ----------- ----------
$ 1,523,000 $ 609,000 $ -- $ --
=========== =========== =========== ==========
9. STOCKS, WARRANTS AND OPTIONS
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for
the stock options awarded. Had compensation cost for the Company's issuing
of stock options and warrants been determined based on the fair value at
the grant date for awards in fiscal year ended 1997 consistent with the
provision of SFAS No. 123, the Company's net loss and net loss per share
would have increased to the pro-forma amounts indicated below:
Net loss -- as reported ......................... $ 773,723
Net loss -- pro-forma ........................... $ 954,530
Loss per share -- as reported ................... $.05
Loss per share -- pro-forma ..................... $.06
F-19
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
9. STOCKS, WARRANTS AND OPTIONS (Continued)
The fair value of options and warrants are estimated on the date of
grant using the Black-Scholes option pricing method with the following
weighted average assumptions issued for grants in 1997: dividend yield of
-0-%, expected volatility of 188% to 252%, risk free interest rate of 5.88%
and expected lives of 2 years.
The Company grants stock options and warrants as follows:
(a) On March 7, 1995, the Company established a Non-Qualified Stock
Option Plan (the "Plan") which provides for the granting to key employees
stock options. The Plan provides for the issuance of up to 500,000 shares,
none of which have been registered. No shares have been granted as of June
30, 1997.
(b) On March 7, 1995, the Company established a Stock Grant Program
which provides for the granting to key employees common stock of the
Company. The Stock Grant Program provides for the issuance of up to 500,000
shares, none of which have been registered. No shares have been granted as
of June 30, 1997.
(c) The following options were granted outside the two March 7, 1995
Plans:
On March 7, 1995, the Company granted options to three outside
directors totalling 40,000 shares each (120,000 shares) at an option price
of $.10 per share, the fair value at the date of grant. As of June 30,
1997, 80,000 shares were exercised and 40,000 shares were cancelled.
On March 7, 1995, the Company granted options to purchase 50,000
shares of the Company's common stock at an option price of $.10 per share,
the fair value at the date of grant, to the Company's Vice-President of
Finance International. In May, 1997, 50,000 shares were exercised.
On October 31, 1996, the Company granted the Company's Vice President
of Finance International warrants to purchase 142,500 shares of the
Company's common stock at an option price of $1.0625 per share, the fair
value at the date of grant, for professional services rendered. The
warrants expire October 30, 2000.
On February 2, 1996, the Company granted its attorney an option to
purchase 150,000 shares of common stock in exchange for $45,000 of
professional services rendered. The option is exercisable, at any time,
through January 2, 1999 at an option price of $.625 per share, the fair
value at the date of grant.
On August 14, 1996, the Company granted options to the Company's
President and Chief Executive Officer to purchase up to 484,827 shares of
the Company's common stock at an option price of $.375 per share, the fair
value at the date of grant, for the conversion of accrued salaries to
August 30, 1996 in the amount of $129,694. The options expire August 30,
1999.
F-20
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
9. STOCKS, WARRANTS AND OPTIONS (Continued)
On August 14, 1996, the Company granted options to the Company's Vice
President and Secretary to purchase 345,851 shares of the Company's common
stock at an option price of $.375 per share, the fair value at the date of
grant, for the conversion of accrued salary to August 30, 1996 in the
amount of $181,810. The options expire August 30, 1999. Additionally, the
Company granted an option to purchase 40,000 shares to the Company's Vice
President and Secretary at an option price of $.375 per share. The options
expire August 13, 2001.
On August 14, 1996, the Company granted options to purchase 40,000
shares of the Company's common stock at an option price of $.375 per share,
the fair value at the date of grant, to the Company's Vice-President of
Corporate Development. In March, 1997, 40,000 shares were exercised.
Information regarding the Company's Stock Option Plans, for fiscal
years ended 1997, 1996 and 1995 is as follows:
1997 1996 1995
-------------------- ------------------- -------
Weighted Weighted
Average Average
Exercised Exercised
Shares Price Shares Price Shares
--------- --------- ------- ---------- -------
Options
outstanding,
beginning of
year ................... 330,000 $.33 305,000 $2.50 175,000
Options
exercised .............. (170,000) .17 -- -- --
Options
granted ................ 1,053,178 .47 150,000 .63 170,000
Options
cancelled .............. (50,000) .01 (125,000) 6.00 (40,000)
--------- ---- ------- ----- -------
Options
outstanding,
end of year ............ 1,163,178 $.49 330,000 $ .33 305,000
========= ==== ======= ===== =======
Option price
range at end
of year ................ $.01 to $1.06 $.01 to $6.00 $.01 to $6.00
Option price range
for exercised
shares ................. $.10 to $ .38 $ -- $ --
Options available
for grant .............. 1,000,000 2,053,178 1,150,000
Weighted average
fair value of
options granted
during the year ........ $.42 $.55
F-21
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
9. STOCKS, WARRANTS AND OPTIONS (Continued)
The following table summarizes information about fixed-price stock
options outstanding at June 30, 1997:
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at June 30, Contractual Exercise at June 30, Exercise
Prices 1997 Life Price 1997 Price
- ------------- ----------- ----------- -------- ----------- --------
$.38 to $.625 1,020,678 2 $ .41 1,020,678 $ .41
$1.0625 142,500 3 $1.0625 142,500 $1.0625
--------- ---------
1,163,178 1,163,178
========= =========
10. RELATED PARTY TRANSACTIONS
The note payable to officer represents loans made to the Company by Mr.
Sagi. The promissory note bears interest at prime plus one (1%) percent, 9
1/4%, at June 30, 1997, and is payable on demand. The principal amount of
the note is $304,993 at June 30, 1997 and 1996. Included in accrued
interest is $28,212 and $66,712 at June 30, 1997 and 1996, respectively.
Interest expense for the fiscal years ended June 30, 1997, 1996, 1995 and
for the period June 10, 1988 (Date of Formation) through June 30, 1997
amounted to $28,212, $22,365, $16,899 and $94,924, respectively.
On February 3, 1993, 1,250,000 shares of common stock was issued to SMC
Corp. SMC Corp. is the Company's largest shareholder and has the same
President and Chief Executive Officer as the Company. The 1,250,000 shares
represent replacement of shares delivered by SMC Corp. to third parties
for professional services performed on behalf of the Company in the amount
of approximately $312,500.
11. OTHER TRANSACTIONS AND AGREEMENTS
The Company and SMC Corp. entered into various agreements with an
investment banking firm ("361") to, among other things, provide financing
for the Company in exchange for shares of the Company's common stock. In
exchange for terminating all prior agreements between 361 and the Company
and SMC, the Company issued 621,250 shares of its common stock to 361
representing services valued at approximately $78,000, which was approved
by the Board of Directors on March 7, 1995.
12. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office and warehousing facilities. Certain of these
leases require the Company to pay certain executory costs (such as
insurance and maintenance). In June, 1997 the Company signed a three (3)
year lease for office and warehouse space in Denville, New Jersey.
F-22
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
12. COMMITMENTS AND CONTINGENCIES (Continued)
Future minimum lease payments for operating leases are as follows:
Year Ending June 30,
--------------------
1998 ............................ $ 69,150
1999 ............................ 54,250
2000 ............................ 56,000
2001 ............................ --
2002 ............................ --
Thereafter ...................... --
--------
$179,400
========
RENT EXPENSE
Rent expense for the years ended June 30, 1997, 1996, 1995 and from
June 10, 1988 (Date of Formation) through June 30, 1997 was approximately
$43,000, $36,000, $42,000 and $212,000, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment contracts in principle with
the two officers/directors of the Company.
The agreements all provide the following: base salaries increasing
upon certain conditions, incentive bonus plans and severance benefits. The
agreements also provide for the issuance of Humascan common stock owned by
the Company as a form of additional compensation. In April, 1996, the
Company issued to Mr. Sagi and the Company's Secretary, a total of 225,000
shares of Humascan common stock valued at $2,250 based upon a fair market
value of $.01 per share on the date of issuance.
PRODUCTION AGREEMENTS
The Company intends to construct strategic regional manufacturing
centers abroad to manufacture, assemble and market the BAI. The Company has
entered into an amended agreement with Zigmed pursuant to which Zigmed will
manufacture the production equipment needed for the manufacturing centers
for the contract price of $1,850,680 plus 100,000 shares of the Company's
common stock. In August 1996, the Company paid Zigmed an advance deposit of
$200,000 to begin production of the manufacturing equipment, and in March,
1997 issued Zigmed 100,000 shares of the Company's common stock (valued at
$1.00 per share) against the contract. An additional $50,000 was paid in
May, 1997. (See Note 6 of Notes to Consolidated Financial Statements for
Further Information).
F-23
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND FOR THE PERIOD
JUNE 10, 1988 (DATE OF FORMATION) THROUGH JUNE 30, 1997
13. SUBSEQUENT EVENT
On September 22, 1997, the Company entered into an agreement with
Sandell Corp., S.A., (an Uruguayan corporation), ("Sandell") to license the
BAI to substantially all the countries in South America. The Company will
receive an initial licensing fee of $500,000 payable in three installments
before January 30, 1999. Sandell will be required to make minimum monthly
purchases of $20,000 in 1998 increasing to a minimum of $90,000 in the year
2001 and thereafter of the BAI. The agreement has a duration of fourteen
(14) years. As part of the licensing agreement, the Company will receive an
equity interest in Sandell of approximately thirty-five (35%) percent.
F-24
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATION
FILED 11:30 AM 03/31/1997
971103051 - 2163442
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
SCANTER MEDICAL, INC.,
a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the directors and holders of a majority of the issued and
outstanding and shares of the Scantek Medical, Inc. consented in writing to the
resolution set forth below pursuant to sections 242 and 228 of the General
corporation Law of the state of Delaware and pursuant to the requirements of
section 228 prompt written notice of said resolution was supplied to the
stockholders who did not consent in writing to the resolution. The resolution to
which written consent was given by holders of a majority of the issued and
outstanding Shares of Common Stock of the corporation is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "FOURTH" so that as
amended said Article shall be and read as follows:
"The aggregate number of shares of stock which the corporation shall have
authority to issue is fifty million, which are divided into five million
shares of Preferred stock of a par value of one mill ($0.001) each and
forty five-million shares of Common Stock a par value of one mill ($0.001)
each, which shares of stock may be issued from time to time in one or more
classes or one or more series within any class thereof, in any manner
permitted by law, as determined from time to time by the board of
directors, and stated in the resolution or resolution providing for the
Issuance of such shares adopted by the board of directors pursuant to
authority hereby vested in it, each class or series to be appropriately
designated, prior to the issuance of any shares thereof, by some
distinguishing letter, number, designation or title. All shares of stock in
such classes or series may be issued for such consideration and have
<PAGE>
such voting powers, full or limited, or no voting powers, and shall have
such designations, preferences and relative, participating, optional, or
other special rights, and qualifications, limitations or restrictions
thereof, permitted by law, as shall be stated and expressed in the
resolution or resolutions, providing for the issuance of such shares
adopted by the board of directors pursuant to authority hereby vested in
it. The number of shares of stock of any class or series within any class,
so set forth in such resolution or resolutions may be increased (but not
above the total number of authorized shares of the class) or decreased (but
not below the number of shares thereof then outstanding by further
resolution or resolutions adopted by the board of directors pursuant to
authority hereby vested in it."
SECOND: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said Scantek Medical, Inc. has caused this certificate to be
signed by
Zsigmond Sagi, its President, and Patricia Bartlett Furness, its Secretary, this
l1th day of March, 1997.
By:
---------------------------
President
Attest:
-----------------------------
Secretary
SCANTEK MEDICAL INC.
- ------------------------------------------------------------------------------
26 MERRY LANE - E. HANOVER, NJ 07936 - TEL#: 201-331-1766, FAX#: 201-331-1821
August 28, 1996
zsigmond G. Sagi, President
zigmed, Inc.
26 Merry Lane
East Hanover, New Jersey 07936
Dear Mr. Sagi:
Please consider this revised and amended letter as our purchase order
canceling our January 22, 1991. As per our discussion on the revised purchase
price, I have signed the Amended Contractual Arrangement dated August 25, 1996.
You are to provide all tools, supervision, materials, machinery, etc.
to produce the following automatic machinery:
One (1) -- Sensor Manufacturing Machine
One (1) -- Assembly and Packaging Machine
This machinery is to be produced as per Scantek/Zigmed joint specifications
and drawings dated 1-8-91. (Any additional drawings in Scantek position will be
forwarded to Zigmed under separate cover).
The machinery is to be produced as per Zigmed proposal #1035 at a price of
$1,850,680($US). Delivery of the equipment is 10 to 12 months.
New terms of payment are as follows:
1) 100,000 shares of Scantek Common Stock
2) 10.8% $200,000 of purchase price with this letter.
3) 40.2% $743,847 of purchase price at 60% completion of construction
4) 30.0% $555,204 of purchase price at completion of construction
5) 10.0% $185,068 of purchase price at time of delivery
6) 9.0% $166,561 of purchase price 30 days after delivery
We are looking forward to the completion of this project. The new payment
schedule agreed upon should meet your needs and Scantek financial goals.
Sincerely,
Zsigmond L. Sagi
President
HEALTH TECHNOLOGIES INTERNATIONAL, INC.
163 South Street
Hackensack, New Jersey 07601
(201 ) 457-1221
(201) 457-1331 (Facsimile)
April 29, 1997
Zsigmond Sagi
Chief Executive Officer
Scantek Medical, Inc.
19 Longley Court
Mountain Lakes, N.J.
RE: License Extension
Dear Mr. Sagi:
This letter agreement sets forth the mutual understanding of Scantek
Medical, Inc. ("Scantek") and Health Technologies International, Inc.
("Licensee") with respect to a certain previously executed license granting the
Licensee exclusive use of the BTAI, and improvements thereto, in Chile and
Singapore. Since both Scantek and the Licensee deem it in their best interest to
extend and modify the License, the License Agreement is hereby amended and it is
the mutual understanding of the parties that:
1) The License continues to remain in full force and effect;
2) The $250,000 license fee referred to in Section 3A of the License
Agreement must be paid not later than:
A) $50,000 upon execution of this Amendment; and
B) $200,000 on or before May 15,1997.
3) All other terms and conditions of the License Agreement remain in
effect, except as they should reasonably be modified to conform with the change
in the above dates.
If your understanding is the same as ours, please sign below to indicate
Scantek's acceptance of these amended terms, your authority to so execute, and
to acknowledge receipt and sufficiency of ten dollars paid in hand, as well as
other good and valuable consideration, including the mutual promises exchanged
hereby.
Yours truly, REVIEWED, AGREED TO AND ACCEPTED
this 30th day of April, 1997
HEALTH TECHNOLOGIES SCANTEK MEDICAL, Inc.
INTERNATIONAL, INC.
BY:___________________________ BY:___________________________
ROGER L. FIDLER ZSIGMOND SAGI
PRESIDENT PRESIDENT
LICENSING AGREEMENT
BETWEEN
SCANTEK MEDICAL, INC.
AND
HEALTH TECHNOLOGIES INTERNATIONAL, INC.
THIS AGREEMENT is made this 15th day of August, 1996 by and between Scantek
Medical, Inc. (the "Licensor"), a Delaware corporation having its principal
place of business at 19 Lockley Court, Mountain Lakes, New Jersey 07046, and
Health Technologies International, Inc., (the "Licensee"), a New Jersey
corporation having its principal place of business at 400 Grove Street, Glen
Rock, New Jersey 07452, with reference to the following facts and upon the
following terms and conditions:
WHEREAS, Certain technology having been the object of Letters Patent of the
United States (the "Patent Rights") set forth on Exhibit A which have been
assigned to the Licensor along with numerous patents obtained on the same
technology in countries other than the United States; and
WHEREAS, Licensee is desirous of obtaining, for itself and its Affiliates,
an exclusive license to use said Patent Rights, Technical Information and
Know-How, defined below, to assemble certain devices described on Exhibit B
hereto (the "Licensed Devices") and to sell and use the Licensed Devices in the
Territory, defined below; and
WHEREAS, Licensor is willing to grant such rights to Licensee on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises, which are
hereby incorporated as part of this Agreement, and the mutual covenants herein
contained, the parties hereto agree as follows:
1. DEFINITIONS
The following terms as used in this Agreement shall, unless clearly
indicated otherwise, have the following meanings:
A. "Territory" shall mean the countries of Chile and Singapore.
B. "Licensed Devices" shall mean the BTAI Devices described on Exhibit B to
be marketed by the Licensee in the Territory and all improvements thereto.
<PAGE>
C. "Affiliate" shall mean any company, Twenty percent (20%) or more whose
voting stock is owned or controlled directly or indirectly, by a party to this
Agreement and any company which owns or controls, directly or indirectly Twenty
percent (20%) or more voting stock of a party to this Agreement.
D. "Minimum Net Sales" shall mean the Minimum Net Sales specified on
Exhibit D which Licensee is required to maintain in each country there listed.
E. "Net Sales" shall mean the gross amount invoiced for the Licensed
Devices less all credits or allowances granted on account of rejection, returns,
billing errors, duties, taxes and other governmental charges.
F. "Technical Information and Know-How" shall mean all information
belonging to Licensor or in Licensor's possession which is necessary for the
assembly, marketing and use of the Licensed Devises including, inter alia,
written assembly directions, quality control specifications and procedures used
in connection therewith and information and data regarding the clinical use of
the Licensed Devices, and also information utilized by Licensor in obtaining
governmental approvals for the sale of the Licensed Devices.
G. "Minimum Royalty" shall mean the minimum royalty which must be paid by
the Licensee to Licensor during each Contract Year hereunder.
H. "Percentage Royalty" shall mean a royalty equal to fifteen percent of
Net Sale of Licensed Devises during each Contract Year by Licensee.
I. "Contract Year" shall mean each year during the term of this Agreement
commencing on an anniversary of the date hereof and ending on the day
immediately preceding the next such anniversary.
2. EXCLUSIVE LICENSE
Subject to the Licensee's compliance with the terms hereof, the Licensor
hereby grants to the Licensee during the term hereof, a non-assignable,
indivisible, non-transferable exclusive right and license in and only within the
Territory, to assemble, use, and sell the Licensed Device containing the Patent
Rights (including all patents issuing upon any of such patent applications) and
the Technical Information and Know-how. However, the Licensee shall have no
power to grant sublicenses with respect to this License. The Territory covered
by the exclusive license may be expanded only with the express written consent
of the Licensor.
2
<PAGE>
3. ROYALTIES AND LICENSE FEE
A. In addition to any royalties specified below, and solely as
consideration for Licensor's entry into this Agreement, the Licensee shall pay
to the Licensor a non-refundable License Fee of Two Hundred Fifty Thousand
Dollars ($250,000) to be paid as follows:
i) $75,000 on or before January 31, 1997; and,
ii) $175,000 on or before September 31, 1997, unless
iii) Zigmed, Inc. ("Zigmed") is unable to supply the manufacturing
line even though Licensee has made payment. If such non-delivery occurs
then the payment of the license fee shall not required until six months
after the actual delivery of a manufacturing line to Licensee meeting all
operating specifications.
