<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
UROQUEST MEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3845 59-3176454
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
265 EAST 100 SOUTH, SUITE 220
SALT LAKE CITY, UTAH 84111-1616
(801) 322-1554
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ERIC B. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UROQUEST MEDICAL CORPORATION
265 EAST 100 SOUTH, SUITE 220
SALT LAKE CITY, UTAH 84111-1616
(801) 322-1554
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID R. RUDD, ESQ. CRAIG E. DAUCHY, ESQ.
DAVID G. ANGERBAUER, ESQ. MATTHEW B. HEMINGTON, ESQ.
HOLLAND & HART LLP COOLEY GODWARD CASTRO
215 SOUTH STATE STREET, SUITE 500 HUDDLESON & TATUM
SALT LAKE CITY, UTAH 84111 3000 SAND HILL RD., BLDG. 3, SUITE 230
(801) 595-7800 MENLO PARK, CALIFORNIA 94025-7116
(415) 843-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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</TABLE>
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE
OF SECURITIES TO BE PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, par value $0.001.... 3,852,500 $13.00 $50,082,500 $17,270
- ------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 502,500 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
UROQUEST MEDICAL CORPORATION
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-1 ITEM
NUMBER AND CAPTION PROSPECTUS CAPTION
---------------------------------------- ----------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Forepart of the Registration Statement;
Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Outside Front Cover Page; Prospectus Summary;
Risk Factors
4. Use of Proceeds......................... Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page; Underwriting
6. Dilution................................ Dilution
7. Selling Security Holders................ Not Applicable
8. Plan of Distribution.................... Outside Front and Inside Front Cover Pages;
Underwriting
9. Description of Securities to be
Registered............................ Prospectus Summary; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and
Counsel............................... Not Applicable
11. Information with Respect to the
Registrant............................ Outside Front and Inside Cover Pages;
Prospectus Summary; Risk Factors; The Company;
Acquisition of BMT; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Principal Stockholders;
Description of Capital Stock; Shares Eligible
for Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 28, 1996
3,350,000 SHARES
UROQUEST MEDICAL CORPORATION [LOGO]
Common Stock
The 3,350,000 shares of Common Stock, par value $0.001 per share (the
"Common Stock"), offered hereby (this "Offering") are being offered by UroQuest
Medical Corporation (the "Company"). Prior to this Offering, there has been no
public market for the Common Stock. It is currently estimated that the initial
public offering price will be between $11.00 and $13.00 per share. See
"Underwriting" for the factors considered in determining the initial public
offering price.
The Company has applied for the Common Stock to be quoted on the Nasdaq
National Market under the symbol "UROQ."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 6 TO 13.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS* COMPANY+
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total++............................ $ $ $
</TABLE>
- ---------------
* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
+ Before deducting expenses of this Offering payable by the Company estimated to
be $500,000.
++ The Company has granted the Underwriters a 30-day option to purchase up to
502,500 additional shares of Common Stock on the same terms per share solely
to cover over-allotments, if any. If such option is exercised in full, the
total price to public will be $ , the total underwriting discounts
and commissions will be $ and the total proceeds to Company will be
$ . See "Underwriting."
------------------------
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates therefor
will be made at the offices of Dillon, Read & Co. Inc., New York, New York, on
or about , 1996, against payment therefor. The Underwriters
include:
DILLON, READ & CO. INC. PRUDENTIAL SECURITIES INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
[Inside Front Cover]
[COMPANY LOGO]
Uroquest was formed to design, develop and market advanced products for the
management and diagnosis of both male and female urological disorders.
[This is a diagram showing the various types of urinary outflow dysfunctions.
Included with the diagram are two photographs. One showing the Male On-Command
Catheters and one showing the Female On-Command Catheters. Included with the
photographs is the following language: The On-Command Catheter is an
endourethral (inside the urethra) catheter incorporating a proprietary
anchoring system and proprietary patient controlled, magnetically activated
in-line valves used to regulate urine flow.]
- ----------------------------------------------------------------------------
The On-Command(R) Catheter is designed to enable persons with either urinary
incontinence or urinary retention to manage their condition without the
restricted mobility, medical complications, discomfort and embarrassment
generally associated with many of the existing management alternatives,
including intermittant, Foley, external and suprapubic catheters, diapers and
absorbants, and penile clamps.
The On-Command Catheter is an investigational device that has not been approved
by the FDA for commercial sale in the United States. The process of obtaining
FDA approval may be lengthy, and there can be no assurance that the On-Command
Catheter will be approved by the FDA.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE AFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE SUCH STABILIZING IF COMMENCED MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." Except as
set forth in the Financial Statements or as otherwise indicated, all information
in this Prospectus (i) assumes the Underwriters' over-allotment option is not
exercised, (ii) assumes the Company's reincorporation in the State of Delaware
(the "Reincorporation"), which will be completed prior to the closing of this
Offering, (iii) assumes a 1-for-3.5 reverse stock split of the outstanding
shares of Common Stock and Preferred Stock of the Company and the conversion of
all outstanding shares of Non-Voting Common Stock into Common Stock will be
effected in connection with the Reincorporation, (iv) assumes the filing of the
Company's Restated Certificate of Incorporation, authorizing a class of
5,000,000 shares of undesignated Preferred Stock, which will be effective upon
the closing of this Offering, (v) gives effect to the conversion of all
outstanding shares of Preferred Stock into Common Stock upon the closing of this
Offering, (vi) assumes the exercise of certain warrants to purchase 1,428,571
shares of Common Stock by the Company's principal stockholder upon the closing
of this Offering, and (vii) assumes consummation of the proposed acquisition of
BMT, Inc. upon the closing of this Offering. See "Description of Capital Stock,"
"Capitalization," "Underwriting" and "Acquisition of BMT."
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors
discussed under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
UroQuest Medical Corporation (the "Company") was formed to design, develop
and market advanced products for the management and diagnosis of both male and
female urological disorders. The Company's principal product, the On-Command
Catheter, is an endourethral (inside the urethra) catheter incorporating a
proprietary anchoring system and proprietary patient controlled, magnetically
actuated in-line valves used to regulate urine flow. The On-Command Catheter is
designed to enable persons with either urinary incontinence or urinary retention
to manage their condition without the restricted mobility, medical
complications, discomfort and embarrassment generally associated with many of
the existing management alternatives, including intermittent, Foley, external
and suprapubic catheters, diapers and absorbents, and penile clamps. Clinical
trials conducted to date have demonstrated the utility of the On-Command
Catheter in managing male urinary outflow disorders. The results of the clinical
trials showed an overall symptomatic urinary tract infection rate of less than
4% for patients included in the trials as compared with a 30% to 50% infection
rate for patients using Foley catheters. The Foley catheter is the predicate
device to be used in connection with the Company's upcoming clinical study. Of
the patients included in the trials to date, 90% have expressed a preference for
the Male On-Command Catheter over their existing method of disorder management.
Urinary outflow dysfunction, or voiding disorders, affects at least 13
million people in the United States, including approximately three million men
and ten million women. The Company believes the incidence of urinary outflow
dysfunction in other developed countries worldwide is also significant. Urinary
outflow dysfunction is a problem that affects a large number of both
institutionalized (nursing home and hospital care) and community-dwelling
individuals, and can be characterized as either incontinence or retention.
Urinary incontinence is the inability to control one's urinary function, leading
to frequent involuntary urine leakage from the bladder. Urinary retention is the
inability to voluntarily and spontaneously empty one's bladder, preventing urine
flow even though the bladder continues to fill. More than 50% of the estimated
1.5 million nursing home patients have voiding disorders. Additionally, in
contrast to the widely-held notion that voiding disorders are primarily a
problem of the institutionalized elderly, a 1986 National Institute on Aging
study indicated that 30% of the estimated 40 million community-dwelling
population between the ages of 60 to 84 also suffer from some form of urinary
outflow dysfunction.
3
<PAGE> 6
The cost associated with the treatment and management of voiding disorders
is estimated to exceed $16 billion annually in the United States alone. Despite
the development of new treatment options, a recent study conducted by the
National Association for Continence indicated that approximately 56% of
treatments for urinary outflow dysfunction produced no improvement or made the
patients' conditions worse. Therefore, the majority of sufferers must live with
the numerous problems associated with these disorders and seek acceptable
management modalities for their symptoms.
Clinical trials of the Male On-Command Catheter have been conducted at
eight sites in the United States under an Investigational Device Exemption
("IDE") application approved by the United States Food and Drug Administration
("FDA"). Through May 31, 1996, 67 patients had received a total of 220 male
devices. The longest trial period on any patient was 32 months, with the patient
receiving a total of 30 device insertions. The Company is preparing to conduct a
controlled, randomized clinical study under an approved IDE application at three
sites that have received Institutional Review Board ("IRB") approval. The
Company has a targeted enrollment of 60 male patients and expects to complete
the study in the fourth quarter of 1996. An IDE application for the Female
On-Command Catheter was approved in March 1996 and the Company is in the process
of obtaining IRB approval at two investigational sites prior to commencing
clinical trials.
The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with B. Braun Biotrol S.A.
("Braun"), a European-based multinational medical device company. Braun plans to
conduct the evaluation and to prepare the necessary regulatory filings in 16
European countries. The clinical evaluation of the Male On-Command Catheter in
Europe is expected to begin in late summer 1996 at a total of six
investigational sites in France, Germany and Spain.
The Company intends to market the On-Command Catheter directly in the
United States to physicians and their patients while using marketing
collaborations for institutional and international markets. Medical association
estimates indicate that there are approximately 9,000 urologists and uro-
gynecologists in the United States which the Company expects to address with a
relatively small direct sales force consisting of approximately 20 individuals
by the year 1999. The Company anticipates that the On-Command Catheter will be
marketed internationally through Braun and other marketing partners and
distributors following required clinical testing and necessary regulatory
approval.
In June 1996, the Company entered into a definitive agreement to acquire
BMT, Inc. and its wholly owned subsidiary, Bivona, Inc. (collectively, "BMT").
BMT designs, develops, manufactures and markets a line of proprietary silicone
medical device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical
device companies. BMT is one of a limited number of specialty manufacturers of
silicone catheters in the United States. BMT has been a contract manufacturer
for the Company since June 1994 and has manufactured approximately 2,200 Male
On-Command Catheters. The acquisition will be effected through a merger of BMT
with and into an acquisition subsidiary of the Company pursuant to which
shareholders of BMT will receive, in the aggregate, a combination of $10 million
cash and newly issued shares of Common Stock equal in value to $22.5 million.
Based upon an assumed initial public offering price of $12.00 per share, an
aggregate of 1,875,000 shares of Common Stock will be issued in the acquisition.
The acquisition will enable the Company to control its own production source
while providing necessary capacity and flexibility in the manufacturing process.
The product development and production expertise of BMT is also anticipated to
be utilized by the Company to develop additional On-Command Catheter products
and other new devices related to the management and diagnosis of urological
disorders.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk, including risks associated with the lack of regulatory approval
and limited clinical data, dependence upon the On-Command Catheter, uncertainty
of market acceptance, limited operating history, history
4
<PAGE> 7
of losses and expectation of future losses, the acquisition of BMT, government
regulation, lack of marketing and sales experience, manufacturing risks and
other factors. Prospective investors should refer to "Risk Factors" set forth on
pages 6 to 13.
The Company will not be able to market the On-Command Catheter in the
United States unless and until it obtains approval from the FDA. There can be no
assurance that the Company will obtain FDA approval for the On-Command Catheter
on a timely basis, if at all.
THE OFFERING
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<S> <C>
Common Stock offered by the Company.......................... 3,350,000 shares
Common Stock to be outstanding after this Offering........... 11,191,734 shares(1)
Use of proceeds.............................................. To fund clinical trials, sales and
marketing, the acquisition of BMT,
research and development, and for
working capital and general
corporate purposes
Nasdaq National Market symbol................................ UROQ
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED(2)(3)
ACTUAL -------------------------
---------------------------------------------------------------------------------- THREE
PERIOD FROM THREE MONTHS ENDED MONTHS
INCEPTION YEAR ENDED DECEMBER 31, MARCH 31, YEAR ENDED ENDED MARCH
(APRIL 8, 1992) -------------------------------------- ----------------------- DEC. 31, 31,
TO DEC. 31,1992 1993 1994 1995 1995 1996 1995 1996
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales......... $ -- $ 979 $ 2,801 $ -- $ -- $ -- $14,257,413 $ 3,796,943
Cost of sales..... -- 832 2,381 -- -- -- 7,228,308 2,011,826
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Gross profit...... -- 147 420 -- -- -- 7,029,105 1,785,117
Research and
development..... -- 120,531 431,295 1,106,631 193,700 277,822 2,092,896 530,340
General and
administrative... 11,234 156,647 483,399 397,523 77,548 120,838 2,050,720 573,263
Sales and
marketing....... -- 38,392 30,257 46,262 3,523 47,572 1,739,143 423,444
Amortization of
goodwill........ -- -- -- -- -- -- 1,420,000 355,000
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Operating loss.... (11,234) (315,423) (944,531) (1,550,416) (274,771) (446,232) (273,654) (96,930)
Other income
(expense),
net............. -- -- (260,663) 36,669 (7,910) (561) (278,479) (77,065)
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Net loss.......... $ (11,234) $ (315,423) $(1,205,194) $(1,513,747) $ (282,681) $ (446,793) $ (552,133) $ (173,995)
================= ============ ============= ============= ============ ============ ============= =============
Pro forma net loss
per share(4).... $(0.36) $(0.10) $(0.05) $(0.02)
============= ============ ============= =============
Shares used in
computing pro
forma net loss
per share(4).... 4,190,511 4,545,186 10,844,082 11,198,757
============= ============ ============= =============
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------
PRO FORMA(2) AS ADJUSTED(3)
------------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $ 5,759,135 $32,255,135
Working capital............................................................................ (1,205,591) 35,680,409
Total assets............................................................................... 42,887,272 69,383,272
Long-term debt, excluding current portion.................................................. 2,135,758 2,135,758
Deficit accumulated during development stage............................................... (3,492,391) (3,492,391)
Stockholders' equity....................................................................... 28,175,221 65,061,221(5)
</TABLE>
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(1) Excludes 17,594 shares of Common Stock reserved for issuance pursuant to
outstanding warrants and 1,052,815 shares of Common Stock reserved for
issuance pursuant to outstanding stock options as of March 31, 1996. Also
excludes a total of 488,679 shares of Common Stock reserved for future
issuance under the Company's 1994 Stock Option Plan and 1996 Employee Stock
Purchase Plan. See Notes 5 and 10 of Notes to Consolidated Financial
Statements of UroQuest Medical Corporation, "Management -- Stock Plans" and
"Description of Capital Stock."
(2) Reflects the pro forma combination of UroQuest Medical Corporation and BMT
as if the acquisition of BMT had occurred at the beginning of each of the
periods presented for consolidated statement of operations data and as of
March 31, 1996 for consolidated balance sheet data and gives effect to each
of the events that will occur upon or prior to the closing of this Offering.
(3) Adjusted to give effect to the receipt of the net proceeds from the sale of
the 3,350,000 shares of Common Stock offered hereby (at an assumed initial
public offering price of $12.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses
payable by the Company).
(4) See Note 1 of Notes to Consolidated Financial Statements of UroQuest Medical
Corporation for information concerning the computation of pro forma net loss
per share and shares used in computing pro forma net loss per share.
(5) Pro forma stockholders' equity assumes the conversion of all outstanding
shares of Preferred Stock and Non-Voting Common Stock into Common Stock.
5
<PAGE> 8
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby.