B. Licensee shall pay to Licensor, in United States currency, the greater
of (i) Percentage Royalties equal to fifteen percent of Net Sales of Licensed
Devices by Licensee in the Territory during each Contract Year during the term
of the Agreement, provided that under no circumstance shall the percentage
royalty be less than $1.00 per Unit (Unit meaning one pair of the licensed
device); or (ii) guaranteed Minimum Royalties ("Minimum Royalties") equal to the
amounts for each Contract Year indicated on Exhibit E hereto.
C. Within thirty (30) days of each calendar quarter during the term of this
Agreement, Licensee shall deliver to Licensor a full, accurate and complete
written statement, setting forth the following:
(i) the aggregate Net Sales of Licensed Devices sold by and on behalf
of Licensee during the three-month period ended on the 30th day of the
immediately preceding June, September, December or March, as the case may
be;
(ii) the amount of Percentage Royalties due to the Licensor from
Licensee for such three month period; and
(iii) such other information as Licensor shall reasonably request.
D. All reports required by subsection 3.C. shall be accompanied by payment
to Licensor by Licensee of royalties as follows:
(i) with respect to each quarterly period, the greater of (A)the
Percentage Royalties payable with respect to Net Sales of Licensed Devices
during such quarter or (B) one-quarter of the Minimum Royalties payable for
the Contract Year of which such
3
<PAGE>
three-month period is a part; and
E. Within thirty (30) days after each calendar year, Licensee shall deliver
to Licensor a full, accurate and complete written statement, certified to be
correct by Licensee's auditors, setting forth the following:
(i) the aggregate sales of Licensed Devices by and on behalf of
Licensee and canceled sales for the twelve-month period ending on the
immediately preceding December 30;
(ii) the amount of royalties due (whether or not paid by Licensee to
Licensor prior to the date of such statement) to Licensor from Licensee on
account of the sales (on a country-by country basis) of Licensed Devices
during the twelve-month period ending on the immediately preceding
December; and
(iii) all other information necessary to compute the amount of
royalties referred to in Clause D(i) above and such other information as
the Licensor shall reasonably request.
F. Licensee shall maintain true, complete and correct books and records of
all transactions within the scope of this Agreement, in accordance with
generally accepted accounting principles, to enable Licensor to readily
ascertain all amounts payable hereunder and the information to be set forth in
the statements required by this Section 3. Licensor, its agents or
representatives, shall have the right, during Licensee's normal business hours,
at anytime and from time to time during the term of this Agreement and for a
period of two years thereafter, to inspect, examine and copy all or any part or
parts of such books and records and all other documents and materials (at
Licensor's expense), relating to the transactions contemplated by this
Agreement. All such books and records shall be kept available by Licensee for at
least two years after the termination of this Agreement. (However, Licensee
shall be free to destroy any material more than six (6) years old.
G. All license and royalty payments shall be made in United States Dollars
by Licensee to Licensor without deduction for any Federal, local or foreign
withholding taxes of any kind or nature whatsoever, except taxes or levies
specifically required by any government of the Territory to be withheld on
royalties, in which event Licensee shall furnish to Licensor at the time of
payment of royalties hereunder all appropriate official receipts and reporting
forms therefor. All royalty payments which are not paid when due shall bear
interest from the due date of such payments until paid at the then current prime
rate of Citibank. The amount of the royalty and license fees ("Fees") due and
payable in United States Dollars shall be computed by converting the Fees which
are to be initially fixed by applying the appropriate percentages to the Net
Sales, as defined hereinabove, at the rate set forth in the Wall Street Journal
for the required conversion on the date said Fees are due.
4
<PAGE>
H. In the event that at any time during the term of this Agreement the
consumer price index (or similar or parallel index or statistical measure as may
be in effect from time to time in the Territory) compiled by the agency or
department of the national government of the Territory responsible under law,
rule or regulation of the Territory for compiling such index or statistical
measure (hereinafter called the "CPI") shall be increased by 10%, or any
multiple of 10%, over the index base in effect on the date hereof, then the
amount of Minimum Royalties set forth in Exhibit E hereto and the amount of
Minimum Net Sales set forth in Exhibit D hereof shall be increased by 10% for
each such 10% increase in the CPI. Such increase, however, shall terminate in
the event the CPI shall fall below the point at which an increase was required.
The date for determining whether the CPI shall have increased sufficiently to
require an increase in Minimum Royalties and minimum Net Sales for the following
Contract Year shall be each January during the term of this Agreement. In the
event that there shall be any substantial change in the construction of the CH
at any future time, or if there shall be any change in the title or designation
thereof, the succeeding price index shall be substituted for the CPI, with due
adjustment for such changes in the construction of such index as may be required
to achieve the adjustment of Minimum Royalties and Minimum Net Sales herein
contemplated. In the event of any dispute between the parties as to the nature
or extent of adjustments to such succeeding price index, the dispute shall be
submitted to the governmental agency or department responsible for compiling the
index, or, if such agency or department shall refuse to settle such dispute, to
a qualified statistician or economist agreed upon by both parties hereto, or if
the parties cannot so agree, to a qualified statistician or economist appointed
by a justice of the Supreme Court of the State of New York. Any such
determination shall be conclusive and binding on the parties hereto.
I. Receipt or acceptance by Licensor of any documents or reports furnished,
or of any amounts paid, pursuant to this Agreement shall not preclude Licensor
from questioning the correctness of any or all such documents, reports and
amounts at any time. In the event that such inspection or examination shall
disclose an underpayment of two (2%) percent or more of the total amount payable
to Licensor for any three-month period for which royalties were required to be
paid hereunder, then the expenses incurred by Licensor, its agents and
representatives in connection with such inspection or examination shall be borne
by Licensee.
J. Licensee shall sell to Licensor 400,000 shares of its Common Stock,
representing 20% of the total issued and outstanding Common Stock of the
Licensee as at the date of this agreement, for
5
<PAGE>
the sum of $40.00 ($.0001 per share). Under no circumstance however shall
Licensor's Common Stock position be diluted to less than 15% of the issued and
outstanding Common Stock of the company. In any event, Licensor shall receive at
nominal cost warrants to purchase sufficient shares of Common Stock to maintain
its 20% ownership, such warrants shall allow the purchase of such additional
shares at $2.25 per share for five years from the date of issuance.
4. TERM
A. Subject to Licensee's compliance with its obligations hereunder the term
of this Agreement shall be to the end of the term for which the Letters Patents
have been granted or will be granted on above referenced applications and
improvements thereto, but subject to the following:
(i) If the Licensee shall abandon the exploitation of the Licensed
Device by failing for a period of twelve consecutive months to achieve the
Minimum Net Sales of the Devices with respect to each country specified in
Exhibit D the Licensor may on thirty days written notice to the Licensee,
at its option either (i) terminate this Agreement or (ii) delete such
country from the definition of "Territory," in either case without
prejudice, however, to the money due to the Licensor hereunder.
(ii) If the Royalty payments are in arrears for thirty days after the
due date, and if thereupon notice is given to the Licensee both by
telegram, telefax, or by registered mail, and if thereafter such payment
remains in arrears for thirty days after the sending of such notice; or if
the Licensee defaults in performing any of the other terms of this
Agreement and continues in default for a period of thirty days after
written notice thereof; or if the Licensee is adjudicated with its
creditors; or if a receiver is appointed for it; then, in any such event,
the Licensor shall have the right to terminate this Agreement upon giving
notice to the Licensee at least thirty days before the time when such
termination is to take effect, and thereupon this Agreement shall become
void but without prejudice to any remedy of the Licensor.
(iii) Upon termination under subdivisions W, or (ii) of this
paragraph, the Licensee shall duly account to the Licensor and transfer to
it all Patent Rights processes, and apparatus, together with all copies its
documentation evidencing or embodying the Technical Information and
know-how in respect thereof, and all rights to any sublicense or
sublicenses which may have been granted pursuant to the terms hereof.
5. MANUFACTURING AND PURCHASE
A. Pursuant to an agreement to be signed/ Licensee shall arrange to
purchase a turnkey manufacturing line (the "Line").
6
<PAGE>
B. Upon completion of the Line, the portion of the Line that manufactures
Sensors for the Licensed Devices ("Sensors") shall be installed at the same
location as Licensor's own manufacturing facility. Licensor shall operate that
portion of the Line and to the extent of the Lines manufacturing capacity, shall
deliver Licensee's requirements for Sensors to Licensee, F.O.B. Licensor plant
location, for cost, plus one hundred percent (100%).
C. Payment by the Licensee shall be payable thirty (30) days after date of
shipment, F.O.B. Licensor's (or its subcontractors) factory. Licensee shall be
responsible for risk of loss, customs clearing and transportation. Licensee
acknowledges that it is responsible for the cost of shipment and insurance of
all units purchased once they are delivered to the F.O.B. point, which point
shall be the manufacturing plant. Title to all units of sensors or Licensed
Devices will pass to Licensee upon delivery of such units to the carrier at the
F.O.B. point referred to above.
D. The cost for each unit of the Sensors sold by Licensor to Licensee shall
be determined by Licensor's auditors in accordance with generally accepted
accounting principles.
E. Licensee shall inspect the Sensors, within 30 days after receipt. If
Licensee timely rejects any units of the Sensors which do not conform to agreed
upon specifications Licensor may substitute a like quantity of conforming
Sensors. Licensee may reject any shipment of non-conforming units of the Sensors
only within 30 days after receipt, by notice to Licensee stating the reason for
rejection with specificity. Failure to timely reject or give proper notice of
rejection shall be deemed to constitute acceptance of such shipment. Properly
rejected units of the Sensors shall, at Licensor's sole option, be returned to
Licensor (at Licensor's expense) or destroyed.
F. If any shipping date is specified, such date represents a good faith
estimate by Licensor. In any event, Licensor shall not be responsible for a
delay in shipment resulting from events or circumstances beyond Licensor's
control or for damages or losses attributable to any such delay.
G. Licensor reserves a purchase money security interest in Sensors
delivered pursuant to this Agreement in order to secure the prompt and full
payment of the purchase price and other amounts due hereunder. Licensee agrees
that Licensor may execute in Licensee's name and file with the appropriate
authorities a financing statement to further perfect its security interest under
applicable law.
H. Licensor warrants that the Sensors shall be manufactured by it in
accordance with the design, manufacturing, performance and packaging
specifications, and the quality control and testing standards as the parties may
from time to time agree upon in writing.
7
<PAGE>
Licensor warrants that Sensors and Licensor's manufacturing procedures will
comply with all requirements of applicable governmental bodies in the United
States. Except as provided above, LICENSOR HEREBY EXPRESSLY DISCLAIMS ANY OTHER
REPRESENTATIONS, WARRANTIES AND GUARANTEES WITH RESPECT TO THE LICENSED DEVISES
OR SENSORS PURCHASED HEREUNDER, WHETHER WRITTEN, ORAL, IMPLIED OR INFERRED BY
TRADE, CUSTOM OR PRACTICE, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. LICENSOR SHALL NOT BE
LIABLE UNDER ANY CIRCUMSTANCES FOR DAMAGES OF ANY KIND, WHETHER DIRECT,
CONSEQUENTIAL OR OTHERWISE RELATING TO THE PERFORMANCE OF ANY SENSOR. IN NO
EVENT SHALL LICENSOR'S LIABILITY UNDER THIS AGREEMENT EXCEED THE PURCHASE PRICE
FOR THE SENSORS PURCHASED HEREUNDER.
I. If licensee does not pay the full amount of the purchase price and other
amounts specified under this Agreement or in any other order from Licensor as
and when due, then, in addition to its other rights or remedies hereunder and
under applicable law, Licensor may withhold performance of its obligations
hereunder or cancel any outstanding orders, without liability to Licensee by
Licensor, and without discharge or mitigation of any of Licensee's obligations.
J. Licensee may not cancel or assign any order given to Licensor without
the prior written consent of Licensor, which Licensor may withhold in its sole
and absolute discretion.
K. Nondelivery or default by the Licensor as to any installment shall not
be deemed a breach of this Agreement except as to such installment. Such
nondelivery or default shall not relieve Licensee from its obligation to accept
and pay for any subsequent or prior installment, regardless of whether such
nondelivery substantially impairs the value of this contract.
6. USE OF TRADEMARKS, TECHNICAL INFORMATION AND KNOW-HOW
Licensee, and, if Licensee performs its obligations hereunder, Licensor,
agree to freely exchange any Technical Information and Know-How developed by
them through an open and continuous dialogue regarding their operations.
[Licensor agrees to license at no additional cost to Licensee any and all
trademarks and service marks owned by Licensor.] Such license(s) shall be solely
for use in connection with sale of the Devices in the Territory.
7. NOTICE
Any notice to be given pursuant to the terms of this Agreement shall be
addressed as follows:
8
<PAGE>
If to the Licensor: Zsigmond Sagi, President
Scantek Medical, Inc.
19 Lockley Court
Mountain Lakes, New Jersey 07046
If to the Licensee: Roger Fidler, Esq.
400 Grove Street
Glen Rock, New Jersey 07452
8. NECESSARY DOCUMENTS
The Licensee shall furnish to the Licensor, or to nominees and patent
attorneys, all information and documents regarding any inventions or
improvements developed by the Licensee, including the apparatus, processes, and
formulas in respect thereof, in order to enable the Licensor to operate
thereunder and to enable its attorneys to prepare and prosecute Patent
applications therefor, with respect to any and all improvements developed by
Licensee the understanding that, if so requested by the Licensor, such attorneys
shall collaborate with such other Patent attorney as the Licensor may designate.
The Licensor shall (at Licensee's expense) render to the Licensee such services
in their consulting capacity as may be necessary in order to instruct the
Licensee, or its appointed representative, in all operations pertaining to the
industrial and commercial exploitation of the Inventions.
9. OWNERSHIP OF PATENTS
All Patents shall be the exclusive property of the Licensor, subject to the
exclusive license hereby granted. The Licensor shall, upon demand, execute and
deliver to the Licensee such documents as may be deemed necessary or advisable
by counsel for the Licensee for filing in the appropriate Patent offices to
evidence the granting of the exclusive license hereby given. No additional
patents covering any technology developed by Licensor, or the Licensee which
uses the Licensor's technology as a starting point, shall be applied for by the
Licensee without the Licensor's express written consent.
10. INFRINGEMENT
The Licensee shall defend at its own expense all infringement suits that
may be brought against it on account of the assembly, use, or sale of the
processes, apparatus and Licensed Devices, covered by this Agreement, and when
information is brought to its attention indicating that others without license
are Unlawfully infringing on the rights granted by Paragraph I hereof, it shall
prosecute diligently any such infringing at its own expense. If the Licensee
finds it necessary or desirable in any suit that the Licensee may institute, the
Licensee may join the Licensor as parties' plaintiff. In such event, the
9
<PAGE>
Licensor shall not be chargeable for any costs or expenses. In connection with
such suits, the Licensor shall execute all papers necessary or desirable and the
Licensor shall testify in any suit whenever requested to do so by the Licensee.
All out-of-pocket expenses of the Licensor for travel, accommodations, and meals
(but not for lost income) shall be paid by the Licensee whenever such testimony
is requested.
11. NEW INVENTIONS and TEST RESULTS
If during the continuance of this license the Licensee makes any further
improvements in the Licensed Devices, the Technical Information and Know-How or
the Patent Rights or the mode using them, or becomes the owner of any such
improvements either through Patents or otherwise, then it shall and hereby does
assign such Improvements to the Licensor that shall give the Licensor full
information, and the rights to using them. However, during the term of this
Agreement, the Licensee shall be entitled to use the same with all rights which
are hereby granted to the Licensee in respect to the Patent Rights and the
Technical Information without paying any additional royalty with respect
thereto. Licensee shall also provide Licensor with any and all test results
arising from tests of any Licensed Devices when such results are available.
12. ARBITRATION
Except as otherwise provided herein, any dispute under this Agreement shall
be settled by arbitration in pursuant to the Commercial Rules, then obtaining,
of the American Arbitration Association, such arbitration to be conducted in New
York, New York, or such other place as the parties hereto may mutually Agree.
13. BENEFIT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors in interest.
14. NONDISCLOSURE AND TECHNICAL ASSISTANCE
A. Licensor will act as Licensee's subcontractor, and, in that capacity
will advise and assist Licensee in the establishment and installation of such
production facilities and the procurement and installation of such equipment
therefor including the Line purchased by Licensee from Zigmed as Licensee may
need during the term of this Agreement for the manufacturer by Licensor of the
Products, and thereafter will advise and assist Licensee in the operation of
such production facilities and equipment.
B. TECHNICAL ASSISTANCE. Licensor shall furnish to Licensee the services of
technicians of such skills and-in such number as may be required to discharge
properly its responsibilities under
10
<PAGE>
this Agreement free of charge for a period of one year. After one year, Licensee
shall pay for said services at Scantek's standard rate. Details regarding the
selection of personnel and their period of residence in the Territory will be
determined by mutual consent. Likewise, Licensee shall make available under like
terms, technicians to assist Licensor in further development of the Licensed
Device.
C. CONFIDENTIAL INFORMATION. Upon the effective date and thereafter
during the term of this Agreement, Licensor shall make available to Licensee
full and complete Technical Information and Know-How possessed on the date of
this Agreement by Licensor relating to the Licensed Devices. Licensor shall not
during the term of this Agreement disclose to any other person, firm or
corporation in the Territory other than Licensee, any technical information
relating to the subject matter of this Agreement. Nothing, contained in this
Agreement shall be construed to require Licensor to disclose to Licensee any
information which Licensor shall have acquired from others if the disclosure
thereof to Licensee would breach the then existing obligations of Licensor.
(ii) Licensee shall not use or disclose any information received from
Licensor under this Agreement for any purpose other than the sale of the
Licensed Devices covered by this Agreement. Licensee shall not disclose any
information received from Licensor under this Agreement to any person except
persons in Licensee's employ to whom it shall be necessary to make such
disclosure to enable Licensee to obtain the benefit of such information in the
assembly of Licensed Devices which are included within the subject matter of
this Agreement, and any such person shall receive such information only after
agreeing in writing to hold same in strictest confidence and to use same only
for the purposes specified and permitted in this Agreement. The foregoing
restrictions on disclosures of information shall apply so long as the
information has not properly come into the public domain by such disclosure in
issued patents or otherwise.
(iii) All employees of Licensee who shall be given access to confidential
Technical Information and Know-How shall execute a Non-Disclosure and Assignment
Agreement in form acceptable to Licensor.
D. PATENTS. (i) Licensee may, only with the express written consent of the
Licensor and at its own expense, apply for patents in any country on any
discovery or invention which Licensee or its employees shall have obtained prior
to the termination of this Agreement on any product or process related to the
subject matter of This Agreement, notifying Licensor of its intention, keeping
Licensor currently informed of its activities in respect thereto, and providing
Licensor with copies of patent applications and amendments thereto, patent
office communications, and other relevant papers. All such patent applications
or issued patents must be assigned to the Licensor.
11
<PAGE>
(ii) Licensor hereby grants to Licensee an exclusive license to make, use
and sell without limitation in the Territory under any such discovery or
invention and any patent application, and any patents granted thereon, including
renewals and reissues thereof, to the extent that they relate to the subject
matter of this Agreement, which licenses shall extend to the end of the full
term of the Agreement. These licenses shall not be assignable or divisible, and
shall not include the right to grant sublicenses.
E. TRADEMARKS. During the term hereof, Licensor, through its designated
representative or representatives, will (grants to Licensee the right to] affix,
without charge to Licensee, the Trademarks set forth on Exhibit F (the
"Trademarks") as marks of certification to Licensed Devices assembled in the
Territory by Licensee through the operations, practices, licenses, and processes
which are the subject of this Agreement, provided:
(i) that Licensee performs all tests and maintains such controls on
the Licensed Devices as may be specified by Licensor;
(ii) that all labels and packages for the Licensed Devices conform to
the specifications of Licensor;
(iii) that Licensee submits to Licensor, when requested by Licensor, a
sample or samples of the Licensed Devices, or the packages or labels
therefor, or of any material at any stage of preparation so that Licensor
may review or test the same or have it tested at any laboratory of its
choice;
(iv) that if any such product or material, label or package at any
stage of production, or any packaging operation does not conform to the
quality standards or specifications furnished to Licensee by Licensor,
Licensee complies with the request of Licensor not to sell nor otherwise
dispose of the products nor to proceed further with the preparation of such
material or with such packaging operation.
(v) Licensee will comply with the instructions of Licensor with
respect to the manner in which the Trademarks shall be used upon or in
connection with the Licensed Devices, labels, packages, advertisements, and
other materials relating to the Licensed Devices, and also with respect to
the form and content of all such labels, containers, and advertising.
15. ADVERTISING
A. During each Contract Year, Licensee shall appropriate and spend for
advertising and promotion of Licensed Devices an amount equal to five percent
(5%) of Net Sales during the immediately preceding Contract Year.
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<PAGE>
B. As used herein, "advertising and promotion" shall mean, print
advertising, broadcast (radio/TV) advertising, trade presentation materials,
in-store aids and presentation materials and such other similar sales and
marketing aids and programs.
C. In the event Licensee fails to make the minimum advertising expenditures
set forth herein during any Contract Year, the amount of deficiency shall be
added to the minimum advertising expenditures required to be spent by Licensee
on advertising the Licensed Devices during the following Contract Year. Failure
to make minimum advertising expenditures during two (2) consecutive Contract
Years shall be deemed a material breach of this Agreement and Licensor shall
have the right to terminate the Term, effective immediately upon Licensor's
notice of its intent to so terminate.
16. NON-COMPETITION
In order to induce Licensor to enter into this Agreement, Licensee agrees
that neither Licensee, nor its shareholders, officers, directors or principals
(with the exception of Licensor's interest in Licensor), will during the term of
this Agreement or, for a period of five (5) years from the date of termination
hereof, manufacture Sensors or purchase Sensors manufactured by any entity other
then Licensor for use in the Licensed Devices or any competing device, or
directly or indirectly own, manage, operation or control of or be connected as
an officer, director, shareholder, partner, consultant, owner, employee, agent,
lender, donor, vendor or otherwise, or have any financial interest in or aid or
assist anyone else in the conduct of any competing entity which manufactures,
distributes or offers for sale goods similar to the Licensed Devices to any
competing entity, except as otherwise permitted in this Agreement. Licensee, and
its shareholders, officers, directors and principals further agree that they
will not (i) personally, or cause others to personally induce or attempt to
induce any employee to terminate their employment with the Licensor; (ii)
interfere with or disrupt the Licensor's relationship with its suppliers or
employees; or (iii) solicit or entice any person to leave their employ with the
Licensor. For the purposes herewith, the term competing entity" shall mean any
business or enterprise of any and every kind whatsoever which is engaged in the
manufacture, distribution or sale of goods similar to the Licensed Devices,
anywhere in the world; provided, however, that ownership of one (1%) percent or
less of any class of outstanding securities of a company whose securities are
listed on a national securities exchange or which has not fewer than 1,000
shareholders shall not be deemed to constitute ownership or participation in the
ownership of the business of such company. If any portion of this Paragraph 16
shall be determined to be invalid and unenforceable, such determination shall
not affect the validity or enforceability of the balance hereof, and such
balance shall remain in full force and effect. In the event of any breach by
Licensee of the
13
<PAGE>
provisions hereof, the Licensee acknowledges that the Licensor will not have an
adequate remedy at law and the Licensor will be entitled to institute and
prosecute proceedings in an appropriate Court of competent jurisdiction and to
obtain an injunction restraining the Licensee from violating the provisions of
this Agreement without posting a bond or other security.
17. INSURANCE
Licensee and its subcontractors, and sublicensees, if any, shall carry
product liability insurance with respect to the Licensed Devices with a limit of
liability of not less than $1,000,000 and Licensor, its agents and affiliated
companies shall be named therein as coinsured. Such insurance may be obtained in
conjunction with a policy of product liability insurance which covers products
other than the Licensed Items and shall provide for at least ten (ten) days
prior written notice to Licensor of the cancellation or substantial modification
thereof. Licensee shall deliver to Licensor a certificate evidencing the
existence of such insurance policies promptly after their issuance. Licensee
hereby agrees to provide Licensor a copy of said insurance policy prior to
commencement of commercial sales of the Licensed Devices.
18. LAWS.
This Agreement shall be construed, and all the rights, powers, and
liabilities of the parties hereunder shall be determined in accordance with the
laws of the State of New Jersey.
19. WAIVERS.
No omission or delay of either party hereto in requiring due and punctual
fulfillment by the other party of the obligations of such party hereunder shall
be deemed to constitute a waiver of its right to require such due and punctual
fulfillment or of any of its remedies hereunder.
20. ASSIGNMENT.
Neither this Agreement nor any part thereof may be assigned by Licensee
without the written consent of Licensor.
21. RELATIONSHIP BETWEEN THE PARTIES.
In providing Technical Information and Know-How and technological
assistance, Licensor and its employees are acting in an advisory capacity only.
Neither Licensor nor its related companies, nor their employees, shall have any
responsibility for the design, construction, or installation of facilities and
equipment contemplated under this Agreement nor for any decisions which may be
made in
14
<PAGE>
connection therewith, whether upon the recommendation of such employees or
otherwise.
22. DISCLAIMER OF WARRANTIES OF PATENT RIGHTS
The Licensor does not warrant the legality, validity or genuineness of the
Patent or of the rights of the Licensor and assumes no responsibility or
liability to the Licensee.
23. MANUFACTURED ARTICLES TO CONTAIN PATENT NOTICE The Licensee shall affix to
every Licensed Device manufactured by him under this license a label or
plate (to be supplied by the Licensor) containing a statement that it was
patented by the Licensor on a date specified, and no such Licensed Device
shall be sold without such label or plate, unless such device is being sold
in a country where no patent has been obtained.
24. COOPERATION
In order to accomplish the intent of this Agreement the parties hereto
agree to cooperate to fulfill the intent of this Agreement. To that end Licensor
agrees to permit Licensee to maintain supervisory personnel in Licensor's
manufacturing facility, at Licensee's expense, to observe sensor production.
25. DEFAULT OF LICENSOR OF LICENSE
In the event that the Licensor is insolvent, has made an assignment for the
benefit of Licensor's creditors or files under the Bankruptcy laws, Licensee
shall have the right to immediately assume control of the sensor production
utilizing Licensee's equipment either in Licensor's facility or at any other
location.
In the event that the license granted hereunder is terminated for any
reason, Licensor shall have no right to utilize Licensee's machinery or channels
of distribution without the express written consent of Licensee.
IN WITNESS WHEREOF THE PARTIES HERETO HAVE SET THEIR HANDS ON THIS 15th DAY OF
AUGUST, 1996.
HEALTH TECHNOLOGIES INTERNATIONAL, INC. SCANTEK MEDICAL,INC.
BY: BY:
------------------------------------ ------------------------------------
Roger Fidler ZSIGMOND SAGI
President PRESIDENT
15
<PAGE>
EXHIBIT A
PATENT RIGHTS
Country Patent No.
------- ----------
U.S. RE 32,000
4,190,058
4,651,749
Canada 1,130,157
16
<PAGE>
EXHIBIT B
Territory
CHILE*
SINGAPORE*
*And their respective territories and dependencies
17
<PAGE>
EXHIBIT C
Licensed Devices
Notwithstanding the following more specific description of the licensed
device, the Licensed Devices shall include any temperature sensing device
manufactured by the Licensor using the patented technology set forth in the
Patents listed in Exhibit A or improvements thereto.
The BTAI is an early diagnostic direct reading, digital device to screen
the breast for abnormalities, including cancer.
The BTAI measures underlying breast tissue temperature and not skin surface
temperature by retaining the emitted heat when BTAI is placed against the breast
for 15 minutes. The averaged and recorded reading on the BTAI has taken into
consideration that the temperature patterns of a woman's breasts are closely
symmetrical. This method detects abnormalities by comparing the temperature
differences in the corresponding areas of a woman's breasts.
The BTAI device consists of a pair of non-woven pads made of spun-fiber
material, each of which has three wafer-thin, pliant, aluminum foil, and
temperature responsive segments attached to its inner surface. Each segment is
wedge-shaped and contains 18 columns or bars of thermal dots. These dots contain
a chemical heat sensor that changes color when exposed to a specific
temperature.
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<PAGE>
EXHIBIT D
Minimum Net Sales
The minimum net sales shall be based upon market penetration set forth
below. The size of the market in each of the three countries in the Territory
shall be computed using official government census information from each of said
countries. The market shall be the lesser of two pairs of BTAI for each woman
between the ages of 25 and 70 or such usage as may be recommended by the
relevant medical association or government agency in each country in the
Territory.
Year* Percentage of Market Penetration
---- ---------------------------------
1997 0
1998 1
1999 3
2000 4
2001 AND AFTER 5
* This schedule is based upon the scheduled delivery of an operational
assembly line, part of which shall be installed in Licensor's facility,
part of which shall be installed in Licensee's facility. In the event that
completion of or installation of the turn-key manufacturing line is delayed
beyond June 30, 1997, then the above referenced years shall be adjusted to
appropriate calendar years so as not to prejudice Licensee's 365 day time
periods in which to achieve the graduated market penetration.
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EXHIBIT E
Minimum Royalties
The minimum royalty for each year shall be as follows:
Year* Minimum Royalty Payments
---- ------------------------
1997 $ 80,000
1998 200,000
1999 300,000
1999 and thereafter $400,000
* This schedule is based upon the scheduled delivery of an operational
assembly line, part of which shall be installed in Licensor's facility,
part of which shall be installed in Licensee's facility. In the event that
completion of or installation of the turn-key manufacturing line is delayed
beyond June 30, 1997, then the above referenced years shall be adjusted to
appropriate calendar years so as not to prejudice Licensee's 365 day time
periods in which to achieve the graduated market penetration, i.e., the
royalty payments will be deferred until the year following actual
operational installation of the manufacturing line.
20
LEASE AGREEMENT
BETWEEN:
LANDLORD: PABLITO, L.L.C.
TENANT: SCANTEK MEDICAL, INC.
LOCATION: A portion of 321 Palmer Road
Denville, New Jersey 07834
DATE: June 13, 1997
<PAGE>
TABLE OF CONTENTS
1. Basic Lease Provisions 3
2. Demised Premises 3
3. Term 3
4. Condition of premises 4
5. Rent 4
6. Real Estate Taxes and Assessments 5
7. Operating Expenses 5
8. Utilities 6
9. Use and Operation of Premises 7
10. Insurance 7
11. Repairs and Alterations 8
12. Eminent Domain 9
13. Indemnity and Liability for Injury and Loss 10
14. Lease Subordination 10
15. Fire Damage 11
16. Compliance With Environmental Laws 11
17. Defaults and Remedies 14
18. Assignment and Subletting 15
19. Signs 16
20. Security 17
21. Quiet Enjoyment 17
22. Holding Over 17
23. Surrender 18
24. Notices 18
25. Compliance with Laws 19
26. Option to Extend Term 19
27 Exculpation 19
i
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28. Miscellaneous 20
a. Definitions...............................20
b. Abandonment of Fixtures...................20
c. Waiver....................................20
d. Entire Agreement..........................21
e. Lease Effective...........................21
f. Partial Invalidity........................21
g. Landlord's Rights of Entry................21
h. No Liens by Tenant........................21
i. Interpretation............................21
j. Survival of Tenant's Obligations..........21
k. Trial by Jury Waiver......................21
l. Acceptance of Possession..................21
m. Successors and Assigns....................22
n. Joint and Several Liability...............22
o. Authority.................................22
p. Recording.................................22
q. Brokerage.................................22
29. Landlord's Lien................................22
30. Substitution Space.............................22
ii
<PAGE>
INDUSTRIAL BUILDING LEASE
THIS LEASE, made the day of June, 1997, by and between PABLITO, L.L.C., a
New Jersey limited liability company, having an office at the address set forth
in Paragraph I h (hereinafter referred to as "Landlord") and SCANTEK MEDICAL,
INC., a New Jersey corporation, having its principal office at the address set
forth in Paragraph I h (hereinafter collectively referred to as "Tenant").
1. BASIC LEASE PROVISIONS.
a. Address of Demised Premises: 321 Palmer Road
Denville, NJ
b. Approximate Size of the floor space of building within the Demised
Premises: 7,000 square feet (approx. 2,000 sq. ft. of office; approx. 5,000 sq.
ft. of warehouse)
c. Term: Three (3) years
d. Commencement Date: June 15, 1997.
e. Termination Date: June 14, 2000,
f. Base Annual Rent: Year 1: $52,500 ($4,375/monthly)
Year 2: $54,250 ($4,520.83/monthly)
Year 3: $56,000 ($4,666,67/monthly)
g. Security Deposit: $13,125
h. Address for payment of rent and notices for the Tenant and
Landlord; 321 Palmer Road, New Jersey 07834
i. Option to Extend Term: One three-year term
j. Tenant's Pro Rata Share: Thirty-five percent (35%)
2. Demised Premises.
Landlord leases to the Tenant and Tenant rents from Landlord the Premise
("Demised Premises") consisting of the cross-hatched area of the building
described in Exhibit A (the "Building") (containing the approximate square
footage of gross floor space shown in Paragraph lb) and having the current
address shown in Paragraph la.
3. TERM.
The term of this Lease shall be for a period shown in Paragraph 1c
beginning on the date shown in Paragraph 1d ("Commencement Date") and ending on
the date shown in Paragraph le ("Termination Date"), except if terminated
earlier as provided herein. If the Commencement Date or Termination Date set
forth in Paragraph 1d and 1e are not specific dates but depend upon the
occurrence of certain events or conditions in the future, or if the actual
Commencement Date or Termination Date shall be other than the specific date
therefor set forth in Paragraph 1d or 1e, the parties agree to execute a
memorandum stating the actual Commencement Date and Termination Date once same
has been determined.
<PAGE>
4. CONDITION OF PREMISES.
Landlord shall deliver the Demised Premises to Tenant on the Commencement
Date "broom clean" and in all "as is" condition. Tenant shall be responsible for
all leasehold improvements at its own cost and expense in accordance with
Paragraph 11c. Tenant acknowledges that the existing parking facilities are and
will be adequate for Tenant's purposes throughout the term hereof As of the
Commencement Date, all of the Demises Premises' mechanical and electrical
systems shall be in working order and the roof, windows and doors shall be free
of leaks.
Except as specifically provided herein, Landlord makes no representation as
to the design, construction, physical condition, development or use of the
Demised Premises. Tenant acknowledges, represents and agrees that except as
specifically set forth in this Lease, no representations or warranties of any
kind have been made by Landlord or its agents or representatives, whether
expressed or implied, in fact or by law, Tenant acknowledges that it has
examined the Demised Premises and has received same in "as is" condition except
as expressly set forth herein. Without limiting tile generality of the
foregoing, Tenant acknowledges, represents and agrees that no representations
have been made by Landlord as to tile expenses, operations and maintenance
thereof, the services to be rendered to the Demised Premises, or the utilities,
water supply or other services to or for the Demised Premises and Tenant agrees
to accept same in their existing "as is" condition as of the date hereof
Landlord shall not be responsible for any latent or other defects or changes in
the condition of the Demises Premises. The rent and other charges reserved
hereunder shall in no case be withheld or diminished on account of any damage or
loss occurring to the Demised Premises during the term of this Lease. Landlord
shall have no obligation to perform any work therein (including, without
limitation, demolition of any improvements existing therein or construction of
any tenant finish-work or other improvements therein), and shall not be
obligated to reimburse Tenant or provide an allowance for any costs related to
the demolition or construction of improvements therein. Before Tenant may occupy
the Demised Premises to conduct its business therein, Tenant shall, at its
expense, obtain and deliver to Landlord a certificate of occupancy for the
Demised Premises from the appropriate governmental authority.
Between the date hereof and the Commencement Date, Tenant shall have the
right to inspect the Demised Premises to determine the existence of any
violations of governmental laws, rules, regulations or ordinances or the
existence of any material structural or mechanical defects in the Demised
Premises. During such time period, Tenant shall also apply for a Certificate of
Occupancy or similar certificate if such is required for Tenant's occupancy of
the Demised Premises. If Tenant's inspection reveals any of the above defects
or if a Certificate of Occupancy is required but not obtainable on or before
the Commencement Date, Tenant shall provide notice thereof to Landlord and
Landlord shall have a reasonable period to correct such defect or obtain such
Certificate and the Commencement Date (and all other dates herein) shall be
adjourned until Landlord cures such defect or obtains such Certificate. If
Landlord is unable to do so within sixty (60) days of notice, either party shall
have the right to terminate this Lease on notice to the other.
5. RENT.
a. Tenant's obligation to pay rent shall commence on THE Commencement Date.
Tenant agrees to pay Landlord and Landlord hereby reserves, as base rent for
the Demised Premises for the term provided in Paragraph 3, the sum of $162,750,
based upon the base annual rentals indicated in Paragraph If (the "Base Rent").
b. Except as otherwise provided, all payments of Base Rent and
<PAGE>
Additional Rent (defined below) shall be made by the Tenant to the Landlord,
without notice or demand and without any abatement, deduction or set-off, in
equal monthly installments, in advance, and shall be due and payable on the
first day of each and every calendar month throughout the term based upon the
Base Rent and applicable monthly installments thereof set forth in Paragraph I C
The monthly rent installment for the first month of the term shall be due and
payable upon execution of this Lease.
c. Upon the failure of Tenant to pay any Base Rent installment or
Additional Rent as provided herein within seven (7) days following the due date
for such installment, Landlord may impose a late charge of five (5%) percent of
the installment due, said late charge to be immediately due and payable with
the next Base Rent installment. The late charge percentage has been agreed by
the parties to be a reasonable estimate of the additional administrative expense
to Landlord in handling late payments. The payment and acceptance of the late
charge will not constitute a waiver by Landlord of any default by Tenant under
the Lease.
d. In the event any check from Tenant is returned unpaid to Landlord,
Tenant shall be obligated to pay Landlord, in addition to any applicable late
charge under Paragraph 5c, a service charge in the amount of (a) $50 or (b)
twice the amount charged to Landlord by its bank on account of the returned
item, whichever is greater. This service charge is agreed by the parties to be a
reasonable estimate of the additional administrative expenses to Landlord in
handling a returned item.
e. In the event the amount of Base Rent shall change oil any day other than
the first day of a calendar month, tile monthly installment of Base Rent payable
in that calendar month shall be calculated using the applicable Base Rent for
that month on a per diem basis. Similarly, if the Commencement Date is other
than the first day of the month or the Termination Date is other than the last
day of the month, rent for the partial month at the beginning and end of the
term shall be prorated on a per them basis.
f. The Base Rent shall be an absolutely net rental payment. All costs of
maintenance, repairs, utilities, taxes, insurance and any and all other expenses
necessary in connection with the operation or maintenance of the Demised
Premises during the term of this Lease shall be paid solely by Tenant except as
expressly set forth herein. Tenant shall not be responsible for Landlord's
failure to comply with existing laws.