Lack of Regulatory Approval and Limited Clinical Data. The Company's
principal product, the On-Command Catheter, has not been approved by the FDA or
foreign regulatory authorities and will not be available for commercial
distribution in the United States or internationally unless and until such
approval is obtained. The Male On-Command Catheter is currently in clinical
testing in the United States with respect to single use insertions of up to 30
days. Clinical data obtained to date is limited. Clinical testing of the Female
On-Command Catheter has not yet been initiated. If either the Male or Female
On-Command Catheter does not prove to be safe and effective in clinical testing
to the satisfaction of the FDA or foreign regulatory authorities, the Company
will not be able to market or commercialize the On-Command Catheter in the
United States or abroad. Furthermore, approval for single use insertions of the
On-Command Catheter, if obtained, does not mean that use of successive device
insertions will be approved. There can be no assurance that either single use or
successive insertion use of the On-Command Catheter will prove to be safe and
effective in the United States or international clinical testing, or that FDA or
foreign regulatory approval will be obtained on a timely basis, if at all. In
addition, the clinical testing may identify technical or other obstacles that
can delay completion of such testing, as has been experienced with respect to
the Male On-Command Catheter. If the On-Command Catheter does not prove to be
safe and effective in clinical testing or if the Company is otherwise unable to
obtain necessary regulatory approval, the Company's business, financial
condition and results of operations will be materially adversely affected. See
"Business -- On-Command Catheter" and "Clinical Trials."
Dependence Upon the On-Command Catheter. The Company expects to derive a
substantial majority of its future revenues from sales of the On-Command
Catheter. Although the operations of BMT are expected to be the sole source of
revenues in the short-term, the Company's long-term revenues and future success
are substantially dependent upon its ability to market and commercialize the On-
Command Catheter in the United States and abroad. Although the Company markets a
line of proprietary medical device products through BMT, there can be no
assurance that such products will receive continued market acceptance or
generate significant sales. Furthermore, even though the Company is in the
process of developing new products in addition to the On-Command Catheter, there
can be no assurance that such development efforts will be successful or that any
resulting products will achieve market commercialization. The life cycle of the
On-Command Catheter is difficult to estimate, particularly in light of current
and future technological developments, competition and other factors. The
failure of the Company to successfully commercialize the On-Command Catheter or
to realize significant revenues therefrom would have a material adverse effect
on the business, financial condition and operating results of the Company. See
"Business -- On-Command Catheter."
Uncertainty of Market Acceptance. The On-Command Catheter represents a new
management modality for urinary outflow dysfunction, and there can be no
assurance that the On-Command Catheter will gain any significant degree of
market acceptance among physicians, health care payers and patients, even if
necessary international and domestic regulatory and reimbursement approvals are
obtained. The Company believes that recommendations of the On-Command Catheter
by physicians will be essential for market acceptance of the On-Command
Catheter, and there can be no assurance that any such recommendations will be
obtained. Physicians will not recommend the On-Command Catheter unless they
conclude, based on clinical data and other factors, that the benefits of the On-
Command Catheter have been established and that the device is an attractive
alternative to other existing and more established methods of managing urinary
outflow dysfunction. Broad use of the On-Command Catheter will require the
training of numerous physicians, and the time required to complete such training
could result in a delay or dampening of market acceptance. Moreover, health care
payers' approval of reimbursement for the On-Command Catheter will be an
important factor in establishing market acceptance. Patient acceptance of the
device will depend on many factors, including physician recommendations, the
degree, rate and severity of potential complications, the cost and benefits
6
<PAGE> 9
compared to competing products, lifestyle implications, available reimbursement
and other considerations. Failure of the On-Command Catheter to achieve
substantial market acceptance would have a material adverse effect on the
Company's business, financial condition and operating results. See
"Business -- Clinical Trials," "-- Marketing and Sales" and "-- Third Party
Reimbursement."
Limited Operating History; History of Losses and Expectation of Future
Losses. The Company has a limited history of operations. Since its inception in
April 1992, the Company has been primarily engaged in research and development
of the On-Command Catheter. The Company has experienced substantial operating
losses since inception and, as of March 31, 1996, had an accumulated deficit of
$3,492,391. The Company expects its operating losses to continue for at least
the next two years as it continues to expend substantial resources in funding
clinical trials in support of regulatory and reimbursement approvals, expansion
of marketing and sales activities, and research and development. There can be no
assurance that the Company will achieve or sustain profitability in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Acquisition of BMT. The acquisition of BMT constitutes the Company's first
acquisition of another business. BMT's operations are significantly different in
many respects from the Company's current operations, and the acquisition may
result in a number of unforeseen difficulties and problems that could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the anticipated benefits
of the acquisition will be realized. Moreover, the acquisition could have the
effect of disrupting the current business and operations of BMT by adversely
affecting material relationships with key customers and others, including
principal suppliers and key employees. In particular, approximately 40% of BMT's
net sales during 1995 and the first quarter of 1996 were derived from its
manufacture of OEM medical device products. BMT maintains no long-term OEM
customer contracts and, during 1995 and the first quarter of 1996, BMT derived
approximately 20% of its net sales from one such customer. Although BMT intends
to continue developing its OEM business, there can be no assurance that BMT will
be successful in its efforts or that its OEM customers will react favorably to
the acquisition. The acquisition of BMT could also redirect significant
management attention and other resources that would otherwise be devoted to the
ongoing development of the On-Command Catheter. Accordingly, the acquisition
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Acquisition of BMT" and
"Business -- BMT."
Government Regulation. The Company's products, including the On-Command
Catheter, are subject to pervasive and continuing regulation by the FDA and
require regulatory clearance or approval prior to commercialization in the
United States. The FDA regulates the preclinical and clinical testing,
manufacture, labeling, distribution and promotion of medical devices in the
United States. Regulatory agencies in various foreign countries in which the
Company's products may be sold may impose additional regulatory requirements.
The On-Command Catheter is regulated as a medical device and is subject to the
FDA's premarket clearance or approval requirements. The process of obtaining FDA
and other required regulatory approvals may be lengthy, expensive and uncertain.
The FDA requires companies desiring to market a new medical device or an
existing medical device for a major change in intended use to obtain either a
premarket notification clearance under Section 510(k) of the Federal Food, Drug,
and Cosmetic Act ("510(k)") or a premarket approval ("PMA") prior to the
introduction of such medical device into the market. In addition, changes to a
medical device that significantly affect the safety or efficacy of the device
are also subject to FDA review and clearance or approval. Although generally
believed to be a shorter, less costly regulatory path than a PMA, the process of
obtaining a 510(k) clearance generally requires the submission of supporting
data, which may include data from clinical trials of the device. The time period
required to assemble and compile this data can be extensive and can extend the
regulatory process for a considerable length of time. The PMA process can take
several years or longer from initial filing and requires the submission of
extensive clinical data and supporting information.
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The Company intends to file 510(k) notifications on both the Male and
Female On-Command Catheter. There can be no assurance, however, that the FDA
will provide clearance of the On-Command Catheter under the 510(k) process, and
PMA approval may be required.
Regulatory approvals, if granted, may include significant limitations on
the indicated uses for which a product may be marketed. FDA enforcement policy
strictly prohibits the marketing of approved medical devices for unapproved
uses. The Company will be required to adhere to applicable FDA regulations
regarding Good Manufacturing Practices ("GMP") and similar regulations in other
countries, which include testing, control, and documentation requirements, and
with Medical Device Reporting ("MDR") requirements. Ongoing compliance with GMP
and other applicable regulatory requirements will be monitored through periodic
inspections by state and federal agencies, including the FDA, and by comparable
agencies in other countries. In addition, changes in existing regulations or
adoption of new governmental regulations or policies could prevent or delay
regulatory approval of the Company's products.
Sales of medical devices outside of the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time necessary to obtain approval for sales in foreign countries may be longer
or shorter than that required for FDA approval, and requirements may differ from
FDA requirements. The Company expects to initiate clinical evaluation of the
Male On-Command Catheter in Europe pursuant to an arrangement with Braun. Braun
will be responsible for management of the evaluation and obtaining regulatory
approval for the On-Command Catheter, and such approval will therefore be
outside the Company's control. Moreover, the success of such evaluation in
Europe will be dependent, in large part, on Braun's capabilities and
performance. Many other countries in which the Company intends to sell devices
through distributors either do not currently regulate medical devices such as
the On-Command Catheter or have minimal registration requirements. However,
these countries may develop more extensive regulations in the future that could
impact the Company's ability to market the On-Command Catheter.
There can be no assurance that the Company will be able to obtain 510(k)
clearance or, if required, PMA approval to market the On-Command Catheter or
other products in the United States for their intended uses on a timely basis or
at all, and delays in receipt of or failure to receive such clearances or
approvals, or failure to comply with existing or future regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Clinical Trials" and
"-- Government Regulation."
Lack of Marketing and Sales Experience. To date, the Company has not sold
any On-Command Catheter products. Although the Company intends to market the
On-Command Catheter in the United States through a direct sales force, if and
when necessary regulatory approvals are obtained, the Company currently does not
employ any marketing or sales employees for the On-Command Catheter. In
addition, the Company intends to market the On-Command Catheter internationally
through distributor arrangements, none of which are currently in place. There
can be no assurance that the Company can attract and retain its own qualified
marketing and sales personnel, establish acceptable international arrangements
or otherwise design and implement an effective marketing and sales strategy for
the On-Command Catheter product. See "Business -- Marketing and Sales."
Manufacturing Risks. Through BMT, the Company has only manufactured the
On-Command Catheter in limited quantities for clinical testing purposes.
Although BMT has extensive experience in manufacturing custom silicone products,
including urological catheters, the Company, including BMT, does not have
experience in manufacturing the On-Command Catheter in commercial quantities.
The Company may encounter difficulties, delays and significant expenses in
scaling up production of the On-Command Catheter, including potential problems
involving production yields, quality control, component supply and shortages of
qualified personnel. The Company may also experience higher than expected
manufacturing costs that could prevent the Company from selling the On-Command
Catheter at a commercially reasonable price. There can be no assurance that
difficulties or unfavorable costs will not be encountered in mass-production of
the On-Command Catheter and, in such an event, these
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difficulties or costs could result in a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Manufacturing."
Reliance on Patents and Protection of Proprietary Technology. The
Company's ability to compete effectively will depend, in part, on its ability to
develop and maintain proprietary aspects of its technology. UroQuest holds ten
United States patents, eight of which relate to the On-Command Catheter, and
numerous foreign patents, and has four United States patent applications and
various foreign patent applications pending. In addition, BMT holds fifteen
United States patents and nine foreign patents. There can be no assurance that
the Company's issued patents, or any patents which may be issued as a result of
the Company's applications, will offer any degree of protection. Moreover, there
can be no assurance that any of the Company's patents or patent applications
will not be challenged, invalidated or circumvented in the future. In addition,
there can be no assurance that competitors, many of which have substantial
resources and have made substantial investments in competing technologies, will
not seek to apply for and obtain patents that may prevent, limit or interfere
with the Company's ability to make, use or sell its products either in the
United States or in international markets.
In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through proprietary information
agreements with employees, consultants and other parties. The Company's
proprietary information agreements with its employees and consultants contain
industry standard provisions requiring such individuals to assign to the Company
without additional consideration any inventions conceived or reduced to practice
by them while employed or retained by the Company, subject to customary
exceptions. There can be no assurance that proprietary information agreements
with employees, consultants and others will not be breached, that the Company
would have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known to or independently developed by competitors.
The Company also seeks to protect its trademarks through registration. There can
be no assurance, however, that registration of such marks will provide any
significant protection. See "Business -- Patents and Proprietary Rights."
Competition and Technological Advances. Competition in the market for
treatment and management of urological disorders is intense and is expected to
increase. The Company believes its principal competition will come from existing
incontinence management modalities, such as adult diapers and absorbents. The
market for adult diapers is currently dominated by companies such as
Kimberly-Clark Corporation and Proctor & Gamble Company. The Company also
expects to face significant competition from other international and domestic
companies that are developing similar and other products and technology for the
management of incontinence. Most of the Company's competitors have significantly
greater financial, technical, research, marketing, sales, distribution and other
resources than the Company. There can be no assurance that the Company's
competitors will not succeed in developing or marketing technologies and
products that are more effective or commercially attractive than any which are
being developed by the Company, or that such competitors will not succeed in
obtaining regulatory approval, introducing or commercializing any such products
prior to the Company. Such developments could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Competition."
Uncertainty Relating to Third-Party Reimbursement. In the United States
and in foreign countries, third-party reimbursement is generally available for
medical devices such as condom catheters, Foley catheters, and intermittent
catheters for the management of urinary outflow dysfunction, including
incontinence and retention. Products such as diapers and absorbents that are
widely used for incontinence management generally do not receive third-party
reimbursement and are paid for by the patient. The Company believes, based on
the availability of third-party reimbursement for certain other medical devices,
that the On-Command Catheter will generally be eligible for coverage by
third-party reimbursement programs. There can be no assurance, however, that
such reimbursement will be available. The Company is unable to determine whether
the On-Command Catheter reimbursement amount, if any, will be sufficient to
cover the cost of the product. If third-party reimbursement is unavailable,
consumers will have to pay for the On-Command Catheter themselves, resulting in
greater
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relative out-of-pocket costs for the device as compared to surgical procedures
and other management options for which third-party reimbursement is available.
The Company does not expect that third-party reimbursement will be available, if
at all, unless and until FDA and foreign regulatory approval is received. After
such time, if ever, as applicable regulatory approval is received, third-party
reimbursement for the On-Command Catheter will be dependent upon decisions by
the Health Care Financing Administration for Medicare in the United States and
similar authorities abroad, as well as by private insurers and other payers.
Changes in the availability of third-party reimbursement for the On-Command
Catheter, for products of the Company's competitors or for surgical procedures
may affect the pricing of the On-Command Catheter or the relative cost to the
patient. Regardless of the type of reimbursement system, the Company believes
that physician advocacy of the On-Command Catheter will be required to obtain
reimbursement. There can be no assurance that reimbursement for the Company's
products will be available in the United States or in international markets
under either governmental or private reimbursement systems, or that physicians
will support the On-Command Catheter. Failure to obtain such reimbursement may
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Third Party Reimbursement."
Possible Future Capital Requirements. The Company's capital requirements
depend on numerous factors, including the extent to which the On-Command
Catheter and other products gain market acceptance, actions relating to
regulatory and reimbursement matters, progress of clinical trials, pricing of
competitive products, the cost and effect of future marketing programs, the
resources the Company devotes to manufacturing and developing its products and
various other factors. The timing and amount of such capital requirements cannot
adequately be predicted. Consequently, although the Company believes the
proceeds from this Offering, together with cash generated from BMT's revenues,
will provide adequate funding for its capital requirements in the foreseeable
future, there can be no assurance that the Company will not require additional
funding or that such additional funding, if needed, will be available on terms
satisfactory to the Company, if at all. Any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
significant restrictive covenants. Failure to raise capital when needed could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Dependence Upon Key Employees. The Company is dependent upon a number of
key management and technical personnel. The loss of the services of one or more
key employees would have a material adverse effect on the Company. The Company's
ability to manage its transition to commercial-scale operations, and hence its
success, will depend in large part on the efforts of these individuals. The
Company's success will also depend on its ability to attract and retain
additional highly qualified management and technical personnel. The Company
faces intense competition for qualified personnel, and there can be no assurance
that the Company will be able to attract and retain such personnel. See
"Business -- Employees" and "Management."
Intellectual Property Litigation Risks. The medical device industry has
been characterized by extensive litigation regarding patents and other
intellectual property rights, and companies in the medical device industry have
employed intellectual property litigation to gain a competitive advantage. The
Company is aware of patents held by other participants in the urological
disorder management market, and there can be no assurance that the Company will
not in the future become subject to patent infringement claims and litigation or
interference proceedings before the United States Patent and Trademark Office
(the "PTO"). The defense and prosecution of intellectual property suits, PTO
interference proceedings and related legal and administrative proceedings are
both costly and time consuming. Litigation may be necessary to enforce patents
issued to the Company, to protect trade secrets or know-how owned by the Company
or to determine the enforceability, scope and validity of the proprietary rights
of others.