6. REAL ESTATE TAXES AND ASSESSMENTS.
The Tenant agrees during the term of the Lease to pay as additional rent
all amount equal to its Pro Rata Share (defined in Paragraph 1j) of the real
estate taxes, assessments, water and sewer charges and other governmental
charges, assessed against the Demised Premises ("Taxes," which, among other
charges set forth herein, are deemed "Additional Rent"). Taxes shall be due and
payable with the monthly rent in twelve (12) equal installments in each case
reasonably estimated by Landlord until the actual sum is known, and thereafter
an adjustment shall be made, with any deficiency being due from Tenant, or any
overage being credited to Tenant, with the monthly Base Rent installment next
following the billing. In the event a special or local assessment shall be
levied against the Demised Premises and said assessment may by law be payable in
a series of annual installments rather then a single payment, then Tenant shall
be only responsible to pay, each lease year, its Pro Rata Share of an amount
equal to what would be the permitted annual installment for that assessment,
whether or not Landlord elects to pay the assessment in installments.
<PAGE>
7. OPERATING EXPENSES.
a. (1) Tenant shall pay an amount as Additional Rent its Pro Rata Share of
the Operating Costs (defined below) in the Building. Landlord may collect such
amount in a lump sum, which shall be due within 30 days after Landlord furnishes
to Tenant the Operating Costs and Tax Statement (defined below). Alternatively,
Landlord may make a good faith estimate of such Additional Rent to be due by
Tenant for any calendar year or part thereof during the Term, and Tenant shall
pay to Landlord, on the Commencement Date and on the first day of each calendar
month thereafter, an amount equal to the estimate of such Additional Rent for
such calendar year or part thereof divided by the number of months therein. From
time to time, Landlord may estimate and re-estimate such Additional Rent to be
due by Tenant and deliver a copy of the estimate or reestimate to Tenant.
Thereafter, the monthly installments of such Additional Rent payable by Tenant
shall be appropriately adjusted in accordance with the estimations so that, by
the end of the calendar year in question, Tenant shall have paid all of such
Additional Rent as estimated by Landlord. Any amounts paid based on such an
estimate shall be subject to adjustment as herein provided when actual Operating
Costs are available for each calendar year.
(2) (A) The term "Operating Costs" shall mean all expenses and
disbursements (subject to the limitations set forth below) that Landlord incurs
in connection with the accounting principles consistently applied, including,
but not limited to the following costs: (A) OMITTED; (B) all supplies and
materials used in the operation, maintenance, repair, replacement, and security
of the Building; (C) costs for improvements made to the Building which, although
capital in nature, are expected to reduce the normal operating costs of the
Building, as well as capital improvements made in order to comply with any law
hereafter promulgated by any governmental authority, as amortized over the
useful economic life of such improvements as determined by Landlord in its
reasonable discretion; (D) cost of all utilities, except the cost of utilities
reimbursable to Landlord by the Building's tenants other than pursuant to a
provision similar to this Section or payable directly by Tenant or other
tenants; (E) fire, hazard, casualty, liability and related insurance expenses;
(F) repairs, replacements, and general maintenance of the Building; and (G)
service or maintenance contracts with independent contractors for the operation,
maintenance, repair, replacement, or security of the Building (including,
without limitation, alarm service, window cleaning, snow removal, landscaping,
electricity, cleaning and janitorial service, if provided.
(B) Operating Costs shall not include:
(i) capital improvements made to the Building, other than capital
improvements described above and except for items which are generally considered
maintenance and repair items, such as painting of common areas, replacement of
carpet in elevator lobbies, and the like; (ii) repair, replacements and general
maintenance paid by proceeds of insurance or by Tenant or other third parties;
(iii) interest, amortization or other payments on loans to Landlord; (iv)
depreciation; (v) leasing commissions; (vi) legal expenses for services, other
than those that benefit the Building tenants generally (e.g. tax disputes);
(vii) renovating or otherwise improving space for occupants of the Building or
vacant space in the Building; (vii) Taxes (defined below), (ix) federal income
taxes imposed on or measured by the income of Landlord from the operation of the
Building and (x) building appearance enhancements not consistent with the
current building appearance.
<PAGE>
(3) By April 1 of each calendar year, or as SOON thereafter as practicable,
Landlord shall furnish to Tenant a statement of Operating Costs for the previous
year and of the Taxes for the previous year (tile "Operating Costs and Tax
Statement"). If the Operating Costs and Tax Statement reveals that Tenant paid
more for Operating Costs than the actual amount for the year for which such
statement was prepared, or more than its actual share of Taxes for such year,
then Landlord shall promptly credit or reimburse Tenant for such excess;
likewise if Tenant paid less than the actual Additional Rent or share of Taxes
due, then Tenant shall promptly pay Landlord such deficiency.
(4) With respect to any calendar year or partial calendar year in which the
Building is not occupied to the extent of 95% of the rentable area thereof, the
Operating costs for such period shall, for the purposes hereof, be increased to
the amount which would have been incurred had the Building been occupied to the
extent of 95% of the rentable area thereof.
b. If at any time during the term of this Lease, tinder the laws of the
State of New Jersey or any political subdivision thereof, a tax on rents is
assessed against the Landlord or the Base Rent, as a substitution, in whole or
in part, for a real estate tax, assessment, water rent, rate or charge, sewer
rent or other governmental imposition or charge with respect to the Demised
Premises, Tenant shall pay an amount equal to same to the extent that it is in
the substitution, in whole or in part, for real estate taxes. Taxes shall not
include any income tax, capital levy or transfer tax imposed on Landlord, or any
franchise taxes imposed upon any corporate owner of the fee of the Demises
Premises or income tax imposed upon the rent received by the Landlord.
8. UTILITIES.
a. Tenant shall be solely responsible to arrange for and pay for all
utilities used at the Demised Premises, including, but not limited to,
electricity, gas, oil and telephone. Landlord shall have no liability to Tenant
for any loss or damage caused by interruption or cessation of any utility or
service and, in all events, no such interruption or cessation shall affect or
modify this Lease or give rise to any right of cancellation, termination, offset
or defense to Base Rent, Additional Rent or any other charge hereunder.
b. Tenant hereby grants to Landlord the right to install on the Demised
Premises, at Landlord's sole cost and expense, a furnace to service solely the
Demised Premises and one or more utility meters in connection therewith, such
installations to take place after tile Commencement Date. After such
installation, Tenant shall be liable for all such utilities in addition to any
other obligations it may have hereunder.
<PAGE>
9. USE AND OPERATION OF PREMISES.
a. Throughout the term of this Lease, Tenant covenants to use the Demised
Premises solely for general office use and the light manufacturing, assembly and
warehousing of medical equipment, all as permitted by law. Tile Tenant
represents and covenants that its Standard Industrial Classification number, now
and throughout the term of this Lease, is and shall remain 3599.
b. The Tenant shall not permit the Demised Premises to be used for any
unlawful purpose, nor shall Tenant commit or suffer any waste. The Tenant agrees
to carefully preserve, protect, control and guard the Demised Premises from
damage. Tenant shall not store equipment, furniture, materials, inventory or
supplies or other personalty outside of the building of the Demised Premises.
c. Tenant shall utilize sufficient shock dampening pads under all of its
presses and other machinery and equipment so as to prevent any damage to any
floors in tile Demised Premises. Tenant shall regularly clean and maintain the
floors in the Demised Premises and shall take all reasonable precautions to
prevent any penetration by oils, solvents, and all other chemicals and materials
used in Tenant's processes through the floors in building on the Demised
Premises.
10. INSURANCE.
a. Tenant shall maintain throughout the Term the following Insurance
policies: (1) comprehensive general liability insurance in amounts of not less
than a combined single limit of $1,000,000 per occurrence/$2,000,000 annual
aggregate or such other amounts as Landlord may from time to time reasonably
require, insuring Tenant, Landlord, Landlord's agents and their respective
affiliates against all liability for injury to or death of a person or persons
or damage to property arising from the use and occupancy of the Demised
Premises, (2) insurance covering the full value of Tenant's property and
improvements and other property on the Demised Premises, (3) contractual
liability insurance sufficient to cover Tenant's indemnity obligations
hereunder, (4) worker's compensation insurance, containing a waiver of
subrogation endorsement acceptable to Landlord, and (5) business interruption
insurance. Tenant's insurance shall provide primary coverage to Landlord when
any policy issued to Landlord provides duplicate or similar coverage, and in
such circumstance Landlord's policy will be excess over Tenant's policy. Tenant
shall furnish to Landlord certificates of such insurance and such other evidence
satisfactory to Landlord of the maintenance of all insurance coverages required
hereunder. All such insurance policies shall be in form, and issued by
companies, reasonably satisfactory to Landlord.
b. Whenever under the terms of this Lease Tenant is required to maintain
insurance, Landlord and all of Landlord's mortgagees shall be named as
additional insured in all such insurance policies. All such insurance policies
shall contain endorsements to the effect that such policies cannot be modified
or canceled without at least thirty (30) days prior written notice to Landlord
and each of Landlord's mortgagees.
c. All of the above-mentioned insurance policies, copies thereof and/or
certificates shall be obtained by Tenant and delivered to Landlord and each of
Landlord's mortgagees on or prior to the Commencement
<PAGE>
Date and, thereafter, as provided for herein.
d. At least ten (10) days prior to the expiration of any policy or policies
of such insurance, Tenant shall renew such insurance, and deliver to Landlord,
the original policy or copies thereof or certificates of insurance, together
with proof of payment of all premiums therefor. If Tenant shall fail to comply
with the provisions of this paragraph 10, Landlord shall have the right, but
not the obligation, to procure such insurance and pay the premiums thereof, and
Landlord shall thereupon be entitled to repayment by Tenant immediately oil
demand therefor, as Additional Rent hereunder.
e. The insurance required by this paragraph 10 shall be with companies
licensed in the State of New Jersey and holding a "General Policyholders Rating"
of at least B plus, or such other rating as may be required by a Tender having a
lien on the Demised Premises, as set forth in the most recent issue of "Bests'
Insurance Guide."
<PAGE>
f. Tenant shall not do or permit to be done any act or thing on the Demised
Premises which shall invalidate or be in conflict with, or cause any additional
premium for, any fire insurance policy insuring the Demised Premises. Tenant
shall provide its own insurance coverage for its trade and other fixtures,
furnishings, equipment, inventory and other personal property at the Demised
Premises. Landlord shall have no obligation to repair, restore or replace any
such fixtures, personal property or improvements of Tenant in the event of
casualty.
g. All policies of insurance set forth in this paragraph shall expressly
provide that any losses thereunder shall be adjusted with Landlord, Tenant and
Landlord's mortgagees. The Tenant will not take out separate insurance
concurrent in form or contributing in the event of loss with that required (or
which may be reasonably be required) pursuant to this paragraph to be furnished
by the Tenant unless the Landlord and each of Landlord's mortgagees are included
therein as an insured, with all losses payable thereunder as provided above.
Tenant shall immediately notify the Landlord of the taking out of any such
separate insurance and shall deliver the policy or policies as provided herein.
h. Landlord and Tenant each hereby release the other and waive their entire
right of recovery, to the extent insured, against the other for loss or damage
arising out of or incident to the perils insured against under this paragraph,
which perils occur in, on or about the Demised Premises, whether due to the
negligence of Landlord or Tenant or their respective agents, employees,
contractors and/or invitee. Landlord and Tenant shall, upon obtaining the
policies of insurance required hereunder, give notice to their insurance
carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
11. REPAIRS AND ALTERATIONS.
a. The Tenant covenants that throughout the term of this Lease in good care
of the Demised premises, including all alterations, changes and improvements at
any time erected thereon, and to keep and maintain same in good order and
condition, and shall promptly make, at its sole cost and expense, all repairs
and replacements to all non-structural elements and the interior of the Demised
Premises, including but not limited to windows, window frames, doors, locks,
closing devices, floors, floor coverings, walls (other than structural defects),
ceilings, fighting fixtures and bulbs. Tenant shall also keep and maintain in
good order and condition, and shall promptly make, at its sole cost and expense,
all repairs and replacements to all electrical, air conditioning, heating,
plumbing and other mechanical installations. Tenant shall also, at its sole cost
and expense, maintain and repair exterior signs affixed to the Demised Premises
or elsewhere and Tenant shall replace any glass windows in the Demised Premises,
if damaged or broken. Tenant shall keep and maintain the Demised Premises clean
and orderly, free and clear of accumulations of dirt and debris.
Landlord shall be responsible throughout the term of this Lease for
maintaining and repairing the roof, exterior and all structural elements of the
Demised Premises and the parking lot. Landlord's obligation to repair and
maintain the roof, exterior and structural elements of the Demised Premises and
the parking lot shall exclude any damage done thereto by Tenant or any of its
employees, guests, invitee or contractors.
<PAGE>
Tenant shall not be entitled to any set-off or abatement in Base Rent or
Additional Rent in the event that its use or occupancy of the Demised Premises
is temporarily disturbed or diminished as a result of repair or maintenance work
of Landlord or its agents, workers or contractors. Landlord shall endeavor to
minimize any such interference with Tenant's use or occupancy while performing
work to such extent as reasonably practical. If such disturbance or diminishment
continues continuously after 60 days' notice from Tenant, Tenant shall be
entitled to terminate this Lease on notice to Landlord.
b. Tenant shall, during the term of this Lease, at its sole cost and
expense,promptly comply with and make any repair required by any statute,
ordinance, rule, order, regulation or requirement of the Federal, State and
Municipal Government and any and all departments, agencies, bureaus and
subdivisions thereof having jurisdiction there over, for the correction,
prevention and abatement of nuisances, violations or other grievances in, upon
or connected with the Demised Premises. Tenant agrees to observe and promptly
comply with (i) all rules, orders and regulations of the Board of Fire
Underwriters- and (ii) the requirements of all insurance policies maintained by
or for the benefit of the Landlord on the Demised premises.
c. Tenant shall have tile right during the term of this Lease to make
interior alterations and interior improvements ("Alterations")to the Demised
Premises Subject to the following conditions: (i) Tenant shall first obtain all
governmental permits and approvals, if any, required therefor; (ii) no
Alteration of or involving the structural portions of the building shall be
undertaken until detailed plans and specifications have first been approved in
writing by tile Landlord; (iii) all Alterations when completed shall be of such
a character as shall not reduce, or otherwise adversely affect, the value, cubic
content or structural soundness of the Demised Premises and shall immediately
become the property of tile Landlord, (iv) all Alterations shall be done
promptly and in a good and workmanlike manner and in compliance with all
governmental laws, ordinances, orders, rules, regulations and requirements, and
in accordance with the orders, rules and regulations of the Board of Fire
Underwriters or any other body exercising similar functions and having
jurisdiction thereof, (v) Tenant shall, prior to performing any, work provide
Landlord with evidence that Tenant and each of its contractors and
subcontractors have (and will continue to have), at their sole cost and expense,
adequate insurance therefor, including statutory worker's compensation insurance
(or certificates for contractors indicating worker's compensation insurance is
in force) covering all persons employed in connection with the work, builder's
risk insurance (including completed operations) and general liability insurance
for the mutual benefit of the Tenant and the Landlord, with limits reasonably
acceptable to Landlord, at all times when any work is in process in connection
with any Alteration; (vi) Tenant shall pay all increased taxes and insurance
premiums assessed or charged as a result of the Alterations. The Tenant shall
not be permitted to do any work on the Demised Premises which would void any
portion of any insurance coverage for Landlord's benefit.
12. EMINENT DOMAIN.
a. If the total Demised Premises are taken or purchased by, through or in
lieu of condemnation proceedings or any right of eminent domain, with or without
the entry of an order in a judiciary proceeding, this Lease shall terminate as
of the date of taking without further liability by the parties hereto.
<PAGE>
b. The date of any taking shall be the date specified in the official
notice of the condemning authority, or in the absence of such notice, the
vesting of title in said authority. Subject to the provisions as hereinafter
provided in this paragraph, all rent or other charges paid or payable by Tenant
to Landlord shall be adjusted as of the date of said taking. Upon any
termination or cancellation of this Lease, as provided in this section, all rent
or other charges paid in advance for any period after the effective date hereof
shall be refunded to Tenant and all liability of Tenant under this Lease shall
terminate.
c. Landlord reserves to itself all rights to damages or compensation
accruing on account of any such taking of the real property comprising and
included in the Demised Premises as aforesaid or by reason of any act or any
public or quasi- public authority for WHICH damages are payable. Tenant shall
not be entitled to any portion of the award as a result of the loss of its
leasehold interest.
d. In the event that only a portion of the Demised Premises is taken, this
Lease shall remain in full force and effect and the rental payable hereunder
shall be equitably adjusted based on square footage of the land or building
taken by eminent domain. In the event, however, the portion of the Demised
Premises to be taken will constitute twenty five (25%) percent or more of the
floor area of the Demised Premises or would adversely affect, in a material
manner, Tenant's use and enjoyment of the Demised Premises, Tenant shall have
the right to terminate this Lease effective on the date of taking provided
Tenant gives Landlord written notice of its election no later than thirty (30)
days following the date Landlord gives Tenant written notice that a portion of
the Demised Premises is being taken.
13. INDEMNITY AND LIABILITY FOR INJURY AND LOSS.
a. Tenant shall indemnify, defend and save Landlord, its agents and
employees harmless from and against all injuries, causes of action, penalties,
fines, liabilities, claims, damages, losses and expenses (including, Without
limitation, reasonable attorneys' fees, litigation expenses and court costs)
incurred in connection with or arising from: (1) any acts, Omissions or
negligence of Tenant, any person gaining under Tenant, or the employees, agents,
contractors, invitees or visitors of Tenant or of any person claiming under
Tenant (hereafter collectively "Tenant or Others"); (2) any activity, work or
rating done or permitted or suffered by Tenant or Others in or about the Demised
Premises; (3) the use Or Occupancy of the Demised Premises by Tenant or
Others; (4) any breach, violation or nonperformance by Tenant or Others of any
terms covenant or provision of the Lease or any law, Ordinance or governmental
requirement of any kind; or (5) any injury or damage to the person, property or
business of Tenant or Others, except proximately caused by the negligence of
Landlord. If any action or proceeding is brought against Landlord, its agents or
employees by reason of any claim or matter indemnified hereunder, Tenant shall,
upon notice from Landlord, defend the client on Landlord's behalf at Tenant's
expense with Counsel reasonably satisfactory to Landlord.
b. Tenant, throughout the term of this Lease, Continuously waives and
releases all claims against Landlord, its agents and employees with respect to
all matters For which Landlord disclaimed liability pursuant to (lie provisions
of this Lease. Landlord (1) shall not be liable to Tenant or Others on the
Demised Premises for any damage either to person or property, except if the
<PAGE>
damage is proximately caused by the negligence of Landlord; (2) shall not be
responsible or liable in any way whatsoever for the quality, quantity,
impairment, interruption, stoppage of or Other interference with services
involving water, Treat, gas, electrical current for light and power, telephone
or any other utility service; (3) shall not be liable for any loss, death,
damage or injury by or from theft; act of God; public enemy; insurrection; war,
riot, strike; injunction; court order, order of government body or authority,
fire; explosion; casualty loss; Filling objects; the breakage, leakage,
obstruction or other detects of the pipes, sprinklers, wires, appliances,
plumbing, air conditioning or fighting fixtures at the Demised premises; water,
steam; electricity; gas; rain; ice; hail; sleet; snow; or the construction,
repair or alteration of the Demised premises or from any acts or omissions of
the Tenant or Others; or any cause beyond Landlord's control which may be
sustained by Tenant or Others.
14. LEASE SUBORDINATION.
a. This Lease shall not be a lien against (lie Demised Premises in respect
to any mortgage(s) that now or hereafter may be placed against (lie Demised
Premises or any part thereof, and that the such mortgage(s) shall be superior
and prior in lien to this Lease, irrespective of the date granting or recording.
Tenant agrees to accept any mortgagee as the Landlord Hereunder and to perform
its obligation as Tenant under this Lease, if any mortgagee acquires title to
the Demised premises by foreclosure or otherwise, and further agrees that the
mortgagee so acquiring title shall not: (i) be liable for any previous act or
omission of Landlord or for the return of any security deposit unless same is
put in its possession; (ii) be subject to any prior defenses or offsets@ (iii)
be bound by any modification of this lease not expressly provided for in this
Lease or by any previous prepayment of more than one month's rent, unless such
modification or prepayment shall have been expressly approved in writing by said
mortgagee; or (iv) be liable for the performance of Landlord's covenants and
agreements contained in this Lease to ally extent other than to the mortgagee's
ownership in the Demised Premises, and no other property of such mortgagee shall
be subject to levy, attachment, execution and other enforcement procedure for
the satisfaction of Tenant's remedies.
b. The term "mortgage" as used in this section includes mortgages, deeds of
trust or any similar instruments and modifications, extensions, renewals and
replacements thereof
c. The provisions of the subordination and attornment contained in this
paragraph shall be self-operative mid no further instrument of subordination
shall be required in order to bind Tenant hereunder. In the event Landlord
desires confirmation Of Such Subordination and atonement, Tenant shall deliver a
confirmatory instrument within five (5) days of demand therefore.
d. Tenant does hereby agree to any assignment by Landlord, now or
hereafter, of the rentals under this Lease to a mortgagee, and all extensions,
renewals, modifications and replacements thereof Upon request, Tenant shall,
within five (5) days after receipt, execute and deliver to Landlord an
acknowledgment, in a form required by any mortgagee, stating (I) it is the
Tenant under this Lease; (ii) the Demised Premises have been unconditionally
accepted and Occupied and rent payments have commenced; (iii) the Lease is in
full force and effect and fully set forth the agreement of the parties; (iv) the
Lease has not been modified, amended, assigned or sublet; (v) no claim or right
of set-off exists and neither Landlord nor Tenant is in default and no grounds
for reducing the rent or canceling the Lease exist; and (vi)any exceptions to
the above statements.
<PAGE>
e. Tenant covenants that it shall in no event mortgage, assign or otherwise
encumber its interest in the Lease.
15. FIRE DAMAGE.
a. If, after the date hereof, the Demised Premises are damaged by fire, any
action, or other casualty (such damage being hereafter called "fire damage"),
Landlord shall at its option repair and restore said Demised Premises, In such
event there shall be a fair and proportionate abatement of all rent payable
hereunder according to the time during which the portion or extent to which said
Demised Premises were damaged or may not be used by Tenant. If the fire damage
is not substantially repaired within 120 days of the loss, then either party, on
notice to the other, may terminate this Lease.
b. If Landlord shall elect not to repair or restore said Demised Premises,
this Lease shall terminate on the date of occurrence of the fire damage.
Landlord shall notify Tenant in writing not more than sixty (60) days after the
settlement of the insurance claim relating to the fire damage if it elects not
to restore.
16. Compliance With Environmental Laws.
For purposes of this Lease, the following words and phrases have or include
the meanings thereafter appearing: "Hazardous substances or Hazardous wastes"
shall include any pollutants, contaminants, dangerous substances, toxic
substances, wastes, materials or substances, the presence of which requires
investigation, monitoring, reporting, special treatment, manifesting or
remediation under any federal, state or local statute, regulation, ordinance,
order, law, action, policy or common law; "Discharge" shall mean any release,
spill, leak, pumping, pouring, emitting, emptying, injecting, escape, leaching,
disposing, placement, staging or dumping of hazardous substances or hazardous
wastes; "Remediation" or "remediate" or "remedial" shall include any and all
actions to investigate, test, sample, analyze, report, evaluate, monitor or
clean up any known, suspected or potential Discharge or any action required to
be taken pursuant to any statute, rule, regulation, order or Environmental Law
(as hereinafter defined). "Remediation plans" shall mean all plans, studies,
applications, notices, forms, filings, proposals, reports, data, exhibits or any
other documentation in whatever form, including but not limited to samples or
sampling results concerning or related to, directly or indirectly, compliance
with Environmental Laws, sampling or testing results, environmental reports
(including without limitation Phase I and Phase 11 audits and all underlying
data), remediation reports, data, charts, maps, analyses, conclusions and
quality assurance/quality control documentation.
Tenant shall not cause or permit to exist any Discharge of any Hazardous
substance, Hazardous waste or pollutant on or about the Demised Premises.
To the extent applicable, Tenant shall, at Tenant's own expense,comply with
the Industrial Site Recovery Act, N.J.S.A. 13:lk-6 et. seq. and the regulations
promulgate thereunder ("ISRA"), as well as all other applicable laws, rules and
regulations including environmental laws now or hereafter enacted and applicable
to the Demised Premises, Tenant's use
<PAGE>
thereof, Tenant's activities thereat or materials used or maintained by Tenant
thereat (ISRA and such other laws are collectively referred to as "Environmental
Laws"). "Environmental Laws" means and includes but is not limited to any
present and future federal, state or local law, statute, regulation, order,
charter, fire, rule, code or ordinance, concerning environmental, health or
safety matters as the same may hereafter be amended, including, without
limitation, the Industrial Site Recovery Act ("ISRA"), the Spill Compensation
and Control Act (the "Spill Act"), the Hazardous Discharge Site Remediation Act,
the Water Pollution Control Act, the Solid Waste Management Act, the Hazardous
Waste Management Act, the Fresh Water Wetlands Act, the Federal Safe Drinking
Water Act, the Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA") and any rule, regulation, binding interpretation, binding policy,
permit, order, directive, court order or consent decree issued pursuant to any
of the following activities: (A) the emission, discharge, release, placement or
spilling of any substance into the air, surface, water, groundwater, soil or
substrata, (B) the manufacturing, processing, recycling, sale, generation,
treatment, storage, disposal, transportation, labeling or other management or
any waste, Hazardous Substance, Hazardous Waste, Pollutant or Contaminant as
those terms are hereinafter defined, or (C) any activity which involves any
Hazardous Substance or Hazardous Waste as that term is hereinafter defined. In
the event Tenant shall violate any Environmental Law, Tenant shall promptly give
Landlord notice of such violation and Tenant shall expeditiously and diligently
undertake all necessary actions to fully cure and remedy such violations within
the required time periods under the applicable Environmental Law and to
indemnify Landlord for any harm, damage or claim resulting from its failure to
comply with Environmental Laws.
Tenant shall, at Tenant's own expense, make all Submissions to, provide all
information to, and comply with all requirements of, the New Jersey Department
of Environmental Protection (the "NJDEP") or such other appropriate governmental
agencies charged with the administration of Environmental Laws (hereinafter
collectively referred to as the "Agency") . Should the Agency determine that a
remediation plan be prepared and that Remediation or investigation be undertaken
because of any Discharge or other action at the Demised Premises which was
caused by Tenant, its agents, employees, contractors, visitors, assigns, or
guests, or for which Tenant shall bear responsibility under any Environmental
Law, then Tenant shall, at Tenant's own expense, prepare and submit any
Remediation plans, financial assurances, and any other filings or submissions
required under Environmental Laws, all to be in form and substance satisfactory
to Landlord, and Tenant shall carry out or implement the approved Remediation
plans and other such filings and submissions at its own expense and with full
indemnification to Landlord. , In no event shall Tenant's Remediation plans
involve the deferral of any remedial action or any engineering or institutional
controls, including without limitation, capping, deed notice, deed restriction
or other use restriction. Notwithstanding provisions of any Environmental Law,
in no event shall Tenant's remediation meet standards any less stringent than
(I) those for residential sites or (ii) the most stringent standards applicable
for the Hazardous substances or wastes at issue without regard to the actual use
of the Demised Premises.
Tenant's obligations under this Paragraph 16 shall also arise if there is
any closing, termination or transferring of operations or ownership of an
industrial establishment at the Demised Premises pursuant to ISRA or any other
triggering event under ISRA or other Environmental Law which would necessitate
compliance, irrespective of the initiator or cause of such
<PAGE>
triggering event. Tenant shall have the primary responsibility to comply with
ISRA, or other applicable Environmental Law irrespective of who or how ISRA or
the other Environmental Law is triggered.
Tenant shall notified Landlord of all meetings scheduled between Tenant or
Tenant's representatives and any Agency, sufficiently in advance of such meeting
so Landlord is afforded a reasonable opportunity to attend and Landlord and its
representatives shall have the right, without the obligation, to attend and
participate in all such meetings. Tenant shall deliver to Landlord, without need
for prior request, all documentation concerning Discharges or potential
Discharges, the environmental condition at the Demised Premises or its environs
or concerning violations, actual, potential, threatened or alleged, of
Environmental Laws by Tenant, in the possession or under the control of Tenant,
including without limitation all Remediation studies, work plans, plans,
affidavits, sampling or testing protocols and results, reports regarding
correspondence to or from any Agency, correspondence to or from Tenant's
environmental consultants and/or other persons including experts, submissions to
any Agency, notices of violation or potential violation or directives from any
Agency, and any approvals or disapprovals from any Agency. At no expense to
Landlord, Tenant shall promptly provide all information requested by Landlord
for preparation of documents necessary to file under ISRA or any other
Environmental Law and shall promptly sign affidavits and other such documents
when requested by Landlord.
Tenant shall indemnify, defend and save Landlord harmless from all fines,
suits, procedures, claims, losses, damages, penalties, cost, expenses, and
actions of any kind, foreseen or unforeseen, including without limitation,
legal, engineering and other professional or expert fees incurred by Landlord,
arising out of or in any way connected, directly or indirectly, wholly or
partly, with (i) any Discharge at the Demised Premises which was caused by or
relates to the actions of Tenant, its agents, employees, contractors or guests;
(ii) Tenant's failure to provide all information, make all submissions and take
all actions required under any applicable law, rule or regulation including but
not limited to Environmental Law or by ail Agency; or (iii) Tenant's action or
in action with regard to Tenant's obligations under this Paragraph 16. Tenant's
failure to abide by the terms of this Paragraph 16 shall be restrainable or
enforceable by injunction.
Tenant shall effectuate and complete full compliance with ISRA and any
other applicable Environmental Law, including without limitation any necessary
rule, regulation, Remediation, subject to the provisions of this Paragraph 16,
prior to the Termination Date of this Lease, and will be liable for damages
and/or other costs and expenses to Landlord if it fails to do so, which at a
minimum shall equal a per them rental for the period after the end of the term
until compliance is completed at tile rental for an unconsented holdover
pursuant to Paragraph 22. Tenant shall commence its compliance with such laws in
sufficient time prior to the Termination Date so as to complete its obligations
under this Paragraph 16 by no later than the Termination Date. Promptly upon
completion of all required Remediation activities, Tenant shall restore the
affected areas from any damage, discharge or condition caused by the work,
including without limitation, closing, pursuant to law, any wells which had been
installed. In the event IRA shall apply to Tenant's occupancy of the Demised
Premises and its termination of operations at the Demised Premises or other
actions cause a trigger, Tenant shall deliver to Landlord a non-qualified
approval of Tenant's negative declaration or non-qualified no
<PAGE>
further action letter on or before the Termination Date. In the event IRA shall
not apply to Tenant's occupancy of the Demised Premises and its termination of
operations at the Demised Premises, Tenant shall furnish landlord with a letter
of ISRA nonapplicability from the NJDEP on or before the Termination Date and a
certification that Tenant has been in full compliance with all other applicable
Environmental Laws.
In the event that there has been a Discharge, or Landlord has reason to
believe that there has been a Discharge or threat of a release or discharge
exists, on or about the Demised Premises, then notwithstanding that Tenant is
not obligated to comply with any other subparagraph above for any reason, then
Tenant shall nonetheless upon Landlord's request: (i) promptly arrange for an
environmental audit, including, but not limited to a detailed air, soil,
surface, ground water and surface water sampling plan for the Demised Premises
in form and substance which in Landlord's sole discretion is satisfactory to the
Landlord; (ii) implement the Landlord-approved sampling plan with appropriate
governmental approvals as applicable; (iii) submit the results of the sampling
plan to the Landlord; and (iv) after the Landlord's review of the results of the
sampling plan, comply with Landlord's requirements for additional testing and/or
cleanup and site Remediation of any and all hazardous substances or wastes
identified by reason of the sampling plan, or conduct additional testing,
including without limitation any of Landlord's requirements corresponding to
those which the NJDEP could require under ISRA if same applied at that time to
Tenant and/or the Demised Premises. All costs associated with Tenant's
compliance with this subsection, including without limitation Landlord's costs
in reviewing the sampling plan and test results and developing a plan for and
monitoring the cleanup and site Remediation, or cost of any other entity
conducting a review or oversight in this regard shall be Additional Rent to be
paid by Tenant to Landlord upon demand.
In the event of Tenant's failure to comply in full with this Article,
Landlord may, at its option, perform any or all of Tenant's obligations as
aforesaid and all costs and expenses incurred by Landlord in exercise of this
right shall be deemed to be Additional Rent payable on demand.
17. DEFAULTS AND REMEDIES.
a. The following shall constitute events of default under this Lease:
(1) failure to pay when due any installment of Base Rent, Taxes or any
other Additional Rent due hereunder, or any part thereof which failure shall
continue for more than ten (10) days;
(2) failure in the performance of or compliance with any of the other
covenants, conditions and/or terms of this Lease, which failure shall continue
for more than thirty (30) days after written notice thereof to Tenant, provided,
however, if the default complained of in the notice is of such a nature that it
could not reasonably by cured within thirty (30) days, then there shall be no
default so long as Tenant (i) commences cure within thirty (30) days after the
notice, (ii) parties the cure with all due diligence, and (iii) completes the
cure within no more than ninety (90) days after the notice;
<PAGE>
(3) abandonment, vacation or desertion of the Demised Premises or
suspension of business at the Demised Premises for more than ten (10)
consecutive days;
(4) if this Lease shall be assigned, sublet, pass to or devolve upon one
other than the Tenant, except as permitted in Paragraph 18;
(5) the filing by or against Tenant of any petition with respect to its own
financial condition under any bankruptcy law or any amendment thereto
(including, without limitation, a petition for reorganization, arrangement or
extension), or under any other insolvency law or laws providing for the relief
of debtors (which petition, if filed against Tenant shall not be dismissed
within ninety (90) days); the appointment of a receiver, trustee, custodian,
conservator or liquidator for Tenant on all or substantially all of Tenant's
assets, and the underlying proceeding is not dismissed within ninety (90) days
after the commencement thereof; the admission by Tenant of its insolvency;
making of a general assignment for the benefit of creditors;
(6) if Tenant liquidates or ceases to exist.
b. Upon the occurrence of an event of default, Landlord, in addition to any
and all rights and remedies it may have at law and equity, may exercise any one
or more of the following remedies:
(1) Landlord may give Tenant a notice (the "Termination Notice") of its
intention to terminate this Lease specifying a date not less than three (3) days
thereafter, upon which date this Lease, the term and estate hereto granted and
all rights of Tenant hereunder shall expire and terminate. Notwithstanding the
foregoing: (i) Tenant shall remain liable for damages as hereinafter set forth,
and (ii) Landlord may institute dispossess proceedings for non-payment of rent,
or other proceedings to enforce the payment of rent without giving the
Termination Notice. Upon any such termination or expiration of this Lease,
Tenant shall peaceably quit and surrender the Demised Premises to Landlord, and
Landlord may without further notice enter upon, re-enter, possess and repossess
itself thereof, by force, summary proceedings, ejectment or otherwise and may
have, hold and enjoy the Demised Premises and the right to receive all rental
and other income of and from the same as heretofore provided.