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Any litigation or interference proceedings would result in substantial
expense to the Company and significant diversion of attention by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Patents and Proprietary Rights."
International Sales Risks. The Company plans to sell the On-Command
Catheter and other products both in the United States and in foreign markets.
Any international sales are expected to be made through independent foreign
distributors and involve a number of inherent risks. International sales may be
adversely affected by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs,
distributor difficulties, communications problems, fluctuations in foreign
currency exchange rates, foreign competition and other factors. Any one or more
of these factors could limit the Company's international sales and have a
material adverse effect on the business, financial condition and results of
operations of the Company. Furthermore, there can be no assurance that the
Company will be able to achieve significant sales of the On-Command Catheter or
any other product in any foreign market. See "Business -- Sales and Marketing."
Product Liability Risk; Product Recall Risk; No Insurance Coverage. The
manufacture and sale of medical devices entails significant product liability
and recall risks. A recent United States Supreme Court decision held that
product liability may exist despite FDA approval and future court decisions may
also affect the Company's risk of product liability. Although the Company
intends to obtain product liability insurance covering the On-Command Catheter
prior to commercialization, it does not currently have such insurance which may
be expensive and may not be available on acceptable terms, if at all. Although
BMT maintains product liability insurance with respect to its products, the
Company does not maintain product liability insurance for products that are in
clinical trials or otherwise in the development stage. A successful product
liability claim or series of claims brought against the Company that are not
covered by insurance or are in excess of BMT's insurance coverage with respect
to BMT's products could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, there can
be no assurance that future product recalls, which could have a material adverse
effect on the Company's business, financial condition and results of operations,
will not occur. See "Business -- Product Liability and Insurance."
Uncertainty Related to Health Care Reform. Political, economic and
regulatory influences are subjecting the health care industry in the United
States to fundamental change. Although Congress has failed to pass comprehensive
health care reform legislation to date, the Company anticipates that Congress,
state legislatures and the private sector will continue to review and assess
alternative health care delivery and payment systems. Potential approaches that
have been considered include mandated basic health care benefits, controls on
health care spending through limitations on the growth of private health
insurance premiums and Medicare and Medicaid spending, the creation of large
insurance purchasing groups, price controls and other fundamental changes to the
health care delivery system. Legislative debate is expected to continue in the
future, and market forces are expected to demand reduced costs. The Company
cannot predict what impact the adoption of any federal or state health care
reform measures, future private sector reform or market forces may have on its
business.
Dependence Upon Key Suppliers. BMT purchases certain of the components
used to manufacture the On-Command Catheter from several single source
suppliers, with whom BMT has no long-term agreements. In addition, BMT purchases
a substantial portion of its medical grade silicone from a single source. Any
interruptions or delays associated with any component shortages, particularly as
the
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Company scales up its manufacturing activities in support of commercial sales of
the On-Command Catheter, could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Manufacturing."
BMT Operations. Although the business operations of BMT have continued
since 1971, there can be no assurance that BMT's revenues, cash flow or current
profitability and growth rate will continue in the future. Furthermore, BMT is
subject to general business risks associated with operations of its size and, in
particular, to the same risks faced by other companies that manufacture and
market medical device products. Because virtually all of BMT's proprietary and
OEM products incorporate silicone components, any cost increase or other
negative development associated with this material could adversely affect its
business, financial condition and results of operations. BMT has faced two labor
union election contests in the past six years and may face additional elections
in the future. In the event BMT becomes subject to a collective bargaining
agreement, it may experience increased labor and related costs that could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- BMT."
Environmental Matters. The Company utilizes many raw materials in the
manufacturing process that are subject to various environmental laws and
regulations. Proper disposal of waste including metals and chemicals used in the
manufacturing process is a major consideration for medical device manufacturers.
In the event of a violation of environmental laws, the Company could be held
liable for damages and for the costs of remedial actions and could also be
subject to revocation of permits necessary to conduct its business. Any such
revocations could require the Company to cease or limit production at its
facilities, which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company is also
subject to environmental laws relating to the storage, use and disposal of
chemicals, solid waste and other hazardous materials, as well as air quality
regulations. Changes or restrictions on discharge limits, emissions levels, or
material storage or handling might require a high level of unplanned capital
investment and/or subsequent relocation to another location. There can be no
assurance that the Company will be able to comply with the discharge levels
mandated or that the costs of complying with such regulations will not require
additional capital expenses. Furthermore, there can be no assurance that
compliance with such regulations will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Manufacturing."
No Prior Public Trading Market. Prior to this Offering, there has been no
public market for the Common Stock, and there can be no assurance that an active
trading market will develop or, if one does develop, that it will be maintained.
The initial public offering price, which was established by negotiations between
the Company and the Underwriters, may not be indicative of prices that will
prevail in the trading market. In particular, there can be no assurance that the
market price will not be below the initial public offering price. See
"Underwriting."
Possible Volatility of Stock Price. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Common Stock. In addition, the
market price of the shares of Common Stock is likely to be highly volatile.
Factors such as fluctuations in the Company's operating results, announcements
of technological innovations or new products by the Company or its competitors,
FDA and international regulatory actions, actions with respect to reimbursement
matters, developments with respect to patents or proprietary rights, public
concern as to the safety of products developed by the Company or others, changes
in health care policy in the United States and internationally, changes in stock
market analyst recommendations regarding the Company, other medical device
companies or the medical device industry generally and general market conditions
may have a significant effect on the market price of the Common Stock. In
addition, it is likely that during future quarterly periods, the Company's
results of operations may fluctuate significantly or may fail to meet the
expectations of stock market analysts and investors and, in such event, the
Company's stock price could be materially adversely affected. In the past,
securities class
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action litigation has often been initiated following periods of volatility in
the market price of a company's securities. Such litigation, if brought against
the Company, could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Control by Directors, Executive Officers and Affiliated Entities. The
Company's directors, executive officers and entities affiliated with them will,
in the aggregate, beneficially own approximately 55.6% of the Common Stock
following the completion of this Offering. As a result, these stockholders, if
acting together, would be able to exert substantial influence over and could
possibly control all matters requiring approval by the stockholders of the
Company, including the election of directors and mergers or other business
combination transactions. In addition, each of Warburg, Pincus Investors, L.P.
("Warburg"), the Company's principal stockholder, and Vertical Fund Associates,
L.P. ("Vertical") is able to request, in certain circumstances, that the Company
appoint three designees of such stockholder to the Board of Directors which may
not have more than 11 directors without consent of each such stockholder. In
this event, Warburg and Vertical, together, would be able to control the
direction, management and policies of the Company. See "Certain Transactions"
and "Principal Stockholders."
Effect of Certain Charter, Bylaw and Other Provisions. Certain provisions
of the Company's Certificate of Incorporation and Bylaws may have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. Such provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Common Stock. Certain of these provisions allow the
Company to issue Preferred Stock without any vote or further action by the
stockholders, eliminate the right of stockholders to act by written consent
without a meeting and eliminate cumulative voting in the election of directors.
These provisions may make it more difficult for stockholders to take certain
corporate actions and could have the effect of delaying or preventing a change
in control of the Company. See "Description of Capital Stock."
Shares Eligible for Future Sale; Registration Rights. Sales of Common
Stock (including shares issued upon the exercise of outstanding options or
warrants) in the public market after this Offering could materially adversely
affect the market price of the Common Stock. Such sales also might make it more
difficult for the Company to sell equity securities or equity-related securities
in the future at a time and price that the Company deems appropriate. Upon the
completion of this Offering, the Company will have 11,191,734 shares of Common
Stock outstanding, of which the 3,350,000 shares offered hereby will be freely
tradable (unless held by affiliates of the Company) and the remaining 7,841,734
shares held by existing stockholders will be restricted securities within the
meaning of Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), and were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered or pursuant to an
exemption from registration, such as Rule 144, 144(k) or Rule 701 under the
Securities Act. All holders of the Company's stock and options to purchase
Common Stock have agreed not to offer, sell, contract to sell, grant any option
to sell or otherwise dispose of, directly or indirectly, any shares owned by
them for a period of 180 days after the date of this Prospectus without the
prior written consent of Dillon, Read & Co. Inc. ("Dillon Read"). Dillon Read
may, in its sole discretion and at any time without notice, release all or any
portion of the shares subject to such lock-up agreements after the initial
180-day period. Upon expiration of the 180-day lock-up agreements, approximately
427,551 shares of Common Stock held by existing stockholders will be eligible
for immediate public resale without restriction pursuant to Rule 144(k) or Rule
701, and approximately 3,481,076 shares held by existing stockholders will be
eligible for sale subject to the volume limitation and other restrictions of
Rule 144. The remaining 2,057,142 shares held by existing stockholders will
become eligible for sale pursuant to Rule 144 upon the expiration of their
two-year holding periods. As of March 31, 1996, 1,052,815 shares were subject to
outstanding options. All of these shares are subject to the lock-up agreements
described above. Upon expiration of such lock-up agreements, 602,267 shares
subject to such options will be
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vested. Upon expiration of the lock-up agreements referred to above, holders of
approximately 5,824,181 shares of Common Stock and warrants to purchase 17,594
shares of Common Stock will be entitled to certain registration rights with
respect to such shares. If such holders, by exercising such rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have an adverse effect on the market price of the Common Stock. See
"Shares Eligible for Future Sale" and "Description of Capital Stock."
Dilution. The initial public offering price is substantially higher than
the net tangible book value per share of Common Stock. Investors purchasing
shares of Common Stock in this Offering will therefore incur immediate and
substantial net tangible book value dilution. See "Dilution."
Absence of Dividends. The Company has never paid cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."
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THE COMPANY
The Company was originally incorporated in Florida in April 1992 as Trek
Medical Corporation. In June 1994, the Company changed its name to UroQuest
Corporation. In July 1996, the Company reincorporated in the State of Delaware
and changed the name of the Company to "UroQuest Medical Corporation."
Unless the context otherwise requires, references in this Prospectus to the
"Company" refer to UroQuest Medical Corporation and each of its wholly owned
subsidiaries and assumes the acquisition of BMT has been consummated. Unless the
context otherwise requires, (i) references to "UroQuest" refer only to UroQuest
Medical Corporation and UroCath Corporation, its wholly owned subsidiary, and
(ii) references to "BMT" refer to BMT, Inc. and Bivona, Inc., its wholly owned
subsidiary. The Company's principal executive offices are located at 265 East
100 South, Suite 220, Salt Lake City, Utah, 84111-1616. Its telephone number is
(801) 322-1554.
ACQUISITION OF BMT
In June 1996, UroQuest entered into a definitive agreement and plan of
merger (the "Agreement") to acquire BMT. BMT designs, develops, manufactures and
markets a line of proprietary silicone medical device products as well as
provides engineering design, development and manufacturing services for silicone
products on an OEM basis for other medical device companies. BMT has been a
contract manufacturer for the Company since June 1994 and has manufactured
approximately 2,200 Male On-Command Catheters. The business of BMT was commenced
in 1971 to develop tracheal and endotracheal tubes for airway management and has
expanded to include various other medical device products. The principal
facilities and executive offices of BMT are located in Gary, Indiana. See
"Business -- BMT."
In the acquisition, shareholders of BMT will receive, in the aggregate, a
combination of $10 million cash and newly issued shares of Common Stock equal in
value to $22.5 million. Based on an assumed initial public offering price of
$12.00 per share, an aggregate of 1,875,000 shares of Common Stock will be
issued pursuant to the acquisition. Consummation of the acquisition is expected
to occur upon the closing of this Offering. For the year ended December 31,
1995, BMT had revenues of $14,257,413 and net income of $1,431,614. For the
three months ended March 31, 1996, BMT had revenues of $3,796,943 and net income
of $377,798. See the Consolidated Financial Statements of BMT and pro forma
financial information set forth elsewhere in this Prospectus.
The Company believes the acquisition will provide a number of significant
benefits. BMT is one of a limited number of specialty manufacturers of silicone
catheters in the United States. The acquisition will enable the Company to
control its own production source while providing necessary capacity and
flexibility in the manufacturing process. The product development and production
expertise of BMT is also anticipated to be utilized by the Company to develop
additional On-Command Catheter products and other new devices related to the
management of urological disorders.
The ongoing operations of BMT are expected to provide a source of revenues
and cash flow while the Company completes its clinical testing and prepares to
market the On-Command Catheter. There can be no assurance, however, that such
revenues and cash flow or BMT's current profitability and growth rate will
continue in the future or that the expected benefits of the acquisition will be
realized.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,350,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$12.00 per share, are estimated to be approximately $36,886,000 ($42,493,900 if
the Underwriters' over-allotment option is exercised in full), after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company.
The Company expects to use approximately $10 million of the net proceeds
for funding of clinical trials and expansion of marketing and sales activities,
$10 million for the cash portion of the consideration in connection with the
acquisition of BMT and approximately $4 million for investment in research and
development. The remaining $12.9 million will be used for working capital and
general corporate purposes. Although the Company may use a portion of the net
proceeds for the licensing or acquisition of new products or technologies from
third parties, the Company currently has no specific plans or commitments in
this regard.
Except for the $10 million to be used in the acquisition of BMT, the
amounts set forth above are estimates, and the amounts actually expended for
each purpose may vary significantly depending upon numerous factors, including
the progress of the Company's clinical trials, actions relating to regulatory
and reimbursement matters, and the costs and timing of expansion of marketing
and sales activities. Pending such uses, the Company intends to invest the net
proceeds of this Offering in short-term, interest-bearing, investment grade
securities. See "Acquisition of BMT" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The payment by the Company of cash dividends, if any, on its
Common Stock in the future is subject to the discretion of the Board of
Directors and will depend on the Company's earnings, financial condition,
capital requirements and other relevant factors. See "Description of Capital
Stock."
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 (i) on a pro forma basis to give effect to, upon the closing of
this Offering, the acquisition of BMT, the exercise of certain warrants to
purchase 1,428,571 shares of Common Stock by the Company's principal
stockholder, the filing of the Company's Restated Certificate of Incorporation,
authorizing a class of 5,000,000 shares of undesignated Preferred Stock, the
Company's reincorporation in the State of Delaware (including a 1-for-3.5
reverse stock split of the outstanding shares of Common Stock and Preferred
Stock and the conversion of all outstanding shares of Non-Voting Common Stock
into Common Stock effected in connection therewith), the issuance of 965 shares
of Common Stock issuable pursuant to anti-dilution provisions of previous
financings, and the conversion of all outstanding shares of Preferred Sock into
Common Stock, and (ii) as adjusted to reflect the sale of the 3,350,000 shares
of Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company, and after
application of the estimated net proceeds from this Offering.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
PRO FORMA AS ADJUSTED
----------- -----------
<S> <C> <C>
Long-term debt, excluding current portion................................. $ 2,135,758 $ 2,135,758
----------- -----------
Shareholders' equity:
Preferred stock: $.001 par value; 5,000,000 shares authorized, pro forma
and as adjusted; none issued and outstanding, pro forma and as
adjusted............................................................. $ -- $ --
Common stock, $.001 par value, 31,000,000 shares authorized, pro forma
and as adjusted; 7,841,734 shares issued and outstanding pro forma;
11,191,734 issued and outstanding, as adjusted(1).................... 7,842 11,192
Additional paid-in capital.............................................. 31,929,836 68,812,486
Deferred compensation................................................... (270,066) (270,066)
Retained earnings (deficit accumulated during development stage)........ (3,492,391) (3,492,391)
----------- -----------
Total stockholders' equity...................................... 28,175,221 65,061,221
----------- -----------
Total capitalization............................................ $30,310,979 $67,196,979
=========== ===========
</TABLE>
- ---------------
(1) Excludes 17,594 shares of Common Stock reserved for issuance pursuant to
outstanding warrants and 1,052,815 shares of Common Stock reserved for
issuance pursuant to outstanding stock options as of March 31, 1996. Also
excludes a total of 238,679 shares of Common Stock reserved for future
issuance under the Company's Stock Option Plan and Employee Stock Purchase
Plan. See Notes 5 and 10 of Notes to Consolidated Financial Statements of
UroQuest Medical Corporation, "Management -- Stock Plans" and "Description
of Capital Stock."