(2) Landlord may, at Landlord's sole option (without imposing any duty upon
Landlord to do so), and Tenant hereby authorizes and empowers Landlord to: (i)
re-enter the Demised Premises as Tenant's agent or for any occupant of the
Demised Premises under Tenant, or for its own account or otherwise, (ii) relet
the same for any term, (iii) restoring the Demised Premises to the condition in
which it was required to be surrendered by Tenant under Paragraph 23, and (iv)
receive and apply the rent so received to pay all fees and expenses incurred by
Landlord, directly or indirectly, as a result of Tenant's default, including,
without limitation, any legal fees and expenses arising therefrom, the cost of
re-entry, repair and reletting and the payment of the rent and other charges due
hereunder; No entry, re-entry or reletting by Landlord, whether by summary
proceedings, termination or otherwise, shall discharge Tenant from any of its
liability to Landlord as set forth in this Lease, and in no event
<PAGE>
shall Tenant be entitled to or receive any benefit or credit from any rental IN
excess of the rent reserved under this lease which results from a reletting of
THE Demised Premises after Tenant's default;
(3) Regardless of whether Landlord relets the Demised Premises, or enters
or reenters the same, whether by summary proceedings, termination or otherwise,
Tenant will pay Landlord, and be liable to Landlord for (i) the full amount of
all Base Rent, Additional Rent, and all other charges then due or thereafter to
become due to Landlord hereunder less any sums collected by Landlord during the
remaining term of this Lease; said amount shall be paid by Tenant to Landlord on
the days originally fixed herein for payment thereof; or (ii) liquidated
damages in an amount which, at the time of such termination, re-entry or
dispossess by the Landlord, as the case may be, is equal to the excess, if any,
of the then present value of tire installments of the Base Rent reserved
hereunder for a period which would otherwise have constituted the unexpired
portion of tile then current term of this Lease, over the then present value of
the market rental value of the Demised Premises for such unexpired portion of
the then current term of this Lease, discounted at the rate of seven percent
(7%)per annum;
(4) If Tenant shall fail to pay any Taxes or make any other payment
required to be made under this Lease, or shall default in the performance of any
covenant, agreement, term, provision or condition herein contained, Landlord
may, without being under any obligation to do so, and without thereby waiving
such default, make such payment and/or remedy such default for the account and
at the sole expense of Tenant. Tenant shall pay to Landlord, on demand, the
amount of all sums so paid and all expenses so incurred by Landlord, together
with interest, at the rate set forth in subparagraph 17(b) (5) below, on such
sums and expenses from the date incurred until payment in full;
(5) Interest on any sums due to Landlord from Tenant under this shall
accrue from the date such sums became due and payable, at a variable rate equal
to two (2) percentage points above the prime interest rate as set daily by Chase
Manhattan Bank, but in no event less than ten (1O%) percent per annum.
c. Tenant shall be liable for any and all reasonable attorneys' fees and
expenses which Landlord may incur as a result of enforcing or protecting its
rights against Tenant under this Lease. Landlord shall be liable for any and all
reasonable attorneys' fees and expenses which Tenant may incur as a result of
Landlord's willful or wanton acts if Tenant is successful in a suit brought in
connection therewith.
d. In the event Tenant defaults under this Lease, the parties agree that
Landlord shall be deemed to have satisfied any obligation at law to mitigate
damages by listing the Demised Premises for rental with a commercial real estate
broker licensed to do business in New Jersey.
18. ASSIGNMENT AND SUBLETTING.
a. Tenant shall not be entitled, voluntarily or by operation of law or
otherwise, to transfer, sell, mortgage, pledge, hypothecate, assign or otherwise
transfer this Lease or sublet or grant a concession or license or otherwise
permit any other person or entity to occupy the Demised Premises or
<PAGE>
any part thereof (hereinafter referred to collectively as "Assignment") without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld. If Tenant is a corporation (other than a public corporation), limited
liability company, partnership or other such legally created entity, a transfer
of stock, membership interest, partnership interest or other type interest in
Tenant, whether by sale, assignment, bequest, inheritance, operation of law, or
otherwise to a natural person or entity other than to one which owned such an
interest in Tenant at the time this Lease is executed, shall be deemed an
Assignment which is prohibited hereunder.
The criteria for Landlord's consent shall include such factors as, without
limitation, proposed assignee's (hereinafter referred to as the "Assignee")
financial condition and its experience in the business it will conduct at the
Demised Premises (without regard to the Tenant's continued responsibility under
the Lease); the activity that will be carried out by the Assignee at the Demised
Premises; satisfactory assurance that the Assignee's presence at the Demised
Premises would not constitute an "industrial establishment" under IRA; approval
by the holders of any mortgages against the Demised Premises or any assignees
under any assignment of leases made by Landlord. Tenant shall provide Landlord
with all information requested by Landlord for its decision on the requested
Assignment and Tenant shall bear all expenses incurred or sustained by Landlord
in order to assess and evaluate the Assignment, including, but not limited to,
its reasonable attorney's fees. Any consent shall apply only to the specific
transaction for which it was given and shall not be a waiver of the obligation
of Tenant to obtain approval for Assignments. The acceptance or collection of
rent by the Landlord from any Assignee shall not be deemed an acceptance of such
Assignee as Tenant in lieu of written express consent or as a release of Tenant
from its obligation under this Lease. In no event shall the rent charged to any
Assignee by Tenant under any Assignment exceed the rent payable to Landlord by
Tenant under this Lease. Breach of this limitation on rent payable under an
Assignment shall constitute an event of default under this Lease giving Landlord
the ability to exercise any or all or its rights under Article 17, including the
right to terminate this Lease and any Assignment thereunder.
b. in the event Landlord consents to an Assignment, such consent to that
Assignment shall be expressly conditioned upon the compliance by Tenant and the
Assignee of the following provisions:
(1) From the time of the request for a consent to the Assignment through
the effective date of the Assignment itself, this Lease must be in full force
and effect without any breach or default thereunder existing on the part of the
Tenant.
(2) The Assignee shall assume, by written recordable instrument, in form
and content reasonably satisfactory to Landlord, the DUE performance of all of
Tenant's obligations under the Lease, including any accrued obligations at the
time of the assignment.
(3) A copy of the executed Assignment and the original assumption
agreement shall be delivered to the Landlord prior to the effective date of such
Assignment.
(4) such Assignment shall be upon and subject to all the provisions, terms,
covenants and conditions of this Lease and the Tenant, Assignee and any
Guarantor shall continue to be and remain liable hereunder.
<PAGE>
(5) Tenant shall have complied with the requirements of ISRA and shall have
received from the NJDEP either (I) a non-qualified approval of Tenant's negative
declaration, or (H) a letter of IRA non-applicability. Tenant shall furnish
Landlord with a copy of either the approval or the letter of ISRA
non-applicability from the NJDEP at the time the request for consent to the
Assignment is made to Landlord.
c. In the event the Assignment, for which consent is landlord, Landlord
shall have the right, at its sole option, in lieu of giving its consent to an
Assignment, to recapture the Demised Premises, in which event the Termination
Date for this Lease shall become the date the Assignment was to become effective
(or if no effective date was specified by Tenant in its request for consent,
then the Termination Date shall be the sixtieth day following Landlord's
election to recapture).
d. Notwithstanding the foregoing, Tenant shall have the right to sublease
the rear warehouse section of the Demised Premises provided that Landlord
approves the sublease agreement pertaining thereto.
19. SIGNS.
The Tenant shall not display, within the Demised Premises, any sign,
picture, advertisement, awning, merchandise, or notice ("Signage") which shall
be visible to the outside of the Demised Premises, except as permitted by
Landlord. Tenant shall be responsible for the maintenance and repair of its
Signage and shall remove all its Signage at the expiration of the term of this
Lease and repair all damage caused by the removal.
20. SECURITY.
Tenant shall, on the date hereof, deposit and maintain with the Landlord
throughout the term of this Lease the sum of money set forth in Paragraph I g as
security for the full performance of the conditions to be performed by the
Tenant. if Tenant defaults in its payment of rent or performance of its other
obligations under this Lease, Landlord may use all or part of the security
deposit for the payment of rent or any other amount in default, or for the
payment of any other amount that Landlord may spend or become obligated to spend
by reason of Tenant's default or breach of its obligations under this Lease, or
for the payment to Landlord of any other loss or damage that Landlord may suffer
by reason of Tenant's default or breach of its obligations under this Lease. If
Landlord so uses any portion of the security deposit, Tenant will restore the
security deposit to its original amount within ten (10) days after written
demand from Landlord. Otherwise, such failure shall be a default under Paragraph
l7a(l) of this Lease in the same manner as a failure to pay rent within 10 days
of the date due. Landlord will not be required to keep the security deposit
separate from its own funds and Tenant will not be entitled to interest on the
security deposit. The security deposit will not be a limitation on Landlord's
damages or other rights under this Lease, or a payment of liquidated damages, or
an advance payment of rent, Landlord will return the unused portion of the
security deposit to Tenant within sixty (60) days after the end of the term,
subject to any deductions necessitated by Tenant's default or breach of the
obligations at the end of the term, including, but not limited to its
obligations under Paragraph 23; however, if Landlord has evidence that the
security deposit has been assigned to an assignee of the Lease, Landlord will
return the security deposit to tile assignee. Landlord may deliver the security
deposit to a
<PAGE>
purchaser of the Demised Premises and be discharged from further liability with
respect to it.
21. QUIET ENJOYMENT.
Landlord covenants and agrees with Tenant that upon Tenant's prompt and
fall payment of all rent and other sums required to be paid by Tenant under this
Lease and observing and performing all the terms, covenants and conditions on
Tenant's part to be observed and performed, Tenant may peaceably and quietly
enjoy the Demised Premises, subject, nevertheless, to the terms and conditions
of this Lease and any present or future underlying leases, ground leases and/or
mortgages on the Demised Premises.
22. HOLDING OVER.
The Tenant shall have no right to remain in possession after the
Termination Date. If the Tenant shall occupy the Demised Premises after the
expiration of this Lease with the consent of the Landlord (which consent it
shall be the obligation of Tenant to obtain in writing prior to the Termination
Date and which consent Landlord shall be under no obligation to give), and rent
is accepted and collected from said Tenant, Such occupancy and payment shall be
construed as an extension of this Lease for a term of month-to-month only, from
the date of such expiration. In such event, if either Landlord or Tenant desires
to terminate said occupancy at tile end of any month after the termination of
this Lease, the party so desiring to terminate the same shall give the other
party at least thirty (30) days written notice to that effect. If such occupancy
continues after such notice of termination, or if Tenant shall continue its
occupancy after the Termination Date without obtaining Landlord's consent,
Tenant shall pay to Landlord, as partial damages and without need for notice or
demand, double the amount of both Base Rent and all Additional Rent for the time
Tenant retains possession of the Demised Premises or any part thereof after
termination of the term together with all costs, expenses and damages incurred
by Landlord AND its agent to obtain possession from Tenant and/or as a result of
any loss and/or liability sustained by Landlord or its agents in connection with
any subsequent tenancy which may have intended to occupy said Demised Premises
at the expiration of the term herein. The acceptance of rent by Landlord shall
not be deemed to create a new or additional tenancy other than aforesaid.
23. SURRENDER.
a. On the last day of the term or on the sooner termination thereof, Tenant
shall, at Tenant's sole cost and expense, (I) peaceably surrender the Demised
Premises broom-clean, in good order and condition and upon Landlord's request,
restored to its original condition as of the commencement of the term of this
Lease, except for reasonable wear and tear and (ii) at its expense remove from
the Demised Premises the Signage, movable furniture, equipment, machinery, trade
fixtures (the personalty which belongs to Tenant and which Tenant may remove
shall be referred to as "Tenant's Property"), and any of Tenant's Property not
so removed may at Landlord's election and without limiting Landlord's right to
compel removal thereof, be deemed abandoned. Any damage to the Demised Premises
caused by Tenant in the removal of Tenant's Property shall be repaired by and at
Tenant's expense,
<PAGE>
b. The title to all alterations, additions, improvements, repairs,
decorations (including any carpeting and hard surface, bonded or adhesively
affixed flooring, heating and air conditioning equipment and fixtures (other
than Tenant's Property)) which shall have been made, furnished or installed by
or at the expense of either the Landlord or Tenant in or upon the Demised
Premises, vest in Landlord upon the installation thereof, and the same shall
remain upon and be surrendered with the Demised Premises as part thereof without
disturbance and without charge, unless otherwise required by Landlord, which
requirement is hereby waived with respect to the alterations set forth in
Schedule 23.6. hereof.
c. No act or thing done by Landlord or its agent or by any employee of
Landlord or its agent during the term of this Lease, including but not limited
to, the delivery or acceptance of keys to the Demised Premises or the entry into
the Demised Premises, will be deemed an acceptance by Landlord of a surrender of
the Demised Premises, and no agreement to accept surrender shall be valid and
binding upon Landlord unless in writing and signed by Landlord.
24. NOTICES.
All notices and demands which are required to or are permitted by the terms
of this Lease sha all be given in writing, whether herein specified or not, and
shall be deemed effectively given three business days after being sent by United
States registered or certified mail, postage prepaid, or one business day after
being sent by United States express mail, postage prepaid, or by Federal Express
(or by another reputable national overnight courier service), in each case
addressed to the parties at the addresses shown in Paragraph 1 h with copies
sent via the same means, to:
If to Landlord, copy to:
Steven D. Fleissig, Esq.
Friedman El Siegelbaum
Seven Becker Farm Road
Roseland, New Jersey 07068
If to Tenant, copy to:
Roger Fidler, Esq.
163 South Street
Hackensack, New Jersey 07601
Notices transmitted by means other than set forth above shall be deemed
effectively given upon receipt by the party being noticed. Said addresses and
the names of the parties to whom notices are to be sent may be changed from time
to time by either party or by an assignee or successor or either of them by the
giving of written notice to the other.
<PAGE>
25. COMPLIANCE WITH LAWS
Tenant will not use or occupy, or permit any portion of the Demised
Premises to be used or occupied, (a) in violation of any law, ordinance, order,
rule, regulation, certificate of occupancy or other governmental requirement, or
(b) for any disreputable business or purpose, or (c) in any manner for any
business or purpose that creates risks of fire or other hazards, or that would
in any way violate, suspend, void or increase the rate of fire or liability or
any other insurance of any kind at any time carried by Landlord upon all or any
part of the building in which the Demised Premises are located or its contents.
Tenant will comply with all laws, ordinances, orders, rules, regulations and
other governmental requirements relating to the use, condition or occupancy of
the Demised Premises, and all rules, orders, regulations, recommendations and
requirements of the board of fire underwriters or insurance service office, or
any other similar body, having jurisdiction over the building in which the
Demised Premises are located.
26. OPTION TO EXTEND TERM.
Tenant shall have the option to extend the initial three (3) year term of
this Lease for one (1) additional period of three (3) years (the "Option
Period"), with the Option Period commencing on the third (3rd) anniversary of
the Commencement Date and terminating on the day immediately preceding the sixth
(6th) anniversary of the Commencement Date. The option to extend, as well as the
commencement of the Option Period, shall be expressly conditioned upon Tenant,
up to the time tile Option Period is to begin, having fully and timely complied
with all its monthly rental obligations under this Lease and Tenant not having
committed an uncured breach or default of any other of its other obligations
under this Lease.
The option to extend is exercisable by Tenant, if at all, only in strict
compliance of the aforesaid conditions and by giving Landlord written notice of
its election to extend the then term not later than the one-hundred eightieth
(180th) day prior to tile Termination Date. Strict compliance with the
conditions of the option and the exercise thereof is deemed material to tile
parties and time for exercise is of the essence. Failure to so exercise shall be
deemed a waiver of this option by Tenant, in which event this Lease shall expire
on the then Termination Date as set forth in Paragraph 3. All terms, provisions,
covenants and conditions of this Lease shall apply during the Option Period,
except that there shall be no Further right to extend the term beyond the Option
Period and the Base Rent during the Option Period shall be as provided in this
Paragraph below.
The Base Rent to be charged during each Option Period shall he adjusted,
with the adjustment occurring on the first day of the Option Period. The Base
Rent during the Option Period shall be the prevailing market rental rate at the
time of the exercise of the option, including prevailing market increases, if
any, for option years two and three, but at no time lower than the Base Rent in
force during the initial Term. If Landlord and Tenant cannot agree to the Base
Rent for all three years of the option period (the "Option Base Rent") within
fifteen (15) days of Tenant's notice, then each party shall immediately select a
licensed commercial real estate broker familiar with similar properties in the
area ("Arbitrator"), who shall be charged with agreeing upon the Option Base
Rent within twenty (20) days of the failure of the parties to agree. If such
Arbitrators cannot so agree, then they shall immediately select a third
Arbitrator who shall render a decision within
<PAGE>
twenty (20) days of his/her selection (but in no event more than thirty (30)
days after the two initial Arbitrators determined they could not agree) and
whose decision shall be binding upon the parties. The Base Rent, as adjusted,
shall be paid in equal monthly installments through the applicable months of the
Option Period.
27. EXCULPATION.
Notwithstanding anything to the contrary set forth in this Lease, it is
specifically understood and agreed by Tenant that there shall be absolutely no
personal liability on the part of Landlord or on the part of tile members or
agents of Landlord, if any, with respect to any of the terms, covenants and
conditions of the Lease, and Tenant shall look solely to the equity, if any, of
Landlord in the Demised Premises in which the Demised Premises is a part for the
satisfaction of each of the terms, covenants and conditions of this Lease to be
performed by Landlord, This exculpation of personal liability of Landlord, its
members and agents, if any, is absolute and without any exception whatsoever.
28. MISCELLANEOUS.
a. Definitions.
(1) The word "Tenant" shall mean each and every person or party mentioned
as Tenant herein, and if there shall be more than one Tenant, then each such
person or party being named as a Tenant shall be jointly and severally liable
for the obligations of the Tenant under this Lease, and any notice required or
permitted by the terms of this Lease may be given by or to any one thereof and
shall have the same force and effect as if given by or to all thereof.
(2) The term "Landlord" as used in this Lease shall mean the owner or
lessee (if the Landlord claims the right of possession by reason of a lease or
sublease from the owners) for the time being of the Demised Premises, and if
such property or the Lease be sold or transferred, voluntarily or involuntarily,
the seller, or assignor, shall be entirely relieved of all obligations under
this Lease and it shall be deemed without further agreement between the parties
hereto and their successors, that the purchaser on such sale or the lessee or
assignee has assumed and agreed to carry out all obligations of Landlord
hereunder.
(3) The words "rent" or "rental" may be used interchangeably and are
defined to include all monies specifically reserved as Base Rent, Additional
Rent, Taxes, rent, and all costs, expenses and damages which the Landlord may
suffer or incur by reason of any default of the Tenant or failure oil its part
to comply with the covenants, terms or conditions of this Lease, and all other
sums of money which by virtue of this Lease shall at any time or times become
due and owing by Tenant to Landlord.
(4) The words "lease year" shall mean the period of twelve (12) successive
calendar months, with the first lease year beginning on the Commencement Date
and each succeeding lease year beginning immediately after the prior lease year
on the anniversary of the Commencement Date.
<PAGE>
b. Abandonment of Fixtures. If Tenant moves out or is dispossessed and
fails to remove any trade fixtures or any other property within thirty (30) days
after said moving or dispossession then, in that event, Landlord may at its
option deem the property abandoned by the Tenant, in which case, it shall become
the property of the Landlord.
c. Waiver. The failure of Landlord or Tenant to seek redress for violation
of, or to insist upon the strict performance of, any provision of this Lease
shall not be construed as a waiver or relinquishment for the future of such
provision. The receipt by Landlord of rent with knowledge of a breach of any
covenant of this Lease shall not be deemed a waiver of such breach. No payment
by Tenant or receipt by Landlord of a lesser amount than the rent herein
stipulated or demanded by Landlord as required hereunder shall be deemed to be
anything other than a dollar for dollar payment on account of the full
obligation demanded by Landlord, nor shall Landlord's acceptance of such payment
be deemed a waiver of Landlord's demand that a greater sum is due or of
Landlord's right to recover the balance or pursue its other remedies. Tenant
agrees that no endorsement or statement on any check nor any letter accompanying
any check or payment of rent made by Tenant or on its behalf shall be deemed an
accord and satisfaction or be in any way binding upon Landlord as to any
expressed or implied condition or limitation on the payment, and Landlord, after
accepting such payment, may pursue recovery of the balance of such rent or its
other remedies. in the event of an Assignment, whether or not Landlord has
consented to same, Landlord may collect rent from the Assignee and apply the net
amount collected to the rent reserved in this Lease. Any such collection by
Landlord shall not be deemed a waiver of any covenant in this Lease against
Assignment, or the acceptance of the Assignee as the Tenant tinder this Lease,
or a release of Tenant from the complete performance by Tenant of its covenants
under this Lease.
d. Entire Agreement. This Lease sets forth tile full understanding between
Landlord and Tenant concerning the Demised Premises. There are no oral
agreements or understandings between the parties hereto affecting this Lease,
and this Lease supersedes and cancels any and all previous negotiations,
arrangements, agreements and understandings, if any, between the parties with
respect to the subject matters hereof, and none thereof shall be used to
interpret or construe this Lease. Except as herein otherwise expressly provided,
no subsequent alteration, amendment, change or addition to this Lease, nor any
surrender of the term, shall be binding upon Landlord or Tenant unless reduced
to writing and signed by them.
e. Lease Effective. The submission of this Lease by Landlord to Tenant for
examination shall not be deemed to constitute an offer by Landlord or a
reservation to Tenant of an option to lease, and this Lease shall become
effective as a binding instrument only upon the execution and delivery thereof
by both Landlord and Tenant.
f. Partial Invalidity. If any provision of this Lease should be held by a
course of competent jurisdiction to be void, invalid or unenforceable, THE
remainder of this Lease shall continue in full force and effect and shall in no
way be affected, impaired or invalidated thereby.
<PAGE>
g. Landlord's Rights of Entry. Landlord or its assignees shall have the
right to enter the Demised Premises during reasonable business hours for the
purpose of examining tile same, showing same to third parties or, in the event
of emergency, in order that repairs and alterations may be made for the safety
and preservation thereof, provided, however, that Landlord's right to enter upon
said Demised Premises shall be subject to the exercise of ordinary care and
caution in doing so. During the one year period prior to the expiration of the
term of this Lease, Landlord or its agents or representatives shall have the
right to place "For Rent" notices on the front of the Demised Premises.
h. No Liens by Tenant. Tenant shall not suffer or permit or cause any liens
or any action to be filed against the Demised Premises by reason of any cause of
Tenant or Tenant's agents or employees.
i. Interpretation. The captions and headings throughout this Lease are for
convenience and reference only and the words contained therein shall in no way
be field or deemed to define, limit, describe, explain, modify, amplify or add
to the interpretation, construction or tile meaning of any provisions of, or the
scope or intent of, this Lease, nor in any way affect this Lease.
All references to nouns and pronouns used herein shall be construed in the
singular or plural and in such gender and tense as the sense of this Lease
requires.
No provisions of this Lease shall be construed by any court or other
judicial authority against either Landlord or Tenant by reason of any such party
being deemed to have drafted or structured such provision.
The words "hereby", "herein", "hereof", "hereto", "hereunder", and similar
words shall always be deemed to refer to this Lease in its entirety, and not
merely to the subparagraph or paragraph wherein such words appears, unless
expressly so modified.
j. Survival of Tenant's Obligations. All obligations of Tenant which by
their nature involve performance, in any particular, after the end of the term,
or which cannot be ascertained to have been fully performed until after the end
of the term, shall survive tile expiration or sooner termination of the term.
k. Trial by Jury Waiver. The parties hereby waive trial by jury in any
action, proceeding or counterclaim brought by either party against the other on
any matter arising out of or in any way connected with this Lease, the
relationship of Landlord an Tenant, or Tenant's use and occupancy of (fie
Demised Premises.
l. Acceptance of Possession. The Tenant represents that it has thoroughly
inspected the Demised Premises and its having taken possession of the Demised
Premises shall be conclusive evidence that Tenant accepts same "as is" and that
said premises, equipment, and the building of which the Demised Premises
<PAGE>
forms a part were in good order and satisfactory condition at the time such
possession was so taken
m. Successors and Assigns. This lease shall be binding upon and shall inure
to the benefit of the parties hereto, their respective heirs, representatives,
successors, and to the extent that this Lease is assignable by the terms hereof,
to the assigns of such parties
n. Joint and Several Liability. If Tenant is composed of more than one
signatory to this Lease, each signatory as Tenant will be jointly and severally
liable with each other signatory for payment and performance of all obligations
of Tenant under this Lease
o. Authority. If Tenant signs this Lease as a corporation, partnership or
limited partnership, each of the persons executing this Lease on behalf of
Tenant warrants to Landlord that Tenant is a duly authorized and existing
corporation, partnership or limited partnership, as the case may be, that Tenant
is qualified to do business in the state in which tile Premises are located,
that Tenant has full right and authority to enter into this Lease, and that each
and every person signing on behalf of Tenant is authorized to do so, and that
signing binds the Tenant to the terms of this Lease,
p. Recording. Tenant shall not record this Lease or any Memorandum of this
Lease. Any such recording by Tenant shall be a material breach of this Lease.
q. Brokerage. Neither Landlord nor Tenant has dealt with any broker or
agent in connection with the negotiation or execution of this Lease, other than
T.R. Alter & Associates, Inc. whose commission shall be paid by Landlord, Tenant
and Landlord shall each indemnify the other against all costs, expenses,
attorneys' fees, and other liability for commissions or Other compensation
claimed by any broker or agent claiming the same by, through, or under tile
indemnifying party.
29. Landlord's Lien.
In addition to the statutory landlord's lien, to the extent permitted by
law, Tenant grants to Landlord, to secure performance of Tenant's obligations
hereunder, a security interest in all goods (including equipment and inventory),
fixtures, and other personal property of Tenant situated on the Demised
Premises, and all proceeds thereof (tile "Collateral"), and the Collateral shall
not be removed from the Demised Premises without the prior written consent of
Landlord (other than in Tenant's ordinary course of business) until all
obligations of Tenant have been fully performed. Upon the occurrence of Event of
Default, Landlord may, in addition to all other remedies, without notice or
demand except as provided below, exercise tile rights afforded to a secured
party under the New Jersey Uniform Commercial Code (the "UCC"). To the extent
the UCC requires Landlord to give to Tenant notice of any act or event and such
notice cannot be validly waived before a default occurs, then five-days' a power
of attorney to execute and file any financing statement or other instrument
necessary to perfect Landlord's security interest under this Section 29, which
power is coupled with
<PAGE>
an interest and is irrevocable during the Term. Landlord may also file a copy of
this Lease as a financing statement to perfect its security interest in the
Collateral.
30. SUBSTITUTION SPACE.
Landlord may, at Landlord's expense, relocate Tenant within the Building
to space which is comparable in size, utility and condition to the Demised
Premises. If Landlord relocates Tenant, Landlord shall reimburse Tenant for
Tenant's reasonable out-of-pocket expenses for moving Tenant's furniture,
equipment, and supplies from the Premises to the relocation space and for
reprinting Tenant's stationery of the same quality and quantity as Tenant's
stationery supply on hand immediately before Landlord's notice to Tenant of the
exercise of this relocation right. Upon such relocation, the relocation space
shall be deemed to be the Demised Premises and the terms of the Lease shall
remain in full force and shall apply to the relocation space.
WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
the day and year first above written.
LANDLORD
PABLITO, L.L.C.
BY: __________________________________
Paul Schreiber, Manager
TENANT
SCANTEK MEDICAL, INC.
BY: __________________________________
Patricia B. Furness
Vice President/Treasurer
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.
LANDLORD
PABLITO, L.L.C.
BY: PAUL SCHREIBER
--------------------------
Paul Schreiber, Manager
TENANT
SCANTEK MEDICAL, INC.
BY: PATRICIA B. FURNESS
-------------------------------
Name: Patricia B. Furness
Title: Vice President/Treasurer
LICENSING AGREEMENT
BETWEEN
SCANTEK MEDICAL, INC.
AND
SANDELL CORP. S.A.
THIS AGREEMENT is made this 22nd day of September, 1997, by and between Scantek
Medical, Inc. (the "Licensor"), a Delaware corporation having its principal
place of business at 321 Palmer Road, Denville, New Jersey, and Sandell Corp.
S.A., a Uruguayan corporation, (the "Licensee") having its principal place of
business at Brandzen 1984-704 Montevideo, Uruguay with reference to the
following facts and upon the following terms and conditions:
WHEREAS, Certain technology having been the object of Letters Patent of the
United States set forth on Exhibit A which have been assigned to the Licensor
along with numerous patents obtained on the same technology in countries other
than the United States, and also comprising technical trade secrets and business
know-how (hereinafter referred to jointly and severally as the "Technology");
and
WHEREAS, Licensee is desirous of obtaining, for itself and its Affiliates, an
exclusive license to use said Technology, Technical Information and Know-How,
defined below, to assemble certain devices described on Exhibit B hereto (the
"Licensed Devices") and to sell and use the Licensed Devices in the Territory,
defined below; and
1. DEFINITIONS
The following terms as used in this Agreement shall, unless clearly indicated
otherwise, have the following meanings:
A. "Territory" shall mean the countries listed on Exhibit C hereto,
except as any of them are eliminated under this Agreement.
<PAGE>
B. "Licensed Devices" shall mean the BTAI Devices described on Exhibit B
to be marketed by the Licensee in the Territory and all improvements
thereto.
C. "'Affiliate" shall mean any company, Twenty percent (20%) or more
whose voting stock is owned or controlled directly or indirectly, by a
party to this Agreement and any company which owns or controls,
directly or indirectly Twenty percent (20%) or more voting stock of a
party to this Agreement.
D. "Minimum Net Sales" shall mean the Minimum Net Sales specified on
Exhibit D which Licensee IS required to maintain in each country there
listed.
E. "Net Sales" shall mean the gross amount invoiced for the Licensed
Devices less all credits or allowances granted on account of
rejection, returns, billing errors, duties, taxes and other
governmental charges.
F. "Technical Information and Know-How" shall mean all information
belonging to Licensor or in Licensor's possession which is necessary
for the assembly, marketing and use of the Licensed Devises including,
inter alia, written assembly directions, quality control
specifications and procedures used in connection therewith and
information and data regarding the use of the Licensed Devices, and
also information utilized by Licensor in obtaining governmental
approvals for the sale of the Licensed Devices.
G. "Minimum Sales" shall mean the minimum sales which must be paid by the
Licensee to Licensor during each Contract Year hereunder.
H. "Sublicenses License Fees" shall mean a specific fee collected by the
Licensee from its Sublicenses in behalf of the Licensor for each
Contract.
I. "Contract Year" shall mean each year during the term of this Agreement
commencing on an anniversary of the date hereof and ending on the day
immediately preceding the next such anniversary.
2. EXCLUSIVE LICENSE/MANDATORY LOCATION
Subject to the Licensee's compliance with the terms hereof, the Licensor hereby
grants to the Licensee during the term hereof, a non-assignable, indivisible,
non-transferable exclusive right and license in and only within the Territory,
to assemble, use, and sell the Licensed Device containing the Technology
(including all patents issuing upon any of such patent applications) and the
Technical Information and Know-how. However, the Licensee shall have right to
grant sublicenses with respect to this License.
Licensee must maintain its operations in the Uruguay Free Trade Zone. Failure to
do so will result in the termination of this License at Licensor's sole option
and without recourse by Licensee.
2
<PAGE>
3. PURCHASING REQUIREMENTS; LICENSE FEE; OTHER CONDITIONS
A. In addition to any other fees specified below, and solely as consideration
for Licensor's entry into this Agreement, the Licensee shall pay to the
Licensor a non-refundable License Fee of thirty five percent (35%) of the
fully diluted, total issued and outstanding common shares of the Licensee
and Five Hundred Thousand Dollars ($500,000) paid in three installments as
follows: One Hundred Thousand Dollars ($100,000) upon the execution of this
Agreement; an additional payment of Two Hundred Thousand Dollars ($200,000)
on or before April 30, 1998; and Two Hundred Thousand Dollars ($200,000) on
or before January 30, 1999. Unless specified otherwise herein, all dollars
referred to in this Agreement are United States Dollars.
B. Licensee shall purchase the Licensed Device solely from the Licensor during
each Contract Year during the term of the Agreement the guaranteed Minimum
Product Purchases ("Minimum Purchases") equal to the amounts for each
Contract Year indicated on Exhibit D hereto.
C. Licensee shall maintain true, complete and correct books and records of all
transactions within the scope of this Agreement, in accordance with
generally accepted accounting principles, to enable Licensor to readily
ascertain all amounts purchased hereunder and the information to be set
forth in the statements required by this Section 3. Licensor, its agents or
representatives, shall have the right, during Licensee's normal business
hours, at any time and from time to time during the term of this Agreement
and for a period of two years thereafter, to inspect, examine and copy all
or any part or parts of such books and records and all other documents and
materials (at Licensor's expense), relating to the transactions
contemplated by this Agreement. All such books and records shall be kept
available by Licensee for at least two years after the termination of this
Agreement. (However, Licensee shall be free to destroy any material more
than six (6) years old.
D. Licensee agrees to limit membership on its Board of Directors to five (S)
members of which Scantek shall have the right to appoint up to three(3)
members.
E. The 35% of the Licenses equity which is owned hereafter by the Licensor
shall not be diluted for any reason whatsoever. Any such dilution shall
cause the immediate termination of the License granted herein, at the
Licensor's sole option.
3
<PAGE>
4. TERM
A. Subject to Licensee's compliance with its obligations hereunder the term of
this Agreement shall be FOURTEEN (14) years, but subject to the following:
(i) If the Licensee shall abandon the exploitation of the Licensed
Device by failing for a period of twelve consecutive months to achieve the
Minimum Product Purchases as specified in Exhibit D the Licensor may on
thirty days written notice to the Licensee, at its option, terminate this
Agreement or alter the definition of "Territory," in either case without
prejudice, however, to the money due to the Licensor hereunder.
(ii) If any payments due hereunder are in arrears for thirty days
after the due date, and if thereupon notice is given to the Licensee both
by telegram, telefax, or by registered mail, and if thereafter such payment
remains in arrears for thirty days after the sending of such notice; or if
the Licensee defaults in performing any of the other terms of this
Agreement and continues in default for a period of thirty days after
written notice thereof; or if the Licensee is adjudicated with its
creditors; or if a receiver is appointed for it; then, in any such event,
the Licensor shall have the right to terminate this Agreement upon giving
notice to the Licensee at least thirty days before the time when such
termination is to take effect, and thereupon this Agreement shall become
void but without prejudice to any remedy of the Licensor.
(iii) Upon termination under subdivisions (i), or (ii) of this
paragraph, the Licensee shall duly account to the Licensor and transfer to
it all Technology processes, and apparatus, together with all copies its
documentation evidencing or embodying the Technical Information and
know-how in respect thereof, and all rights to any sublicense or
sublicenses which may have been granted pursuant to the terms hereof.
5. MANUFACTURING AND PURCHASE
A. All manufacturing of the Licensed Device to be delivered to Licensee shall
be the responsibility and under the control of the Licensor. Licensee shall
not attempt, directly or indirectly, to compete with the Licensor in the
manufacture of the Licensed Device.
B. Licensor shall deliver Licensee's requirements for the Licensed Device to
Licensee, F.O.B. Licensor plant location, at an initial price of US. $8.00
per Unit (except for Units to be sold by the Uruguayan distributor which
shall be sold on the basis of eleven (11) Units for $80.00)', plus one
percent (1%) ("Inflation Factor") to take account of inflation in the
medical device prices in the markets into which Licensee is distributing.
4
<PAGE>
The Inflation Factor will be computed by utilizing appropriate official
statistics from the national governments in the Territory and shall take into
account the relative amounts of sales being made by Licensee into the various
countries in the Territory. Any objection by Licensee to the amount OF any such
increase shall be resolved by binding arbitration as set forth hereinafter.
C. Payment by the Licensee shall be (payable thirty (30) days after date of
shipment,) F.O.B. Licensor's (or its subcontractors) factory. Licensee
shall be responsible for risk of loss, customs clearing and transportation.
Licensee acknowledges that it is responsible for the cost of shipment and
insurance of all units purchased once they are delivered to the F.O.B.
point. Title to all units of sensors or Licensed Devices will pass to
Licensee upon delivery of such units to the F.O.B. point referred to above.
D. Licensee shall inspect the Sensors, within 30 days after receipt. If
Licensee timely rejects any units of the Sensors which do not conform to
agreed upon specifications Licensor may substitute a like quantity of
conforming Sensors. Licensee may reject any shipment of non-conforming
units of the Sensors only within 30 days after receipt, by notice to
Licensee stating the reason for rejection with specificity. Failure to
timely reject or give proper notice of rejection shall be deemed to
constitute acceptance of such shipment. Properly rejected units of the
Sensors shall, at Licensor's sole option, be returned to Licensor (at
Licensor's expense) or destroyed.
E. If any shipping date is specified, such date represents a good faith
estimate by Licensor. In any event, Licensor shall not be responsible for a
delay in shipment resulting from events or circumstances beyond Licensor's
control or for damages or losses attributable to any such delay.
F. Licensor reserves a purchase money security interest in Sensors delivered
pursuant to this Agreement in order to secure the prompt and full payment
of the purchase price and other amounts due hereunder. Licensee agrees that
Licensor may execute in Licensee's name and file with the appropriate
authorities a financing statement to further perfect its security interest
under applicable law.
G. Licensor warrants that the Sensors shall be manufactured by it in
accordance with the design, manufacturing, performance and packaging
specifications, and the quality control and testing standards as the
parties may from time to time agree upon in writing. Licensor warrants that
Sensors and Licensor's manufacturing procedures will comply with all
requirements of applicable governmental bodies in the United States. Except
as provided above, LICENSOR HEREBY EXPRESSLY
5
<PAGE>
DISCLAIMS ANY OTHER REPRESENTATIONS, WARRANTIES AND GUARANTEES WITH RESPECT
TO THE LICENSED DEVISES OR SENSORS PURCHASED HEREUNDER, WHETHER WRITTEN,
ORAL, IMPLIED OR INFERRED BY TRADE, CUSTOM OR PRACTICE, INCLUDING, WITHOUT
LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. LICENSOR SHALL NOT BE LIABLE UNDER ANY CIRCUMSTANCES
FOR DAMAGES OF ANY KIND, WHETHER DIRECT, CONSEQUENTIAL OR OTHERWISE
RELATING TO THE PERFORMANCE OF ANY SENSOR. IN NO EVENT SHALL LICENSOR'S
LIABILITY UNDER THIS AGREEMENT EXCEED THE PURCHASE PRICE FOR THE SENSORS
PURCHASED HEREUNDER.
H. If Licensee does not pay the full amount of the purchase price and other
amounts specified under this Agreement or in any other order from Licensor
as and when due, then, in addition to its other rights or remedies
hereunder and under applicable law, Licensor may withhold performance of
its obligations hereunder or cancel any outstanding orders, without
liability to Licensee by Licensor, and without discharge or mitigation of
any of Licensee's obligations.
I. Licensee may not cancel or assign any order given to Licensor without the
prior written consent of Licensor, which Licensor may withhold in its sole
and absolute discretion.