17
<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996,
after giving effect to the acquisition of BMT and each of the other events that
will occur upon or prior to the closing of this Offering, was $(710,802) or
$(0.09) per share of Common Stock outstanding. Pro forma net tangible book value
per share represents the total amount of the Company's stockholders' equity,
less intangible assets, divided by 7,841,734 of Common Stock outstanding after
giving effect to the conversion of all outstanding shares of Preferred Stock
into shares of Common Stock immediately prior to the closing of this Offering.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in
this Offering and the pro forma net tangible book value per share of Common
Stock immediately after completion of this Offering. After giving effect to the
sale of 3,350,000 shares of Common Stock in this Offering at an assumed offering
price of $12.00 per share and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company as of March 31,
1996 would have been $36,175,198 or $3.32 per share. This represents an
immediate increase in net tangible book value of $3.34 per share to existing
stockholders and an immediate dilution in net tangible book value of $8.77 per
share to purchasers of Common Stock in this Offering, as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Public offering price per share................................... $12.00
Pro forma net tangible book value per share before this
Offering........................................................ $(0.09)
Increase per share attributable to new investors.................. 3.32
------
Pro forma net tangible book value per share after this Offering... 3.23
------
Dilution per share to new investors............................... $ 8.77
======
</TABLE>
The following table sets forth as of March 31, 1996, after giving effect to
the conversion of all outstanding shares of Preferred Stock into Common Stock
immediately prior to the closing of this Offering, the difference between the
existing stockholders and the purchasers of shares in this Offering (at an
assumed offering price of $12.00 per share) with respect to the number of shares
purchased from the Company, the total consideration paid and the average price
per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2)................ 7,841,734 70.0% $31,747,678(3) 44.1% $ 4.05
New investors.............................. 3,350,000 30.0 40,200,000 55.9 12.00
--------- ------ ----------- ------ ------
Total.................................. 11,191,734 100.0% $71,947,678 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Excludes 1,070,409 shares of Common Stock issuable upon exercise of stock
options and warrants outstanding as of March 31, 1996, at a weighted average
price per share of $0.72.
(2) Includes the conversion of all outstanding shares of Preferred Stock and
Non-Voting Common Stock into Common Stock.
(3) Includes the issuance of 1,875,000 shares of Common Stock (valued at $22.5
million based on the assumed offering price of 12.00 per share) for the
acquisition of BMT.
18
<PAGE> 21
SELECTED FINANCIAL DATA
The following sets forth selected consolidated financial data with respect
to UroQuest and BMT on a historical basis and on a pro forma basis giving effect
to the acquisition of BMT. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and notes
thereto, including the Pro Forma Financial Statements and notes thereto included
elsewhere in this Prospectus.
UROQUEST -- HISTORICAL
The financial information set forth below with respect to UroQuest's
consolidated statements of operations for the period from inception (April 8,
1992) to December 31, 1992, and for each of the years in the three year period
ended December 31, 1995 and with respect to UroQuest's consolidated balance
sheets at December 31, 1994 and 1995 are derived from consolidated financial
statements of UroQuest included elsewhere herein that have been audited by KPMG
Peat Marwick LLP, independent certified public accountants, and is qualified by
reference to such consolidated financial statements and notes related thereto.
The financial information for the three month periods ended March 31, 1995 and
1996, and for the period from inception (April 8, 1992) to March 31, 1996, and
as of March 31, 1996 has been derived from UroQuest's unaudited consolidated
financial statements which, in the opinion of management, reflect all
adjustments of a normal recurring nature necessary for a fair presentation of
the financial position and results of operations for such periods. The results
for the three months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the entire year. The Company is considered a
development stage company as described in Note 1 to the consolidated financial
statements.
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS PERIOD FROM
INCEPTION ENDED INCEPTION
(APRIL 8, 1992) YEAR ENDED DECEMBER 31, MARCH 31, (APRIL 8, 1992)
TO DEC. 31, ----------------------------------------- ------------------------ TO MAR. 31,
1992 1993 1994 1995 1995 1996 1996
--------------- ---------- ------------ ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS DATA:
Net sales.......... $ -- $ 979 $ 2,801 $ -- $ -- $ -- $ 3,780
Cost of sales...... -- 832 2,381 -- -- -- 3,213
---------- ---------- ----------- ----------- ---------- ---------- -----------
Gross profit....... -- 147 420 -- -- -- 567
Research and
development...... -- 120,531 431,295 1,106,631 193,700 277,822 1,936,279
General and
administrative... 11,234 156,647 483,399 397,523 77,548 120,838 1,169,641
Sales and
marketing........ -- 38,392 30,257 46,262 3,523 47,572 162,483
---------- ---------- ----------- ----------- ---------- ---------- -----------
Operating loss..... (11,234) (315,423) (944,531 ) (1,550,416) (274,771) (446,232) (3,267,836)
Other income
(expense), net... -- -- (260,663 ) 36,669 (7,910) (561) (224,555)
---------- ---------- ----------- ----------- ---------- ---------- -----------
Net loss........... $ (11,234) $ (315,423) $(1,205,194 ) $(1,513,747) $ (282,681) $ (446,793) $(3,492,391)
========== ========== =========== =========== ========== ========== ===========
Pro forma net loss
per share(1)..... $ (0.36) $ (0.10)
=========== ==========
Shares used in
computing pro
forma net loss
per share(1)..... 4,190,511 4,545,186
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------- MARCH 31,
1993 1994 1995 1996
--------- ----------- ----------- -----------------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 187,422 $ 564,097 $ 1,113,594 $ 753,228
Working capital............................ 33,491 325,723 463,594 92,881
Total assets............................... 221,581 1,205,273 1,721,027 1,359,343
Long-term debt, excluding current
portion.................................. -- 552,188 -- --
Deficit accumulated during development
stage.................................... (326,657) (1,531,851) (3,045,598) (3,492,391)
Total stockholders' equity................. 65,560 412,621 1,047,126 675,221
</TABLE>
- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements of UroQuest for
information concerning the computation of pro forma net loss per share and
shares used in computing pro forma net loss per share.
19
<PAGE> 22
BMT -- HISTORICAL
The financial information set forth below with respect to BMT's
consolidated statements of operations for each of the years in the three year
period ended December 31, 1995 and with respect to BMT's consolidated balance
sheets at December 31, 1993, 1994 and 1995 is derived from consolidated
financial statements of BMT included elsewhere herein that have been audited by
Grant Thornton LLP, independent certified public accountants, and is qualified
by reference to such consolidated financial statements and notes related
thereto. The financial information for the three month periods ended March 31,
1995 and 1996 and as of March 31, 1996 has been derived from BMT's unaudited
consolidated financial statements which, in the opinion of management, reflect
all adjustments of a normal recurring nature necessary for a fair presentation
of the financial position and results of operations for such periods. The
results for the three months ended March 31, 1996 are not necessarily indicative
of the results to be expected for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
INFORMATION:
Net sales..................................... $11,239,155 $11,728,409 $14,257,413 $3,512,858 $3,796,943
Cost of sales................................. 6,351,651 6,668,026 7,228,308 1,746,736 2,011,826
----------- ----------- ----------- ---------- ----------
Gross profit.................................. 4,887,504 5,060,383 7,029,105 1,766,122 1,785,117
Research and development...................... 531,395 586,319 986,265 218,626 252,518
General and administration.................... 1,080,971 1,151,485 1,653,197 441,050 452,425
Sales and marketing........................... 1,581,302 1,607,404 1,692,881 425,040 375,872
----------- ----------- ----------- ---------- ----------
Income from operations........................ 1,693,836 1,715,175 2,696,762 681,406 704,302
Other income (expense), net................... (343,846) (289,728) (315,148) (85,326) (76,504)
----------- ----------- ----------- ---------- ----------
Income before income taxes.................... 1,349,990 1,425,447 2,381,614 596,080 627,798
Income taxes.................................. 540,000 572,500 950,000 234,000 250,000
----------- ----------- ----------- ---------- ----------
Net income.................................... $ 809,990 $ 852,947 $ 1,431,614 $ 362,080 $ 377,798
=========== =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------- MARCH 31,
1993 1994 1995 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET INFORMATION:
Cash, cash equivalents and short-term
investments................................. $ 174,414 $ 21,526 $ 47,083 $ 5,907
Working capital............................... 759,893 3,028,694 3,464,491 3,701,530
Total assets.................................. 6,909,868 6,952,200 8,190,829 8,085,414
Long-term debt, excluding current portion..... 1,582,764 2,831,985 2,385,884 2,135,758
Retained earnings............................. 993,146 1,846,093 3,277,707 3,655,505
Total stockholder's equity.................... 1,789,646 2,650,393 3,682,407 4,057,785
</TABLE>
20
<PAGE> 23
PRO FORMA DATA, AS ADJUSTED
The information set forth below reflects the pro forma acquisition by
UroQuest of BMT as if the acquisition of BMT had occurred at the beginning of
each of the periods presented for statements of operations data and as of March
31, 1996 for balance sheet data. The following pro forma data, as adjusted, has
not been audited. This data gives effect to each of the events that will occur
prior to or upon the closing of this Offering, as adjusted to reflect the
receipt of the net proceeds from the sale of the 3,350,000 shares of Common
Stock offered hereby (at an assumed initial public offering price of $12.00 per
share and after deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company.)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................................ $ 14,257,413 $3,796,943
Cost of sales............................................................ 7,228,308 2,011,826
Gross profit............................................................. 7,029,105 1,785,117
Research and development................................................. 2,092,896 530,340
General and administrative............................................... 2,050,720 573,263
Sales and marketing...................................................... 1,739,143 423,444
Amortization of goodwill................................................. 1,420,000 355,000
----------- ----------
Loss from operations..................................................... (273,654) (96,930)
Other income (expense), net.............................................. (278,479) (77,065)
----------- ----------
Net loss................................................................. $ (552,133) $ (173,995)
=========== ==========
Pro forma net loss per share(1).......................................... $ (0.05) $ (0.02)
=========== ==========
Shares used in computing pro forma net loss per share(1)................. 10,844,082 11,198,757
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1996
-----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $32,255,135
Working capital......................................................... 35,680,409
Total assets............................................................ 69,383,272
Long-term debt excluding current portion................................ 2,135,758
Deficit accumulated during development stage............................ (3,492,391)
Stockholder's equity(2)................................................. 65,061,221
</TABLE>
- ---------------
(1) See Notes to Pro Forma Financial Statements for information concerning the
computation of net loss per share and pro forma net loss per share.
(2) Pro forma stockholders' equity assumes the conversion of all outstanding
shares of Preferred Stock and Non-Voting Common Stock into Common Stock.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and notes thereto included elsewhere in this Prospectus. The
following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors
discussed under "Risk Factors" and elsewhere in this Prospectus.
UroQuest Background
The Male On-Command Catheter was originally designed and developed by
Richard C. Davis, M.D., the principal founder and Chief Science Officer of the
Company. In December 1986, the technology underlying the Male On-Command
Catheter was licensed to Surgitek, Inc. ("Surgitek"), a urological and plastic
surgery products subsidiary of Bristol-Myers Squibb Company. Surgitek spent
approximately five years and substantial sums advancing the technology,
engineering prototype catheters, conducting clinical trials and preparing
regulatory filings for the Male On-Command Catheter. In 1992, Surgitek was
acquired by Cabot Medical Corporation, and as a result of nonperformance under
the license agreement, the technology relating to the Male On-Command Catheter
reverted back to Dr. Davis and was transferred to UroCath, a wholly owned
subsidiary of the Company, in February 1993.
In November 1994, UroQuest hired a new Chief Executive Officer to seek
additional funding to support UroQuest's operations, facilitate the regulatory
approval process, including necessary clinical trials, and commercialize the
On-Command Catheter. In December 1994, Uroquest secured all remaining
intellectual property rights related to the Female On-Command Catheter. UroQuest
also intensified its efforts in design and engineering refinements,
manufacturing tooling, production testing and regulatory filings in connection
with conducting clinical trials in the United States of the Male On-Command
Catheter and initiating clinical trials for the Female On-Command Catheter. In
June 1995, UroQuest raised $2.2 million pursuant to the issuance of Preferred
Stock to Warburg, Pincus Investors, L.P. and Vertical Fund Associates, L.P.,
allowing UroQuest to continue its efforts to develop and commercialize the
On-Command Catheter.
The On-Command Catheter has not been approved by the FDA and will not be
available for commercial distribution in the United States unless and until such
approval is obtained. There can be no assurance that FDA or foreign regulatory
approval will be obtained with respect to either single-use or multiple
insertions of the On-Command Catheter. If the On-Command Catheter does not prove
to be safe and effective in clinical testing or if the Company is otherwise
unable to obtain necessary regulatory approval, the Company's business,
financial condition and results of operations will be materially adversely
affected.
The Company has a limited history of operations and has experienced
substantial operating losses since inception. Notwithstanding the acquisition of
BMT, the Company expects its operating losses to continue for at least the next
two years as it continues to expend substantial resources in funding clinical
trials in support of regulatory and reimbursement approvals, expansion of
marketing and sales activities, and research and development. There can be no
assurance that the Company will achieve or sustain profitability in the future.
Acquisition of BMT
In June 1996, the Company entered into a definitive agreement to acquire
BMT, pursuant to which BMT will become a wholly owned subsidiary of the Company.
BMT develops, manufactures and
22
<PAGE> 25
markets a line of proprietary silicone medical device products as well as
provides engineering design, development and manufacturing services for silicone
products on an OEM basis for other medical device companies. BMT is one of a
limited number of specialty manufacturers of silicone catheters in the United
States. BMT has been a contract manufacturer for the Company since June 1994 and
has manufactured approximately 2,200 Male On-Command Catheters.
In the acquisition, shareholders of BMT will receive, in the aggregate, a
combination of $10 million cash and newly issued shares of Common Stock equal in
value to $22.5 million. Based on an assumed initial public offering price of
$12.00 per share, an aggregate of 1,875,000 shares of Common Stock will be
issued pursuant to the acquisition. The acquisition will be accounted for under
the purchase method of accounting and will result in goodwill of approximately
$28.4 million. Consummation of the acquisition is expected to occur upon the
closing of this Offering.
The Company believes the acquisition will provide a number of significant
benefits. The acquisition will enable the Company to control its own
manufacturing source while providing necessary capacity and flexibility in the
manufacturing process. The product development and engineering expertise of BMT
is also anticipated to be utilized by the Company to develop additional
On-Command Catheter products and other new devices related to the management and
diagnosis of urological disorders.
The ongoing operations of BMT are expected to provide a source of revenues
and cash flow while the Company completes its clinical testing and prepares to
market the On-Command Catheter. There can be no assurance, however, that such
revenues and cash flow or BMT's current profitability and growth rate will
continue in the future. The acquisition of BMT constitutes the Company's first
acquisition of another business. BMT's operations are significantly different in
many respects from the Company's current operations, and the acquisition may
result in a number of unforeseen difficulties and problems that could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the anticipated benefits
of the acquisition will be realized.
BMT Background
The business of BMT was commenced in 1971 to develop tracheal and
endotracheal tubes for airway management and has expanded to include various
other medical device products. BMT has utilized its product development
expertise and production capabilities to manufacture silicone medical device
products on an OEM basis, including components, assemblies and finished devices
for use in gastroenterology, urology, cardiopulmonary, parenteral and diagnostic
applications.
In December 1987, the business of BMT was acquired by Synthelabo, a
pharmaceutical division of L'Oreal S.A. In October 1992, the business was
acquired from Synthelabo by the executive officers and certain other employees
in a management buyout for approximately $7 million. These officers and
employees have continued to operate the business of BMT since the buyout.
Over the past three years, BMT has implemented various management
strategies to increase sales and profitability. These strategies have included
elimination of low margin products, expansion of BMT's line of proprietary
products, investment in research and development, and improvements in
manufacturing facilities and capabilities. BMT operates under GMPs and is in the
process of obtaining ISO-9001 certification and CE mark status. There can be no
assurance, however, that BMT will obtain such certification or status.
RESULTS OF OPERATIONS -- UROQUEST
Net sales and cost of sales. To date, UroQuest has had no material sales.
Research and development. Research and development expenses include
clinical testing and regulatory expenses. For the three months ended March 31,
1996, research and development expenses increased to $277,822 from $193,700 for
the three months ended March 31, 1995. This increase was due primarily to hiring
of clinical personnel, conducting clinical trials in the first quarter of 1996
and implementing improvements in product design and the manufacturing process.
Research and develop-
23
<PAGE> 26
ment expenses increased to $1,106,631 in 1995 from $431,295 in 1994 resulting
primarily from the transfer of certain personnel to research and development
functions in 1995 from general and administrative functions in 1994 and
manufacturing costs incurred to produce devices used in clinical trials. The
increase in research and development expenses in 1995, as compared to 1994, is
also attributable to costs associated with commencing clinical trials of the
Male On-Command Catheter, including legal and other fees related to regulatory
matters, the increased number of research and development employees and
amortization of approximately $130,000 related to patents purchased by UroQuest
in December 1994. Research and development expenses increased to $431,295 in
1994 from $120,531 in 1993 primarily as a result of increased personnel costs
and consultant fees related to regulatory filings. Research and development
expenses are expected to continue to increase for the foreseeable future.
General and administrative. General and administrative expenses increased
to $120,838 for the three months ended March 31, 1996 from $77,548 for the three
months ended March 31, 1995. This increase was attributable primarily to the
establishment of the Company's headquarters in Salt Lake City, Utah in September
1995. General and administrative expenses decreased to $397,523 in 1995 from
$483,399 in 1994 due primarily to the transfer of certain personnel to research
and development functions in 1995 from general and administrative functions in
1994, as discussed above. General and administrative expenses increased to
$483,399 in 1994 from $156,647 in 1993 primarily as a result of increased
administrative personnel. General and administrative expenses are expected to
continue to increase as the Company hires additional personnel to support
anticipated expansion of the Company's business.
Sales and marketing. Sales and marketing expenses increased to $47,572 for
the three months ended March 31, 1996 from $3,523 for the three months ended
March 31, 1995. This increase was attributable primarily to market research
conducted by outside consultants. Sales and marketing expenses increased to
$46,262 in 1995 from $30,257 in 1994 due principally to costs associated with
UroQuest retaining a sales and marketing consultant. Sales and marketing
expenses decreased to $30,257 in 1994 from $38,392 in 1993 primarily as a result
of lower costs of market research.
Other income (expense). There was no material change in other income
(expense), net for the three months ended March 31, 1996 from the three months
ended March 31, 1995. Other income (expense), net increased to income of $36,669
in 1995 from an expense of $260,663 in 1994. This change resulted primarily from
a bad debt reserve in 1994 which was not incurred in 1995. In exchange for the
sale of assets unrelated to the urology business in 1994 to affiliated
corporations, UroQuest received promissory notes totaling $235,008 from such
affiliates, which notes were reserved in full. In June 1996, approximately
$200,000 principal amount of such notes was converted into common stock of one
of the affiliated corporations. The net change to 1995 from 1994 also resulted
from an increase of approximately $56,000 in interest income partially offset by
an increase of approximately $25,000 in interest expense. There were no items
included in other income (expense), net in 1993.
RESULTS OF OPERATIONS -- BMT
Three months ended March 31, 1996 and 1995
Net sales. Net sales increased to $3,796,943 for the three months ended
March 31, 1996 from $3,512,858 for the three months ended March 31, 1995. This
increase was primarily attributable to higher sales volumes of tracheostomy
tubes, one of BMT's principal products in its proprietary product line.
Cost of sales. Cost of sales increased to $2,011,826 for the three months
ended March 31, 1996 from $1,746,736 for the three months ended March 31, 1995.
This increase was due primarily to higher sales volume and an increase in the
sales mix to higher cost products. Increased cost of sales also resulted from
costs associated with improvements in manufacturing and quality control
processes.
24
<PAGE> 27
General and administrative. General and administrative expenses increased
to $452,425 for the three months ended March 31, 1996 from $441,050 for the
three months ended March 31, 1995, primarily as a result of increased salary and
benefit costs per employee.
Marketing and distribution. Marketing and distribution expenses decreased
to $375,872 for the three months ended March 31, 1996 from $425,040 for the
three months ended March 31, 1995. This decrease was due primarily to a
temporary reduction in marketing management personnel in the first quarter of
1996.
Research and development. Research and development expenses increased to
$252,518 for the three months ended March 31, 1996 from $218,626 for the three
months ended March 31, 1995. This increase was attributable primarily to
increased research and development personnel for various products, including the
On-Command Catheter.
Interest expense, net. Interest expense, net decreased to $76,504 for the
three months ended March 31, 1996 from $85,326 for the three months ended March
31, 1995. This decrease resulted from lower borrowings and reduced interest
rates on such borrowings.
Years ended December 31, 1995, 1994 and 1993
Net sales. Net sales increased to $14,257,413 in 1995 from $11,728,409 in
1994. This income was primarily attributable to higher sales volumes of
tracheostomy tubes, new sales resulting from recently commercialized products
and new sales of products acquired by BMT in January 1995. Net sales increased
to $11,728,409 in 1994 from $11,239,155 in 1993. This increase also resulted
from increased sales volume of tracheostomy tubes and the introduction of BMT's
electrolarynx product.
Cost of sales. Cost of sales increased to $7,228,308 in 1995 from
$6,668,026 in 1994. The increase was principally due to higher net sales offset,
in part, by an increase in the sales mix of products with lower per unit costs
and reduced production costs resulting from process improvements. Cost of sales
increased to $6,668,026 in 1994 from $6,351,651 in 1993. This increase was
attributable to higher net sales and costs associated with the introduction of a
new proprietary product partially offset by a higher sales mix of lower cost
products.
General and administrative. General and administrative expenses increased
to $1,653,197 in 1995 from $1,151,485 in 1994. This increase resulted primarily
from litigation costs and related legal fees associated with a contract dispute
related to the electrolarynx product, costs incurred in connection with BMT's
efforts to obtain ISO-9001 certification and increased personnel. General and
administrative expenses increased to $1,151,485 in 1994 from $1,080,971 in 1993
due primarily to increases in employee salaries, wages and benefits.
Marketing and distribution. Marketing and distribution expenses increased
to $1,692,881 in 1995 from $1,607,404 in 1994. This increase was principally
attributable to increased direct selling and marketing efforts resulting in
higher net sales. These expenses were offset, in part, by reduced marketing
management costs. Marketing and distribution expenses increased to $1,607,404 in
1994 from $1,581,302 in 1993 due primarily to increased sales volume partially
offset by implementation of marketing cost control measures.
Research and development. Research and development expenses increased to
$986,265 in 1995 from $586,319 in 1994. This increase resulted primarily from
increased personnel to expedite the development of various new products.
Research and development expenses increased to $586,319 in 1994 from $531,395 in
1993, due to higher salaries and employee benefits costs partially offset by
BMT's cost control efforts.
Interest expense, net. Interest expense, net increased to $315,148 in 1995
from $289,728 in 1994, resulting from increased borrowings under BMT's existing
line of credit. Interest expense, net decreased to $289,728 in 1994 from
$343,846 in 1993, attributable to decreased borrowings and a lower interest rate
on such borrowings.
25
<PAGE> 28
INCOME TAXES
UroQuest has not generated any taxable income to date and, therefore, has
not paid any federal income taxes since its inception. The Company accounts for
income taxes under Statement of Financial Accounting Standards No. 109 ("FAS
109"). Realization of deferred tax assets is dependent on future earnings, if
any, the timing and amount of which are uncertain. Accordingly, valuation
allowances, in amounts equal to the net deferred tax assets as of December 31,
1995 and 1994, have been established in each period to reflect these
uncertainties.
At December 31, 1995, UroQuest and BMT had net operating losses, for tax
purposes, of approximately $1,600,000 and $1,470,000, respectively, that can be
carried forward to reduce federal income taxes. However, utilization of net
operating losses and any tax credit carryforwards will be subject to annual
limitations due to the ownership change limitations of the Internal Revenue Code
of 1986, as amended, and similar state provisions.
LIQUIDITY AND CAPITAL RESOURCES
To date, UroQuest has financed its operations primarily through the private
sale of equity securities and, to a lesser extent, through short-term borrowings
and equipment lease financing. Since inception, UroQuest has raised $4,128,678
in net proceeds of private equity financing. BMT has financed its operations
primarily with cash generated from operations and bank provided working capital
financing.
In December 1994, UroQuest raised $390,000 pursuant to a private placement
of 12% secured promissory notes due December 31, 1996. In connection with such
placement, UroQuest agreed to issue the holders of such notes warrants
exercisable for one share of Common Stock for each dollar of interest earned, at
an exercise price of $1.00 per share. The notes are secured by a pledge of the
Company's eight United States patents relating to the On-Command Catheter. The
Company's patents will be released from such pledge upon repayment of the notes,
which is expected to occur upon or shortly after the closing of this Offering.
Pursuant to the notes, the Company is also obligated to pay the holders 5% of
the net sales income received, if any, from the sale of products covered by the
patents during the period from January 1995 though December 1996. This royalty
arrangement will also be terminated upon repayment of the notes.
During the three months ended March 31, 1996 and the year ended December
31, 1995, UroQuest consumed cash in operations of $361,824 and $1,282,485,
respectively. The changes in cash used in operations were due primarily to
higher expenses associated with increased research and development activities,
and commencement and continuation of clinical trials.
The Company's primary internal source of liquidity presently consists of
existing borrowings and cash generated from BMT's business operations. As of
March 31, 1996 and December 31, 1995, UroQuest had cash and cash equivalents of
$753,228 and $1,113,594, respectively. The decrease since December 31, 1995 was
due primarily to the use of cash in operations. As of March 31, 1996, UroQuest
had no significant noncancelable commitments for capital expenditures or raw
material purchases, although UroQuest may enter into such commitments in the
future. The Company's primary external sources of liquidity are public and
private debt and equity financings and bank provided debt financing.
The Company expects its operating losses to continue for at least the next
two years as it continues to spend substantial sums for clinical trials in
support of regulatory approvals, marketing and sales activities and research and
development. Although the Company believes that the net proceeds from this
Offering, together with existing borrowings and cash generated from BMT's
operations, will be sufficient to meet the Company's operating and capital
requirements for the foreseeable future, there can be no assurance that the
Company will not require additional financing. There can be no assurance that
additional financing, if required, will be available on satisfactory terms or at
all. In any event, the Company may in the future seek to raise additional funds
through bank facilities, debt or equity offerings or other sources of capital.
The Company's future liquidity and capital requirements will
26
<PAGE> 29
depend on numerous factors, including progress of clinical trials, actions
related to regulatory matters, BMT's operations, the extent to which the
On-Command Catheter gains market acceptance, competition, general economic
conditions and other considerations. Moreover, the Company's results of
operations may fluctuate significantly during future quarterly periods. The
Company plans to implement an aggressive marketing and growth strategy, and all
management estimates regarding liquidity are subject to the factors discussed
above and those set forth under "Risk Factors" and elsewhere in this Prospectus.
27
<PAGE> 30
BUSINESS
OVERVIEW
UroQuest Medical Corporation (the "Company") was formed to design, develop
and market advanced products for the management and diagnosis of both male and
female urological disorders. The Company's principal product, the On-Command
Catheter, is an endourethral (inside the urethra) catheter incorporating a
proprietary anchoring system and proprietary patient controlled, magnetically
actuated in-line valves used to regulate urine flow. The On-Command Catheter is
designed to enable persons with either urinary incontinence or urinary retention
to manage their condition without the restricted mobility, medical
complications, discomfort and embarrassment generally associated with many of
the existing management alternatives, including intermittent, Foley, external
and suprapubic catheters, diapers and absorbents, and penile clamps. Clinical
trials conducted to date have demonstrated the utility of the On-Command
Catheter in managing male urinary outflow disorders. The results of the clinical
trials showed an overall symptomatic urinary tract infection rate of less than
4% for patients included in the trials as compared with a 30% to 50% infection
rate for patients using Foley catheters. The Foley catheter is the predicate
device to be used in connection with the Company's upcoming clinical study. Of
the patients included in the trials to date, 90% have expressed a preference for
the Male On-Command Catheter over their existing method of disorder management.
Clinical trials of the Male On-Command Catheter have been conducted at
eight sites in the United States under an Investigational Device Exemption
("IDE") application approved by the United States Food and Drug Administration
("FDA"). Through May 31, 1996, 67 patients had received a total of 220 male
devices. The longest trial period on any patient was 32 months, with the patient
receiving a total of 30 device insertions. The Company is preparing to conduct a
controlled, randomized clinical study under an approved IDE application at three
sites that have received Institutional Review Board ("IRB") approval. The
Company has a targeted enrollment of 60 male patients and expects to complete
the study in the fourth quarter of 1996. An IDE application for the Female
On-Command Catheter was approved in March 1996 and the Company is in the process
of obtaining IRB approval at two investigational sites prior to commencing
clinical trials.
The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with B. Braun Biotrol S.A.
("Braun"), a European based multinational medical device company. Braun plans to
conduct the evaluation and to prepare the necessary regulatory filings in 16
European countries. The clinical evaluation of the Male On-Command Catheter in
Europe is expected to begin in late summer 1996 at a total of six
investigational sites in France, Germany and Spain.
In June 1996, the Company entered into a definitive agreement to acquire
BMT, Inc. and its wholly owned subsidiary, Bivona, Inc. (collectively, "BMT").
BMT designs, develops, manufactures and markets a line of proprietary silicone
medical device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical
device companies. BMT is one of a limited number of specialty manufacturers of
silicone catheters in the United States. BMT has been a contract manufacturer
for the Company since June 1994 and has manufactured approximately 2,200 Male
On-Command Catheters. The acquisition will enable the Company to control its own
production source while providing necessary capacity and flexibility in the
manufacturing process. The product development and production expertise of BMT
is also anticipated to be utilized by the Company to develop additional
On-Command Catheter products and other new devices related to the management and
diagnosis of urological disorders.
LOWER URINARY TRACT ANATOMY AND FUNCTION
The urinary tract system aids the body in eliminating metabolic waste. The
kidneys process blood and filter waste products from the circulatory system,
thereby creating urine. The ureters drain the urine from the kidneys into the
bladder, which serves as a reservoir until urination. The storage
28
<PAGE> 31
capacity of the bladder ranges from approximately one-quarter to one-half liter.
The urinary sphincter is a muscle at the base of the bladder which surrounds the
bladder neck and urethra and aids the bladder in maintaining continence. The
urethra is the tube through which urine flows when the bladder empties. This
process is referred to as "voiding." In males, the prostate gland surrounds the
urethra and provides reproduction function.