J. Nondelivery or default by the Licensor as to any installment shall not be
deemed a breach of this Agreement except as to such installment. Such
nondelivery or default shall not relieve Licensee from its obligation to
accept and pay for any subsequent or prior installment, regardless of
whether such nondelivery substantially impairs the value of this contract.
6. USE OF TRADEMARKS, TECHNICAL INFORMATION AND KNOW-HOW
Licensee, and, if Licensee performs its obligations hereunder, Licensor, agree
to freely exchange any Technical Information and Know-How developed by them
through an open and continuous dialogue regarding their operations. [Licensor
agrees hereby to license at no additional cost to Licensee any and all
trademarks and service marks owned by Licensor.] Such license(s) shall be solely
for use in connection with sale of the Devices in the Territory, and shall not
include any information regarding manufacturing processes or equipment.
6
<PAGE>
7. NOTICE
Any notice to be given pursuant to the terms of this Agreement shall be
addressed as follows:
If to the Licensor: Zsigmond Sagi, President
Scantek Medical, Inc.
321 Palmer Road
Denville, New Jersey
If to the Licensee: Luis Primavesi, President
SANDELL CORP, S.A.
BRANDZEN, 1984, 704
MONTEVIDEO, URUGUAY
8. NECESSARY DOCUMENTS
The Licensee shall furnish to the Licensor, or to nominees and patent attorneys,
all information and documents regarding any inventions or improvements developed
by the Licensee, including the apparatus, processes, and formulas in respect
thereof, in order to enable the Licensor to operate thereunder and to enable its
attorneys to prepare and prosecute Patent applications therefor, with respect to
any and all improvements developed by Licensee the understanding that, if so
requested by the Licensor, such attorneys shall collaborate with such other
Patent attorney as the Licensor may designate. The Licensor shall (at Licensee's
expense) render to the Licensee such services in their consulting capacity as
may be necessary in order to instruct the Licensee, or its appointed
representative, in all operations pertaining to the industrial and commercial
exploitation of the Inventions.
9. OWNERSHIP OF PATENTS
All Patents shall be the exclusive property of the Licensor, subject to the
exclusive license hereby granted. The Licensor shall, upon demand, execute and
deliver to the Licensee such documents as may be deemed necessary or advisable
by counsel for the Licensee for filing in the appropriate Patent offices to
evidence the granting of the exclusive license hereby given. No additional
patents covering any technology developed by Licensor, or the Licensee which
uses the Licensor's technology as a starting point, shall be applied for by the
Licensee without the Licensor's express written consent.
10. INFRINGEMENT
The Licensee shall defend at its own expense all infringement
7
<PAGE>
suits that may be brought against it on account of the assembly, use, or sale of
the processes, apparatus and Licensed Devices, covered by this Agreement, and
when information is brought to its attention indicating that others without
license are unlawfully infringing on the rights granted by Paragraph I hereof,
it shall prosecute diligently any infringer at its own expense. If the Licensee
finds it necessary or desirable in any suit which the Licensee may institute,
the Licensee may join the Licensor as parties plaintiff. In such event, the
Licensor shall not be chargeable for any costs or expenses. In connection with
such suits, the Licensor shall execute all papers necessary or desirable and the
Licensor shall testify in any suit whenever requested to do so by the Licensee.
All out-of-pocket expenses o the Licensor for travel, accommodations, and meals
(but not for lost income) shall be paid by the Licensee whenever such testimony
is requested.
11. NEW INVENTIONS/TEST RESULTS
If during the continuance of this license the Licensee makes any further
improvements in the Licensed Devices, the Technical Information and Know-How or
the Technology or the mode using the or becomes the owner of any such
improvements either through Patents or otherwise, then it shall and hereby does
assign such improvements to the Licensor which shall give the Licensor full
information regarding the mode of using them. However, during the term of this
Agreement, the Licensee shall be entitled to use th same with all rights which
they hereby grant to the Licensee in respect to the Technology and the Technical
Information without paying any additional royalty with respect thereto. Licensee
shall also provide Licensor with any and all test results arising from tests of
a Licensed Devices as soon as such results are available.
12. ARBITRATION
Except as otherwise provided herein, any dispute under this Agreement shall be
settled by arbitration in pursuant to the Commercial Rules, then obtaining, of
the American Arbitration Association, such arbitration to be conducted in New
York, New York or such other lace as the parties hereto may mutually agree.
13. BENEFIT
This Agreement shall be binding upon and inure to the benefit the parties hereto
and their successors in interest.
8
<PAGE>
14. NONDISCLOSURE
A. CONFIDENTIAL INFORMATION. (i) Upon the effective date and thereafter during
the term of this Agreement, Licensor shall make available to Licensee full and
complete Technical Information and Know-How possessed on the date of this
Agreement by Licensor relating to the Licensed Devices, except with respect to
manufacturing processes and equipment. Licensor shall not during the term of
this Agreement disclose to any other person, firm or corporation in the
Territory other than Licensee, any technical information relating to the subject
matter of this Agreement. Nothing, contained in this Agreement shall be
construed to require Licensor to disclose to Licensee any information which
Licensor shall have acquired from others if the disclosure thereof to Licensee
would breach any of the then existing obligations of Licensor.
(ii) Licensee shall not use or disclose any information received from Licensor
under this Agreement for any purpose other than the assembly and sale of the
Licensed Devices covered by this Agreement. Licensee shall not disclose any
information received from Licensor under this Agreement to any person except
persons in Licensee's employ to whom it shall be necessary to make such
disclosure to enable Licensee to obtain the benefit of such information in the
assembly OF Licensed Devices which are included within the subject matter of
this Agreement, and any such person shall receive such information only after
agreeing in writing to hold same in strictest confidence and to use same only
for the purposes specified and permitted in this Agreement. The foregoing
restrictions on disclosures of information shall apply so long as the
information has not properly come into the public domain by such disclosure in
issued patents or otherwise.
(iii) All employees of Licensee who shall be given access to confidential
Technical Information and Know-How shall execute a Non-Disclosure and Assignment
Agreement in form acceptable to Licensor.
B. PATENTS. (i) Licensee may, only with the express written consent of the
Licensor and at its own expense, apply for patents in any country on any
discovery or invention which Licensee or its employees shall have obtained prior
to the termination of this Agreement on any product or process related to the
subject matter of this Agreement, notifying Licensor of its intention, keeping
Licensor currently informed of its activities in respect thereto, and providing
Licensor with copies of patent applications and amendments thereto, patent
office communications, and other relevant papers. All such patent applications
or issued patents must be assigned to the Licensor.
9
<PAGE>
(ii) Licensor hereby grants to Licensee a nonexclusive, royalty-free license to
make, use and sell without limitation under any such discovery or invention and
any patent application, and any patents granted thereon, including renewals and
reissues thereof, to the extent that they relate to the subject matter of this
Agreement, which licenses shall extend to the end of the full term of the
Agreement. These licenses shall not be assignable or divisible, and shall not
include the right to grant sublicenses.
C. TRADEMARKS. During the term hereof, Licensor, through its designated
representative or representatives, [will] [grants to Licensee the right to]
affix, without charge to Licensee, the Trademarks set forth on Exhibit E (the
"Trademarks") as marks of certification to Licensed Devices assembled in the
Territory by Licensee through the operations, practices, licenses, and processes
which are the subject of this Agreement, provided:
(i) that Licensee performs all tests and maintains such controls on the Licensed
Devices as may be specified by Licensor;
(ii) that all labels and packages for the Licensed Devices conform to the
specifications of Licensor;
(iii) that Licensee submits to Licensor, when requested by Licensor, a sample or
samples of the Licensed Devices, or the packages or labels therefor, or of any
material at any stage of preparation so that Licensor may review or test the
same or have it tested at any laboratory of its choice;
(iv) that if any such product or material, label or package at any stage of
production, or any packaging operation does not conform to the quality standards
or specifications furnished to Licensee by Licensor, Licensee complies with the
request of Licensor not to sell nor otherwise dispose of the products nor to
proceed further with the preparation of such material or with such packaging
operation.
(v) Licensee will comply with the instructions of Licensor with respect to the
manner in which the Trademarks shall be used upon or in connection with the
Licensed Devices, labels, packages, advertisements, and other materials relating
to the Licensed Devices, and also with respect to the form and content of all
such labels, containers, and advertising.
15. ADVERTISING, MARKETING AND SALES
A. During each Contract Year, Licensee shall assure that its distributors shall
have sufficient quality personnel and
10
<PAGE>
capital recourses to effect the sales of the Licensed Device. (should allocate
X% of $)
B. Licensee has the responsibility to assure that the Distributors have
sufficient marketing materials to enable the sales personnel to function
properly.
16. NON-COMPETITION
In order to induce Licensor to enter into this Agreement, Licensee agrees that
neither Licensee, nor its shareholders, officers, directors or principals (with
the exception of Licensor and Hall's interest in Licensor), will during the term
of this Agreement or, for a period of five (5) years from the date of
termination hereof, manufacture Sensors or purchase Sensors manufactured by any
entity other then Licensor for use in the Licensed Devices or any competing
device, or directly or indirectly own, manage, operation or control of or be
connected as an officer, director, shareholder, partner, consultant, owner,
employee, agent, lender, donor, vendor or otherwise, or have any financial
interest in or aid or assist anyone else in the conduct of any competing entity
which manufactures, distributes or offers for sale goods similar to the Licensed
Devices to any competing entity. Licensee, and its shareholders, officers,
directors and principals further agree that they will not (i) personally, or
cause others to personally induce or attempt to induce any employee to terminate
their employment with the Licensor; (ii) interfere with or disrupt the
Licensor's relationship with its suppliers or employees; or (iii) solicit or
entice any person to leave their employ with the Licensor. For the purposes
herewith, the term "competing entity" shall mean any business or enterprise of
any and every kind whatsoever which is engaged in the manufacture, distribution
or sale of goods similar to the Licensed Devices, anywhere in the world;
provided, however, that ownership of one (1%) percent or less of any class of
outstanding securities of a company whose securities are listed on a national
securities exchange or which has not fewer than 1,000 shareholders shall not be
deemed to constitute ownership or participation in the ownership of the business
of such company. If any portion of this Paragraph 16 shall be determined to be
invalid and unenforceable, such determination shall not affect the validity or
enforceability of the balance hereof, and such balance shall remain in full
force and effect. In the event of any breach by Licensee of the provisions
hereof, the Licensee acknowledges that the Licensor will not have an adequate
remedy at law and the Licensor will be entitled to institute and prosecute
proceedings in an appropriate Court of competent jurisdiction and to obtain an
injunction restraining the Licensee from violating the provisions of this
Agreement without posting a bond or other security.
11
<PAGE>
17. INSURANCE
Licensee and its subcontractors, and sublicenses, if any, shall carry product
liability insurance with respect to the Licensed Devices with a limit of
liability of not less than $1,000,000 and Licensor, its agents and affiliated
companies shall be named therein as coinsured. Such insurance may be obtained in
conjunction with a policy of product liability insurance which covers products
other than the Licensed Items and shall provide for at least ten (ten) days
prior written notice to Licensor of the cancellation or substantial modification
thereof. Licensee shall deliver to Licensor a certificate evidencing the
existence of such insurance policies promptly after their issuance. Licensee
hereby agrees to provide Licensor a copy of said insurance policy within sixty
(60) days from the effective date of the License Agreement.
18. LAWS.
This Agreement shall be construed, and all the rights, powers, and liabilities
of the parties hereunder shall be determined in accordance with the laws of the
State of New Jersey.
19. WAIVERS.
No omission or delay of either party hereto in requiring due and punctual
fulfillment by the other party of the obligations of such party hereunder shall
be deemed to constitute a waiver of its right to require such due and punctual
fulfillment or of any of its remedies hereunder.
20. ASSIGNMENT.
Neither this Agreement nor any part thereof may be assigned by Licensee without
the written consent of Licensor.
21. RELATIONSHIP BETWEEN THE PARTIES.
In providing Technical Information and Know-How and technological assistance,
Licensor and its employees are acting in an advisory capacity only. Neither
Licensor nor its related companies, nor their employees, shall have any
responsibility for the design, construction, or installation of facilities and
equipment contemplated under this Agreement nor for any decisions which may be
made in connection therewith, whether upon the recommendation of such employees
or otherwise.
12
<PAGE>
22. DISCLAIMER OF WARRANTIES OF TECHNOLOGY
The Licensor does not warrant the legality, validity or genuineness of the
Patent or of the rights of the Licensor and assumes no responsibility or
liability to the Licensee.
23. MANUFACTURED ARTICLES TO CONTAIN PATENT NOTICE
In every country where a patent is in effect, the Licensee shall affix to every
Licensed Device manufactured by him under this license a label or plate (to be
supplied by the Licensor) containing a statement that it was patented by the
Licensor on a date specified, and no such Licensed Device shall be sold without
such label or plate.
24. DEFAULT OF LICENSEOF LICENSE
In the event that the Licensor is insolvent, has made an assignment for the
benefit of Licensor's creditors or files under the Bankruptcy laws, Licensee
shall have the right to immediately assume control of the sensor production
utilizing Licensee's equipment either in Licensor's facility or at any other
location.
In the event that the license granted hereunder is terminated for any reason,
Licensor shall have no right to utilize Licensee's machinery or channels of
distribution without the express written consent of Licensee.
IN WITNESS WHEREOF THE PARTIES HERETO HAVE SET THEIR HANDS ON THIS 22 DAY OF
SEPTEMBER, 1997.
SANDELL CORP. S.A. SCANTEK MEDICAL, INC.
BY: BY:
----------------------------- ------------------------------------
LUIS PREMAVESI Zsigmond Sagi
President President
13
<PAGE>
EXHIBIT A
Patent Rights
Country Patent No.
Venezuela 44,664 Registered April 20, 1987
14
<PAGE>
EXHIBIT B
TERRITORY
SOUTH AMERICA, EXCLUDING CHILE, BUT SPECIFICALLY INCLUDING THE
FOLLOWING COUNTRIES:
BRAZIL
VENEZUELA
COLUMBIA
COSTA RICA
ECUADOR
NICARAGUA
PARAGUAY
PANAMA
PERU
BOLIVIA
ARGENTINA
URUGUAY
15
<PAGE>
EXHIBIT C
LICENSED DEVICES
Notwithstanding the following more specific description of the licensed device,
the Licensed Devices shall include any temperature sensing device manufactured
by the Licensor using the patented technology set forth in the Patents listed in
Exhibit A or improvements thereto.
The BTAI is an early diagnostic direct reading, digital device to screen the
breast for abnormalities, including cancer.
The BTAI measures underlying breast tissue temperature and not skin surface
temperature by retaining the emitted heat when BTAI is placed against the breast
for 15 minutes. The averaged and recorded reading on the BTAI has taken into
consideration that the temperature patterns of a woman's breasts are closely
symmetrical. This method detects abnormalities by comparing the temperature
differences in the corresponding areas of a woman's breasts.
The BTAI device consists of a pair of non-woven pads made of spunfiber material,
each of which has three wafer-thin, pliant, aluminum foil, and temperature
responsive segments attached to its inner surface. Each segment is wedge-shaped
and contains 18 columns or bars of thermal dots. These dots contain a chemical
heat sensor that changes color when exposed to a specific temperature.
16
<PAGE>
EXHIBIT D
MINIMUM NET SALES
The minimum net sales are set forth below.
Year* Minimum Product Purchases-Monthly
---- ----------------------------------
1998 $20,000
1999 $35,000
2000 $65,000
2001 and thereafter/FS $90,000
17
<PAGE>
EXHIBIT E
TRADEMARKS
BreastAssure
BAI
BTAI
BreastCare
BCSI
18
ZIGMED
- --------------------------------------------------------------------------------
16 MERRY LANE * EAST HANOVER, NEW JERSEY 07936 (201)887-3542
August 25, 1996
AMENDMENT TO CONTRACTUAL ARRANGEMENTS
Dated January 8, 1991
We now estimate that the engineering effort, which includes time and all
necessary equipment purchases and modifications outlined in this proposal per
mutually agreed will cost $1,850,680 and 100,000 shares of Scantek Common Stock
for project # 1035, (plus applicable sales and use taxed, if any) Work performed
will be governed by the Terms and Conditions attached hereto and forming a part
of this agreement. No additional work will be performed or costs incurred
without the prior approval of the parties hereto in writing.
This offer to perform work and the terms and conditions for performance of
the work expressed herein are in effect from the signing of this amendment. We
thank you for agreeing to amend the terms of the January 8, 1991 agreement.
If the foregoing meets with your approval, please indicate your acceptance
by signing in the space provided and returning one copy of the amendment.
Very truly yours,
Zsigmond G. Sagi
President
Zigmed
Accepted by:
Scantek Medical, Inc.
----------------------------------
Zigmond L. Sagi
President & CEO
Date:
-----------------------------
SUBSIDIARY OF SCANTEK MEDICAL INC.
Jurisdiction of
Name Incorporation
---- ---------------
Scantek Digital Systems, Inc. Delaware
UNITED STATES DEPARTMENT OF COMMERCE
Patent and Trademark Office
ASSISTANT SECRETARY AND COMMISSIONER OF
PATENTS AND TRADEMARKS
Washington, D.C. 20231
ROGER L. FIDLER COPY MAILED
400 GROVE STREET Paper No. 31
AUG. 12, 1997
GLEN ROCK, NJ 07452 OFFICE OF PETITIONS
A/C PATENTS
In re Patent No. 4,624,264 :
Issue Date: November 25, 1986 :
Application No. 06/330,501 : DECISION GRANTING PETITION
Filed: December 14, 1981 :
Attorney Docket No. JWB785PCIP :
This is a decision on the petition, filed December 2, 1996 and supplemented on
June 13, 1997 and June 19, 1997, to accept the delayed payment of a maintenance
fee under 37 CFR 1.378(b) for the above-identified patent.
The petition is granted.
In light of the showing of record, it is concluded that the delay was
unavoidable since reasonable care was taken to ensure that the maintenance fee
would be timely paid.
Accordingly, the maintenance fee in this case is hereby accepted and the
above-identified patent is hereby reinstated as of the mail date of this
decision.
This patent file is being returned to the Files Repository.
Telephone inquiries relevant to this decision should be directed to Special
Projects Examiner David Redding at (703) 308-6713.
Abraham Hershkovitz
Director, office of Petitions
Office of the Deputy Assistant Commissioner
for Patent Policy and Projects
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCANTEK
MEDICAL INC. FINANCIAL STATEMENTS AT JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 918,393
<SECURITIES> 6,860,371
<RECEIVABLES> 550,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,399,472
<PP&E> 408,376
<DEPRECIATION> 16,924
<TOTAL-ASSETS> 9,574,692
<CURRENT-LIABILITIES> 5,182,573
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0
0
<COMMON> 17,220
<OTHER-SE> 3,806,893
<TOTAL-LIABILITY-AND-EQUITY> 9,574,692
<SALES> 0
<TOTAL-REVENUES> 24,863
<CGS> 0
<TOTAL-COSTS> 798,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,344
<INCOME-PRETAX> (773,723)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
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