[This is a diagram showing the male and female urinary tract anatomy labeled to
include the Bladder, Bladder Neck, Urinary Sphincter, Urethra, Prostate Gland,
Labial Folds and Vagina.]
In a properly functioning lower urinary tract, the balance between urinary
continence and voiding is maintained by a complex dynamic interplay of autonomic
reflexes, neurologic functions and anatomic structures. The bladder neck and the
urinary sphincter work together to act as a valve under muscular control to keep
the urethra closed as the bladder fills with urine. During urination, the
urethra and urinary sphincter muscle reflex and open, while the bladder
contracts and the bladder neck opens, resulting in the voiding of urine. In a
properly functioning lower urinary tract, as the bladder neck opens
involuntarily in response to intra-abdominal pressure, the lower portion of the
urinary sphincter tightens in order to maintain continence. A malfunction in or
damage to any part of this system can cause urinary outflow dysfunction,
including incontinence and retention.
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<PAGE> 32
MARKET OVERVIEW
Introduction
Urinary outflow dysfunction, or voiding disorders, affects at least 13
million people in the United States, including approximately three million men
and ten million women. The Company believes the incidence of urinary outflow
dysfunction in other developed countries worldwide is also significant. Urinary
outflow dysfunction is a problem that affects a large number of both
institutionalized (nursing home and hospital care) and community-dwelling
individuals, and can be characterized as either incontinence or retention.
Urinary incontinence is the inability to control one's urinary function, leading
to frequent involuntary urine leakage from the bladder. Urinary retention is the
inability to voluntarily and spontaneously empty one's bladder, preventing urine
flow even though the bladder continues to fill.
More than 50% of the estimated 1.5 million nursing home patients have
voiding disorders. Additionally, in contrast to the widely-held notion that
voiding disorders are primarily a problem of the institutionalized elderly, a
1986 National Institute on Aging study indicated that 30% of the estimated 40
million community-dwelling population between the ages of 60 to 84 also suffer
from some form of urinary outflow dysfunction. Furthermore, surveys of
community-dwelling younger individuals between the ages of 15 to 64 report that
between 1.5% to 5% of men, and between 10% and 25% of women, have voiding
problems. Medical experts believe that voiding problems are significantly
underreported.
The cost associated with the treatment and management of voiding disorders
is estimated to exceed $16 billion annually in the United States alone. Despite
the development of new treatment options, a recent study conducted by the
National Association for Continence indicated that approximately 56% of
treatments for urinary outflow dysfunction produced no improvement or made the
patients' conditions worse. Therefore, the majority of sufferers must live with
the numerous problems associated with these disorders and seek acceptable
management modalities for their symptoms.
Male Urinary Dysfunction
Research data indicates that over three million men in the United States
are affected by urinary outflow dysfunction. Based on an independent study
commissioned by the Company, the Company estimates that at least one million men
in the United States suffer from retention requiring management and
intervention, while at least two million men suffer from incontinence. These
problems are commonly caused by or result from the treatment of specific urinary
tract diseases, including prostate cancer and benign prostatic hyperplasia
("BPH").
The American Cancer Society estimates that approximately 320,000 new cases
of prostate cancer will be diagnosed in 1996. Industry studies also estimate
that approximately 30% of men age 50 may have latent prostate cancer.
Approximately 300,000 prostatectomies (the surgical removal of the prostate) are
performed each year in the United States to treat prostate cancer. Radiation is
also a common form of treatment. Damage to the external sphincter, bladder neck,
and nerves controlling urinary function following prostatectomy or radiation
therapy often lead to chronic incontinence. The same therapies can also cause
stricture and scarring, leading to obstructive voiding symptoms and retention. A
recent study published in the December 1993 issue of Urology reported that in a
follow-up study on men who had undergone a prostatectomy, 30% experienced daily
problems with incontinence while another 15% reported seeking treatment for
retention due to urethral strictures.
BPH is a common disease in men over age 50 that causes the prostate to
enlarge, putting pressure on the urethra and restricting urine flow. It is
estimated that six million men in the United States suffer moderate to severe
symptoms of BPH. Severe cases are generally treated through surgery requiring
hospitalization followed by an extended recovery period. Several new
technologies are being developed to treat BPH in a less invasive fashion. The
initial clinical data from these therapies indicates that 10% to 15% of patients
require extended catheterization following treatment due to post-operative
swelling of the prostate tissues which causes urinary retention.
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<PAGE> 33
Female Urinary Dysfunction
It is estimated that at least 10 million women suffer from urinary outflow
dysfunction. The most common problem is stress urinary incontinence resulting
from hypermobility of the urethra and bladder neck due to a weakening of the
musculature caused by pregnancies.
Urinary retention is less common in women than men due to anatomical
differences and the relative lack of specific contributing diseases. The Company
estimates that approximately 100,000 women have chronic urinary retention in the
United States. Bladder neck suspension surgery, which is an increasingly popular
procedure performed on women to correct incontinence, often causes temporary
retention problems for up to 90 days. Women with this condition are generally
required to wear a Foley catheter or are taught to perform intermittent self
catheterization until normal voiding function returns. As the number of women
seeking treatment for incontinence increases, the Company believes the incidence
of temporary retention will correspondingly increase.
URINARY INCONTINENCE
Urinary incontinence, the most common form of urinary outflow or voiding
dysfunction, is caused by a variety of factors, including vaginal childbirths,
congenital abnormalities, trauma, congestive heart failures, strokes, Multiple
Sclerosis, spinal cord injuries, drug effects, metabolic abnormalities,
infections and dementia. Urinary incontinence is generally categorized as either
stress incontinence or urge incontinence.
Stress incontinence refers to the involuntary loss of urine during
coughing, laughing, sneezing, jogging or any other physical activity which
causes an increase in intra-abdominal pressure. This condition varies in
severity from those who leak urine only as a result of certain sudden movements
or physical activities to those who leak urine simply upon standing. Stress
incontinence generally results from either hypermobility or intrinsic sphincter
deficiency. Hypermobility is a lack of anatomic stability caused primarily by
weak surrounding tissue, which results in the abnormal movement of the bladder
neck and urethra in response to sufficient intra-abdominal pressure or exertion.
Intrinsic sphincter deficiency is the inability to contract the urinary
sphincter sufficiently to maintain continence.
Urge incontinence refers to the involuntary loss of urine due to a bladder
contraction which is associated with a strong, uncontrollable desire to urinate,
often referred to as urgency. Urge incontinence may result from, among other
things, a hyperactive bladder muscle, neurologic abnormalities, such as those
caused by a stroke, and urethral instability. Patients can also suffer from a
combination of urge and stress symptoms, generally referred to as mixed
incontinence.
The additional physical effects of urinary incontinence include a
predisposition to perineal rashes, pressure ulcers, urinary tract infections,
urosepsis, falls and fractures. This condition is also associated with
depression, social withdrawal, isolation, loss of mobility, feelings of
embarrassment and inadequacy, and reduced sexual functioning, and can cause
considerable caregiver burden.
Treating Urinary Incontinence
Incontinent persons generally seek treatments such as surgery,
pharmaceuticals and behavioral therapy when the condition begins to interfere
with a person's lifestyle. The following table highlights
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<PAGE> 34
the relevant gender, clinical indication and major drawbacks associated with
each of these treatment alternatives as more fully described below.
<TABLE>
<CAPTION>
RELEVANT
TREATMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
- -------------------------- ---------- -------------------------- --------------------------
<S> <C> <C> <C>
Artificial urinary Male/ Incontinence due to Highly invasive;
sphincter surgery Female intrinsic sphincter urethral erosion and
deficiency only injury; mechanical
malfunction
Bladder neck suspension Female Stress incontinence only Temporary retention;
surgery surgical complications
Urethral bulking procedure Male/ Incontinence due to Must be repeated
Female intrinsic sphincter periodically; mixed
deficiency only results
Pharmaceuticals Male/ Urge incontinence only Seldom curative;
Female adverse side effects
Behavioral therapy Female Stress incontinence only Mixed results; can
exacerbate
problem
</TABLE>
Artificial urinary sphincter surgery. The implantable artificial sphincter
is an occlusive cuff that is surgically implanted around the urethra of an
incontinent patient. Although this procedure is generally effective for patients
with intrinsic sphincter deficiency, the Company believes that it is used
relatively infrequently (fewer than 6,000 procedures per year) primarily because
there are a limited number of patients for whom it would be indicated, and
because 32% of the patients have complications including infection, urethral
erosion and injury. In addition, the implantation surgery is expensive and
traumatic, involves general anesthesia and requires several weeks or months for
full recovery.
Bladder neck suspension surgery. Bladder neck surgery is primarily
indicated for female stress incontinence. In this procedure, the physician
elevates and stabilizes the urethra and the bladder neck in order to prevent
hypermobility. These procedures are delicate and complicated and often fail to
redress the problem. Complications include UTI, temporary retention problems,
obstruction symptoms, sepsis and prolonged supra-pubic pain. Bladder neck
surgery is also expensive and traumatic, may involve general anesthesia and
requires several weeks or months for full recovery.
Urethral bulking procedure. Another surgical treatment for incontinence is
the use of injectable urethral bulking materials. In these procedures, Teflon,
collagen or other materials are injected into the area around the urethra with a
needle to create a mild obstruction. Injectable materials are a new and
potentially attractive treatment alternative because they are considerably less
invasive than the surgical procedures described above. Clinical experience with
injectable materials shows they are suitable primarily for treatment of
incontinence due to intrinsic sphincter deficiency, and produce mixed results in
men and women. The procedure is relatively expensive ($1,500 to $3,000 per
treatment) and must be repeated periodically because of bioabsorption.
Pharmaceuticals. In general, drugs available for the treatment of
incontinence act on the nerve receptors associated with the bladder
neurotransmitter system. Accordingly, drug treatment is appropriate for treating
urge incontinence but is not appropriate for managing stress incontinence. While
drugs can partially alleviate the symptoms of incontinence, they are seldom
curative. Also, drug use for incontinence may cause adverse side effects
including drowsiness, dryness of mouth, dizziness, constipation and urinary
retention.
Behavioral therapy. Behavioral therapy and related techniques include
bladder training and habit modification, pelvic muscle exercises, biofeedback
and electrical stimulation. While these are low-risk procedures, they typically
address only female stress incontinence and are seldom curative. These
techniques are time consuming and present patients with an uncertain outcome. In
addition, in the case
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<PAGE> 35
of pelvic muscle training exercises, there is the possibility of worsening the
condition if the exercises are performed incorrectly.
Managing Urinary Incontinence
A recent study indicated that less than 3% of treatments for urinary
incontinence are curative. Furthermore, most are invasive, costly, and can
actually worsen an incontinent person's symptoms or have other unintended side
effects. Therefore, incontinent persons typically turn to management
alternatives, including those summarized in the following table and more fully
described below.
<TABLE>
<CAPTION>
RELEVANT
MANAGEMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
- -------------------------- ---------- -------------------------- --------------------------
<S> <C> <C> <C>
Diapers and absorbents Male/ Stress/urge incontinence Wetness; odor; rash;
Female multiple daily changes
Foley catheters Male/ Stress/urge incontinence High infection rate;
Female urethral erosion;
external leg bag
Male external catheters Male Stress/urge incontinence Penile irritation; daily
changes; external leg
bag
Bladder neck support Female Stress incontinence only Vaginal infection,
prostheses discharge and tissue
erosion; daily
reinsertions
Urethral plugs Female Stress incontinence only Multiple daily changes
Penile clamps Male Stress/urge incontinence Penile edema and erosion;
removal every three
hours
</TABLE>
Diapers and absorbents. Adult diapers and pads, which capture urine upon
leakage, function similarly to baby diapers. Patients have the convenience and
privacy of purchasing these products without seeing a physician. While the
absorbency, size and fit of these products have improved over the last several
years, major disadvantages include lack of control over urine flow, lack of
dryness, skin irritations and rash, embarrassment about appearance and odor,
perceived social stigma, inconvenience and significant lifestyle compromise.
Based on various industry sources, the Company estimates that an incontinent
person in the United States who regularly uses adult diapers and incontinence
pads often spends up to $1,500 per year. Although third-party reimbursement is
generally not available for these products, retail sales of adult absorbents in
1995 were estimated at over $2.5 billion in the United States alone.
Foley catheters. The Foley catheter is an indwelling device used by both
men and women that provides continuous drainage of the bladder. The device
consists of a bladder balloon and a drainage conduit that extends outside the
body and is connected to an external collection bag. Because this design permits
bacteria to enter the body, urinary tract infection ("UTI") is a common problem
with Foley catheterization, and is recognized as a major cause of morbidity and
increased health care costs in both hospitals and nursing homes. It is estimated
that as many as one out of four hospital patients require short-term Foley
catheterization. Between 10% and 30% of these patients develop UTI
(approximately 450,000 to 1,350,000 episodes per year). For patients requiring
long-term Foley catheterization, research has documented a 30% to 50% incidence
of symptomatic UTI. In the hospital setting, UTI prolongs stays by an estimated
two to four days, resulting in increased costs ($2,000 to $4,000 per patient),
and increased risk of death. Complications associated with UTI include sepsis,
kidney infection, urinary stones, and abscesses in the tissue surrounding the
kidney. Foley catheters also cause irritation to the penis and urethral erosion
due to catheter movement, and require a leg bag for drainage, thereby
restricting movement and lifestyle. The Company estimates that over 60 million
Foley catheters are used annually in the United States.
Male external catheters. The male external catheter is a disposable
catheter consisting of a condom-like sheath tapering into a funnel connected to
a drainage tube. The sheath is unrolled onto the penis
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<PAGE> 36
and adheres by means of an adhesive. Urine drains through the male external
catheter into a leg bag which must be emptied several times a day. Typically,
the catheter is removed and discarded at least daily. Skin irritation,
infection, embarrassment, inconvenience and reduced mobility are all common
drawbacks to male external catheters.
Bladder neck support prostheses. Bladder neck support prostheses are used
for female stress incontinence. Roughly the size and shape of contraceptive
diaphragms, these devices are used to lift the bladder neck and urethra by
applying pressure through the neighboring vaginal cavity. It is difficult to fit
a patient properly and to apply enough pressure to eliminate the leakage of
urine without causing pain. Potential adverse side effects include vaginal
infection, discharge and tissue erosion. Prostheses are generally only worn for
short periods of time and require daily removal and reinsertion by the patient.
Urethral plugs. Urethral plugs are devices which occlude the female urethra
to manage stress incontinence. Urethral plugs are designed to maintain dryness
and may be an attractive alternative to absorbents for female patients with
stress incontinence who require management during periods of activity. They
serve only as a plug and must be removed, discarded and replaced with a new plug
each time a woman voids. This frequent changing may be expensive, inconvenient,
and may require both a high degree of patient dexterity and the use of a sterile
environment, which may potentially limit their market acceptance. Urethral plugs
are investigational devices that have not yet been approved by the FDA for sale
in the United States.
Penile clamps. Penile clamps are external compression devices which fit
around the shaft of the penis to prevent leakage of urine. The clamps operate by
constricting the urethra by mechanical, inflation or other similar means. These
devices are not widely used due to their bulk, fit and discomfort. They also
have a tendency to cause penile obstruction, edema and erosion if not removed
every three hours.
URINARY RETENTION
Unlike incontinence, the management of which primarily involves lifestyle
considerations, urinary retention is a medical condition which, if left
untreated, can lead to severe infection, kidney failure and death. Market
research commissioned by the Company indicates that over one million persons
suffer from retention. The most common causes of retention are neurogenic
bladder and urinary tract obstruction.
Neurogenic bladder refers to the inability of the bladder to contract in a
normal manner and initiate voiding. Causes of neurogenic bladder include spinal
cord injury, diabetes, Parkinson's Disease, Multiple Sclerosis and other nervous
system trauma.
Urinary tract obstruction refers to blockage of the bladder neck and/or the
urethra which prevents the normal passage of urine. This condition can be caused
by drug side effects, surgical scarring, post-operative swelling, enlarged
prostate, other surgical procedures, congenital abnormalities and other
complications. Urinary obstruction patients often suffer from a combination of
incontinence and retention.
Managing Urinary Retention
There are currently few treatment options available for retention.
Neurogenic problems are generally irreversible. Most urethral obstructions can
be removed through surgery but often return. However, patients with retention
can manage their symptoms through the use of intermittent catheterization, Foley
catheters or suprapubic catheters, as summarized in the following table and more
fully described below.
34
<PAGE> 37
<TABLE>
<CAPTION>
RELEVANT
MANAGEMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
- ----------------------------- -------- -------------------------- -------------------------------
<S> <C> <C> <C>
Intermittent catheterization Male/ Neurogenic bladder or High infection rates; multiple
Female urethral obstruction daily insertions; urethral
inflammation
Foley catheters Male/ Neurogenic bladder or High infection rates; external
Female urethral obstruction leg bag; urethral erosion
Suprapubic catheters Male/ Neurogenic bladder or High infection rates;
Female urethral obstruction uncontrolled leakage; skin
erosion
</TABLE>
Intermittent catheterization. Intermittent catheterization ("IC") is
currently the preferred management modality for patients with urinary retention.
IC involves the use of a straight catheter inserted through the urethra into the
bladder to achieve voiding. Patients using IC often must perform this procedure
every three to six hours. This procedure can be uncomfortable, prone to
infection, and often results in severe urethral irritation. IC techniques are
classified as either clean or sterile. Clean IC involves the re-use of catheters
cleaned between each use. While clean IC is less expensive, patients can develop
severe or chronic infections which require them to switch to sterile IC which
involves the use of more expensive single use catheters. Costs for sterile IC
can exceed $600 each month. Of the estimated one million patients with
retention, market research commissioned by the Company indicates 55% use
intermittent catheterization or have recurring problems with urethral
strictures.
Foley catheters. In addition to their use for managing incontinence as
discussed above, Foley catheters are also used to manage retention in
conjunction with external collection bags. Market research commissioned by the
Company indicates that approximately 30% of patients with retention use Foley
catheters. Foley catheters are used primarily by patients who are unable to
perform intermittent catheterization or who have recurring problems with
urethral strictures.
Suprapubic catheters. Suprapubic catheters are surgically inserted into the
bladder through the abdomen and sutured into place. The catheters, in
conjunction with external collection bags, function similarly to Foley
catheters. These devices are generally used for patients who are unable to use
IC or Foley catheters because of limited manual dexterity or other factors.
Suprapubic catheters can severely limit patient mobility and cause chronic
infection, strictures and other medical complications.
THE ON-COMMAND SOLUTION FOR MANAGING INCONTINENCE AND RETENTION
The On-Command Catheter is an endourethral (inside the urethra) catheter
incorporating a proprietary anchoring system and proprietary patient controlled,
magnetically actuated in-line valves used to regulate urine flow. The On-Command
Catheter is designed to enable persons with either incontinence or retention to
manage their condition without the restricted mobility, medical complications,
discomfort and embarrassment generally associated with many of the existing
management alternatives including intermittent, Foley, external and suprapubic
cathers, diapers and absorbents, and penile clamps.
Unlike most of the widely used products for the management of incontinence,
which are designed to capture urine flow in an external container or absorbent
medium, the On-Command Catheter enables the incontinent person to remain dry
without interfering with normal lifestyle activities and without the associated
medical and psychological problems. Unlike most of the widely used products for
the management of retention which result in severe lifestyle restrictions, the
On-Command Catheter allows the patient with retention to empty the bladder
conveniently and without the potential complications associated with the use of
an external collection bag or the need for intermittent catheterization.
The principal features of the On-Command Catheter include:
- Patient Control. The On-Command Catheter enables persons with either
incontinence or retention to maintain control of their urinary outflow.
The On-Command Catheter prevents urine from leaving the urinary tract
until the incontinent person electively decides to void enabling
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such person to remain dry. The On-Command Catheter allows the patient
with retention to void when desired and without the need for intermittent
catheterization.
- Non-Surgical Application. The On-Command Catheter is designed to be a
relatively low-risk, non-surgical management application for urinary
outflow problems when compared to surgery or permanently implanted
devices. This is particularly important due to the uncertainty and
complications of invasive treatments, or when the longevity of the
patient is in question.
- Ease of Use. The operation of the On-Command Catheter is simple and
efficient for the patient. The devices are also easy for the physician to
understand, size and insert because they share several common design
features with other commonly used indwelling catheters, such as the Foley
catheter. There is no initial capital or inventory investment required
and a minimum of training is necessary for a physician to become
proficient in the use of the device.
- Convenience and Lifestyle. The proprietary endourethral design of the
On-Command Catheter eliminates the need for external collection bags and
absorbents that can restrict mobility and compromise lifestyle. Periodic
replacement is also convenient when compared to products like diapers,
intermittent catheters and urethral plugs which must be changed or
replaced multiple times per day.
- Lower Incidence of Complications. The On-Command Catheter, because of its
endourethral design, is believed to result in fewer complications than
other products designed for the treatment or management of urinary
outflow problems. Incontinent persons are likely to stay dryer, reducing
the risks of rashes, skin irritations, urethral strictures and other
complications.
- Reduced Infection Rate. Male patients with either incontinence or
retention have been shown in the Company's clinical trials to have lower
infection rates while using the Male On-Command Catheter, when compared
with infection rates based on independent research on patients using a
Foley catheter.
- Cost Effective. The Company believes that less frequent replacement of
the On-Command Catheter should provide a competitive cost advantage over
products that are changed daily or multiple times per day. In addition,
the Company anticipates that the overall treatment cost using the
On-Command Catheter will be lower due to a reduced incidence of
complications and side effects, as well as patient transfers into
institutionalized settings.
Urinary outflow dysfunction can result from a wide range of diseases,
surgical complications and other factors that can affect anatomic structures,
autonomic reflexes or neurologic function. As a result, it is difficult for a
single treatment or management alternative to effectively address every specific
condition. There are certain specific patients who would not be able to benefit
from the clinical and lifestyle advantages of the On-Command Catheter. First,
patients who have limited motor function or dementia may not be able to
effectively activate the magnetic valve. Second, the anatomy of patients who
have low bladder capacity or bladder instability may not be able to accommodate
an endourethral device such as the On-Command Catheter. Finally, patients with
other physical limitations such as excessive obesity or retracted penis may not
be able to use the On-Command Catheter.
Male On-Command Catheter
The Male On-Command Catheter consists of two separable units, the
endourethral catheter portion and the detachable inflator section. When the two
units are connected, prior to use, the device closely resembles a Foley
catheter. The device is inserted non-surgically through the urethra in a simple
five-minute procedure. Two balloons are inflated, one in the bladder to seal the
bladder neck and one in the urethra on the downstream side of the prostate gland
to anchor the device. The inflator portion is then detached and discarded,
allowing the device to reside completely inside the urethra with no exposed
components, thereby reducing the risk of infection. The device is designed to
remain in place for up to 30 days.
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[This is a diagram of the Male On-Command Catheter with the various components
labeled including the drainage conduit, Urethral Anchoring Balloon, Control
Valve, Bladder Ballon, and Activation Magnet.]
The proprietary control valve is located at the outlet end of the catheter
section and is magnetically actuated. This valve can be opened by simply placing
a matchbook sized magnet externally along the underside of the penis, allowing
the urine to flow. Removing the magnet closes the valve, shutting off the flow
of urine and keeping the patient dry. Both insertion and removal procedures are
non-surgical, take only a few minutes and are easily accomplished by medical
staff or other caregivers. The Company offers a range of sizes, and uses a
proprietary sizing catheter to ensure appropriate fit. The sizing catheter is
easy for physicians to use and ensures a comfortable and customized fit in a
variety of anatomies.
Female On-Command Catheter
The Female On-Command Catheter also employs a catheter with a detachable
inflation section and a magnetically actuated valve. The device is shorter than
the Male On-Command Catheter and substitutes the urethral anchoring balloon with
a small rounded external cap which anchors the device in place beneath the
labial folds of the vagina. The device is designed to remain in place for 15 to
30 days making it more convenient than many other products requiring multiple
changes per day. Because the external anchoring cap extends past the urethral
opening, UTI rates in the Female On-Command Catheter are expected to be higher
than the Male On-Command Catheter which resides entirely inside the urethrea.
[This is a diagram of the Female On-Command Catheter showing the Activation
Magent, Control Valve, External Anchoring Cap, Bladder Balloon, Drainage
Conduit.]
The procedures for insertion, voiding and removal are similar to those for
the male device.
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CLINICAL TRIALS
Clinical trials of the Male On-Command Catheter were conducted by Surgitek,
a prior licensee of the Company's technology, from 1989 to 1992. The trials
evaluated a minimum of three successive device insertions for a period of 30 to
37 days each in male patients with either incontinence or retention. A total of
49 patients were enrolled receiving an aggregate of 201 Male On-Command Catheter
insertions. The longest trial period on any patient was 32 months, with the
patient receiving a total of 30 device insertions.
The results of the clinical trials demonstrated the utility of the Male
On-Command Catheter in managing male urinary outflow problems. The overall
symptomatic UTI rate was less than 4% for all patients during the trials. In
comparison, independent research on Foley catheters has documented a 30% to 50%
incidence of symptomatic UTI. The Company believes that the results are due, in
part, to the entirely indwelling design of the Male On-Command Catheter which is
not subject to bacterial influx from external tubing and collection systems
typically associated with a Foley catheter. In addition, the proprietary
anchoring system caused no adverse effects to the urethra or bladder. In the
clinical trials, complications other than symptomatic UTI primarily included
migration, mis-sizing and bladder spasms. Overall, 90% of the patients
expressed a preference for the Male On-Command Catheter over their existing
method of disorder management.
The Company submitted a 510(k) notification to the FDA in July 1994 based
on the clinical data collected by Surgitek. The Company was notified by the FDA
that the clinical trials were deficient in certain respects, particularly with
respect to the design of the trials, which had an insufficient number of
patients and was not structured as a controlled, randomized study, as required
under current FDA regulations. In response to the FDA, the Company designed a
controlled, randomized study of the Male On-Command Catheter and filed an IDE
application that was approved in July 1995.
The purpose of the study is to confirm prior clinical results and
demonstrate the safety and efficacy of the Male On-Command Catheter when
compared to a Foley catheter in managing urinary outflow dysfunction. To date,
the three participating centers have received IRB approval and enrollment is
underway. The study protocol includes the evaluation of a single catheter
insertion for a period of up to 30 days. The duration of the study is seven
weeks per patient, including enrollment and both pre-insertion and
post-insertion examinations. Study endpoints include comparison of symptomatic
UTI rates, physical changes to the bladder and urethra and patient assessment of
quality of life between study groups. The Company anticipates the completion of
the study, with a targeted enrollment of 60 patients, during the fourth quarter
of 1996. There can be no assurance that the study will be completed in this
timeframe. The randomized study was initially started in September 1995 and then
stopped in order to diagnose and correct a component assembly problem causing
migration of the device away from the bladder. The Company has implemented
measures to correct the problem and has also developed a new sizing catheter
and procedure to improve the patient fit of the device. The Company intends
to recommence the randomized clinical study in the near-term and complete the
study in the fourth quarter of 1996.
The IDE for the Female On-Command Catheter was approved in March 1996 by
the FDA and the Company is in the process of obtaining IRB approval at two
investigational sites. The clinical study will use a Foley catheter as the
control device and will evaluate single device insertions over a 7 to 30 day
period. The study will require seven weeks per patient to complete and will
include 180 patients, 90 of whom will receive the Female On-Command Catheter and
90 of whom will receive the Foley catheter. Study endpoints include comparison
of symptomatic UTI rates, physical changes to the bladder and urethra and
patient assessment of quality of life between study groups. As part of the
approved IDE,
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the Company will conduct a non-randomized pilot evaluation of 20 patients to
test protocols and procedures prior to initiating the controlled, randomized
study.
The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with Braun. Braun has agreed to
conduct the evaluation and prepare the necessary regulatory filings in 16
European countries. The clinical evaluation in Europe is expected to begin in
late summer 1996 and will evaluate the Male On-Command Catheter at a total of
six investigational sites in France, Germany and Spain. The protocol will be
similar to the IDE approved protocol used in the United States. However, the
Company will not be required to include a control group. The Company anticipates
evaluating up to three sequential device insertions for each patient.
MARKETING AND SALES
The Company intends to market the On-Command Catheter directly in the
United States to physicians and their patients while using marketing
collaborations for institutions (nursing home and hospital care) and
international markets. The Company's marketing strategy is designed to create
awareness and promote the On-Command Catheter as the preferred alternative for
the management of lower urinary tract problems in men and women. The Company's
initial marketing efforts will be directed toward urologists, uro-gynecologists
and primary care physicians whose patients are seeking relief from urinary
outflow problems.
Domestic Sales
Medical association estimates indicate that there are approximately 9,000
urologists and uro-gynecologists in the United States. Over half of these
specialists practice in groups with patients drawn from a wide geographic area.
Because of this concentration, the Company expects that a relatively small
direct sales force of approximately 20 individuals by 1999 can effectively
address this market.
The Company intends to implement its marketing strategy through clinical
sales specialists who will educate and train physicians and patients. These
specialists will include field-based paraprofessionals, nurse practitioners and
professional sales representatives with experience demonstrating medical
products and procedures. Initially, the Company will target the sunbelt region
of the United States where there is a greater percentage of older persons in
which the incidence of urinary dysfunction is higher. The Company then intends
to expand its sales efforts into other areas of the country.
Many patients using currently available products to manage incontinence and
retention are dissatisfied with such products. Patient awareness of the benefits
of the On-Command Catheter will be created through the use of selected print
advertising, incontinence advocacy group sponsorship, prostate cancer
newsletters and other targeted promotions. The objective will be to inform
patients that a new management option is available and provide them with a toll
free phone number to call for more information. Callers will be provided with
the names of physicians in the patient's area who have been trained by the
clinical sales specialist, have adopted the On-Command Catheter for their
patients and are prepared to evaluate the clinical suitability of the patient.
The Company's strategy is to identify reference physicians in selected
geographic areas to provide a referral network for patients seeking management
alternatives. Timing of the awareness media campaign will be carefully
orchestrated to coincide with the physician training.
The Company's direct sales activities will be augmented through attendance
and participation in trade shows and organizational meetings specifically
related to urology and urinary dysfunction and through the publication of
scientific papers discussing the results of expanded clinical development work.
There can be no assurance that urologists will adopt the On-Command Catheter for
their patients, or that the Company will be successful in establishing
marketing, sales and distribution channels in the United States. The failure to
establish and maintain effective distribution channels for the Company's
products, or to retain qualified sales personnel to support commercial sales of
the
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Company's products, would have a material adverse effect on the Company's
business, financial condition and results of operations.
Based on market research commissioned by the Company, the Company believes
its initial target market includes men who have incontinence or retention whose
condition does not preclude them from using a medical device and who meet
certain additional criteria including age, manual dexterity and dissatisfaction
with their current management modality. This research also indicates that over
one million men are currently using a prescription medical device to manage
urinary outflow problems. The Company believes that patients currently using a
prescription medical device will be the first to recognize the benefits of the
On-Command Catheter. These male patients are accustomed to devices, see their
physician on a regular basis, and are believed to be the most receptive to
alternative management methods. Patients using absorbents who are dissatisfied
with the wetness, odor, discomfort and embarrassment associated with diapers are
also primary targets.
The Company is targeting women with moderate to severe stress incontinence
who require some form of continuous management and are dissatisfied with wearing
diapers and pads. The Company estimates that this represents a target market of
one and one-half million women in the United States. The Company intends to
introduce the Female On-Command Catheter initially through the physicians who
have had prior experience with the Male On-Command Catheter and are treating
female patients with similar profiles.
The Company expects eventually to add managed care specialists to address
the unique requirements of capitated health care systems including hospitals,
HMOs and nursing homes. The products will be sold on the basis of
pharmacoeconomic results and the overall cost effectiveness versus other
management and treatment modalities. The Company plans to analyze and use the
most appropriate distribution method to reach these institutional markets.
International
International marketing efforts are initially being directed at Europe and
Japan. International sales will be achieved through strategic partner
relationships and various distribution arrangements. The Company has entered
into an arrangement with Braun to conduct clinical trials in Europe for the
On-Command Catheters. Braun has over 200 sales representatives in the major
European countries who would be responsible for selling and marketing the
Company's catheter products. This arrangement may lead to an exclusive licensing
and distribution agreement in Europe following the clinical trials. Preliminary
discussions are currently underway with other potential marketing partners in
Japan and other Pacific Rim countries. There can be no assurance that the
company will be successful in establishing marketing, sales and distribution
channels internationally.
THIRD PARTY REIMBURSEMENT
In the United States and in foreign countries, third party reimbursement is
generally available for medical devices such as condom catheters, Foley
catheters, and intermittent catheters for the management of urinary outflow
dysfunction, including retention and incontinence. Products such as diapers and
absorbents which are widely used for incontinence management are generally not
covered and are paid for by the patient.
The Company believes, based on the availability of third-party
reimbursement for certain other medical devices, the On-Command Catheter will
generally be eligible for coverage by third-party reimbursement programs. There
can be no assurance, however, that such reimbursement will be available. The
Company is unable to determine whether the On-Command Catheter reimbursement
amount, if any, will be sufficient to cover the cost of the product. Medicare
allowable costs for other urinary outflow dysfunction management devices are
approximately $65 for Foley catheters and approximately $95 for condom catheters
per month. Allowable reimbursement costs for sterile intermittent
catheterization are approximately $600 per month. The Company's longer term
strategy will be to obtain separate reimbursement codes and perform outcome
studies evaluating the cost
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effectiveness of the On-Command Catheter compared to other device, absorbent and
treatment modalities.
Changes in the availability of third-party reimbursement for the On-Command
Catheter, for products of the Company's competitors or for surgical procedures
may affect the pricing of the On-Command Catheter or its relative cost to the
patient. If third-party reimbursement is unavailable, patients will have to pay
for the On-Command Catheter themselves, resulting in greater relative out-of-
pocket costs for the device as compared to surgical procedures and other
management options for which third-party reimbursement is available. The Company
does not expect that third-party reimbursement will be available, if at all,
unless and until FDA and foreign regulatory approval is received. After such
time as applicable regulatory approval is received, if ever, third-party
reimbursement for the On-Command Catheter will be dependent upon decisions by
the Health Care Financing Administration for Medicare in the United States and
similar authorities abroad, as well as by individual health maintenance
organizations, private insurers and other payors. The Company is not able to
predict the effect, if any, which the availability or unavailability of
third-party reimbursement for the On-Command Catheter may have on the
commercialization of the device.
MANUFACTURING
The Company currently uses BMT to produce limited quantities of the
On-Command Catheter products for use in its clinical trials. To date, BMT has
manufactured approximately 2,200 Male On-Command Catheters and only a limited
number of female On-Command Catheters. Management anticipates that the
acquisition of BMT will provide significant manufacturing capabilities for the
UroQuest products. The manufacturing facilities are operated in compliance with
current GMPs and have passed inspection repeatedly by the FDA, as well as the
United Kingdom's Department of Health. See "Acquisition of BMT."
BMT has specialized in the manufacturing of medical devices using
predominantly silicone technology for 25 years, and currently manufactures a
broad range of silicone-based catheter-type products used in various segments of
the healthcare industry. BMT is a GMP compliant facility and is in the process
of obtaining ISO-9001 certification, which is based on adherence to established
standards in the area of quality assurance and manufacturing process control,
and CE mark status. There can be no assurance, however, that BMT will obtain
such certification or status. BMT is one of only eleven worldwide members of Dow
Corning's "Fabricator Network," enabling it to select from Dow Corning's range
of biomedical grade silicone materials, thereby assuring the most appropriate
material for specific medical applications. As a Network member, BMT receives
priority pricing and availability.
BMT's manufacturing capabilities include custom compounding, where special
pigmentation, radiopacity agent, or unique ratio blending are necessary to
customize end product performance specifications. Liquid silicones and high
consistency silicones are utilized in injection, transfer, compression, insert
or blow molding processes to manufacture components in a variety of custom
configurations. BMT also has the capability to extrude single or multi-lumen
tubing, special round or compound profiles or even coextrusion with other
silicone or non-silicone substrates in a range of sizes from as small as 0.002"
inside diameter tubing to as large as 1.6" outside diameter. In some cases,
these basic processes yield a finished device. In most cases these molded or
extruded products become the components and/or subassemblies from which a broad
range of catheter-type devices are manufactured, including the On-Command
Catheter.
BMT has extensive assembly and fabrication capabilities. The molded or
extruded silicone components are combined together with any number of
non-silicone components to produce a variety of products. BMT has both Class
100,000 and Class 10,000 certified clean room assembly and packaging capability.
Other custom assembly processes include adhesiving, bonding, potting, forming,
porting, drilling, notching, cutting, printing, coating, dispensing and
reinforcing with wires or other non-silicone substrates. In addition, BMT has
developed proprietary surface enhancement technologies and processes which
provide a wide range of alternative product characteristics. Over 800,000
silicone
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catheter-type devices are currently manufactured annually at BMT. The Company
currently has excess manufacturing capacity available.
The On-Command Catheter has been manufactured at BMT over the past two
years involving design and process steps which have evolved over this period to
its current design. The processes and techniques required to manufacture and
assemble the On-Command Catheter are similar to those currently used by BMT to
manufacture other silicone catheter-type devices. The On-Command Catheter also
requires the procurement of several non-silicone components. The sources for
each component have been identified and a limited inventory of certain
components is currently available. In addition, BMT is seeking to develop
alternative source for such components. The Company may encounter difficulties,
delays and significant expenses in scaling up production of the On-Command
Catheter, including potential problems involving production yields, quality
control, component supply and shortage of qualified personnel. Notwithstanding
BMT's manufacturing expertise, difficulties encountered in mass-production of
the On-Command Catheter could occur, and in such event, could result in a
material adverse effect on the Company's business, financial condition and
results of operations.
BMT utilizes many raw materials in the manufacturing process that are
subject to various environmental laws and regulations. In the event of a
violation of environmental laws, the Company could be held liable for damages
and for the costs of remedial actions and could also be subject to revocation of
permits necessary to conduct its business. Any such revocations could require
the Company to cease or limit production at its facilities, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is also subject to environmental laws
relating to the storage, use and disposal of chemicals, solid waste and other
hazardous materials, as well as air quality regulations. Changes or restrictions
on discharge limits, emissions levels, or material storage or handling might
require a high level of unplanned capital investment and/or subsequent
relocation to another location. There can be no assurance that the Company will
be able to comply with the discharge levels mandated or that the costs of
complying with such regulations will not require additional capital expenses.
Furthermore, there can be no assurance that compliance with such regulations
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
RESEARCH AND DEVELOPMENT
The Company's current research and development efforts are focused
primarily on broadening the number of On-Command configurations to address
additional clinical indications, as well as developing the Snap Shot Urine
Chemistry Test System. The Company also intends to continue to build upon its
clinical knowledge and relationships to develop additional advanced, innovative
products for the management, treatment and diagnosis of other urological
problems. Accordingly, the Company intends to continue to devote significant
funds to its research and development activities. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
On-Command Convertible Catheter
The On-Command Convertible Catheter is being developed for use in patients
requiring temporary bladder management in a clinical setting where a Foley or
intermittent type catheter would normally be used. Monitoring urine output and
urine chemistry is important immediately following surgery to evaluate kidney
function. With the inflation portion attached, the On-Command Convertible
Catheter functions as would a Foley catheter allowing for continuous bladder
drainage. When continuous monitoring is no longer necessary and continence has
not yet returned, the inflator portion of the On-Command Convertible Catheter
can be disconnected and the device then functions in the controlled flow mode.
The patient can then move about without restriction or without the attendant
problems associated with an indwelling Foley catheter, external tubing and
collection bag. The Company estimates that over two million Foley catheters are
used annually in the United States for extended
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post-surgery catheterization. The Company believes that separate clinical trials
will not be necessary for approval of the On-Command Convertible Catheter, and
that the device will be evaluated as an engineering modification to the current
On-Command Catheter.
On-Command Control Catheter
The On-Command Control Catheter is being developed for use with
semi-ambulatory or bed-ridden patients in long-term or home care environments.
An estimated $3 billion is spent annually in nursing homes to manage
incontinence alone. The Control Catheter incorporates a mechanical valve
mechanism that can be easily opened or closed by a caregiver to facilitate
patient voiding. The Company believes the device will be useful in the
management of incontinence in nursing homes and extended care settings,
replacing adult diapers, Foley catheters, male external catheters and
supra-pubic catheters. The Company believes that separate clinical trials will
not be necessary for approval of the On-Command Control Catheter, and that the
device will be evaluated as an engineering modification to the current
On-Command Catheter.
Snap-Shot Urine Chemistry Test System
The urine chemistry test system, identified under the trademark
"Snap-Shot," is a simple disposable device used for the chemical analysis of
urine samples. The product is a completely closed system in which urine can be
easily collected and tested for various chemical components. Because urine is a
body fluid that can potentially transmit dangerous diseases, OSHA has mandated
the use of precautionary measures when such fluids are being handled. The use of
gloves, gowns, face protection and special ventilation and disposal for these
supplies, as well as the specimen, raises the cost of urinalysis performed in a
physician's office.
The Snap-Shot is designed to ensure compliance with OSHA safety regulations
for the safe handling of body fluids during testing procedures. The Company is
not aware of any other manual urinalysis device which is either currently on the
market or under development and which complies with these regulations. The
Company estimates the potential annual market in the United States for the
Snap-Shot to be approximately $200 million.
BMT Development Capabilities
BMT's prototype development and manufacturing expertise complement
UroQuest's basic research capabilities. BMT currently has a fully staffed pilot
production laboratory with a range of capabilities including product molding,
extrusion, testing and assembly. BMT also has extensive experience in silicone
manufacturing and in materials selection for each specific application. BMT's
research and development staff consists of 7 engineers and 14 skilled
technicians. The Company intends to benefit from BMT's research and development
capabilities in connection with its development of the On-Command Catheter and
other urology products.
COMPETITION
The urological product industry is intensely competitive. The Company
believes that the primary competitive factors include the level of physician and
consumer awareness and acceptance of available treatment methods, consistency of
product quality and delivery, price, technical capability and the training of
health care professionals and consumers in the use of available treatment
methods. The Company's ability to compete in this industry will also be affected
by its product development capabilities and innovation, its ability to obtain
required regulatory clearances, its ability to protect the proprietary
technology included in its products, its manufacturing and marketing
capabilities and its ability to attract and retain skilled employees.
Current major competitors who compete in the adult absorbent market include
Kimberly-Clark Corporation, Proctor & Gamble Company, Johnson & Johnson, Confab
Technologies, Inc. and INBRAND Corporation. Current major competitors who
compete in the catheter/urine collection bag
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drainage system market include C.R. Bard Inc., Kendall Co., Mentor Corporation,
Convatec and Baxter Technologies, Inc. Current major competitors who compete in
the market for surgical or implantable products for incontinence include
American Medical Systems, Inc., C.R. Bard, Inc., Mentor Corporation, Johnson &
Johnson Co., and Collagen Corporation.
The Company is aware that UroMed Corp., UroHealth, Inc., Rochester Medical
Corporation, Influence, Inc. and others are developing a number of alternative
products for the management of female stress incontinence. The Company is not
aware of any new products or technologies that compete directly with the
On-Command Catheter in the male urinary outflow dysfunction market.
Many of the Company's competitors and potential competitors have greater
financial, manufacturing, marketing, distribution and technical resources and
experience than the Company. It is possible that other large health care and
consumer products companies may enter this industry in the future. Furthermore,
academic institutions, governmental agencies and other public and private
research organizations will continue to conduct research, seek patent protection
and establish arrangements for commercializing products. Such products may
compete directly with any products which may be offered by the Company.
Finally, competitors in the medical device industry have in the past and
may in the future employ litigation to gain a competitive advantage. There can
be no assurance that the Company's competitors will not succeed in developing or
marketing technologies technologies and products that are more effective or
commercially attractive than any which are being developed by the Company, or
that such competitors will not succeed in obtaining regulatory approval,
introducing or commercializing any such products prior to the Company. such
developments could have a material adverse effect on the Company's business,
financial condition and results of operations.
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend, in part, on its ability to obtain and
maintain patent protection for its products, to preserve its trade secrets and
to operate without infringing the proprietary rights of third parties. The
Company's strategy regarding the protection of its proprietary rights and
innovations is to seek patents on those portions of its technology that it
believes are patentable and to protect as trade secrets other confidential and
proprietary information.
UroQuest holds ten United States patents, eight of which relate to the
On-Command Catheter, and numerous foreign patents and has four United States
patent applications and various foreign patent applications pending. One United
States patent and two patent applications relate to the Snap Shot chemistry test
system. The issued United States patents include both method and device claims.
The Company's first two patents expire in 2000 and 2001, which relate to the
On-Command Catheter, and the remainder of all other patents, including six
related to the On-Command Catheter, expire in the years from 2007 through 2014.
In addition, BMT holds fifteen Unites States patents and nine foreign patents.
The Company believes that its patents contain claims which may provide a
substantial competitive advantage to the Company. However, there can be no
assurance that the Company's issued patents, or any patents which may be issued
as a result of the Company's applications, will offer any degree of protection.
In addition, there can be no assurance that competitors, many of whom have
substantial resources and have made substantial investments in competing
technologies, will not apply for and obtain patents that will prevent, limit or
interfere with the Company's ability to make, use or sell its products either in
the United States or internationally.
Some of the technology used in, and that may be important to, the Company's
products is not covered by any patent or patent application of the Company. The
Company seeks to maintain the confidentiality of its proprietary technology by
requiring employees who work with proprietary information to sign
confidentiality agreements and by limiting access by parties outside the Company
to such confidential information. There can be no assurance, however, that these
measures will prevent the unauthorized disclosure or use of this information, or
that others will not be able to independently
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develop such information. Moreover, as is the case with the Company's patent
rights, the enforcement by the Company of its trade secrets can be lengthy and
costly, with no guarantee of success.
To date, no claims have been brought against the Company alleging that its
technology or products infringe intellectual property rights of others. However,
there can be no assurance that such claims will not be brought against the
Company in the future or that any such claims will not be successful.
The "On-Command" mark is a registered trademark of the Company. In
addition, the Company has filed intent to use applications for other marks which
have been approved by the PTO. However, there can be no assurance that the
trademark registration on the On-Command or any other mark that may be selected
by the Company will not be challenged, invalidated, prevented or circumvented in
the future.
GOVERNMENT REGULATION
The Company's products, including the On-Command Catheter, are subject to
pervasive and continuing regulation by the FDA under the Federal Food, Drug and
Cosmetic Act (the "FDC Act") and require regulatory clearance or approval prior
to commercialization in the United States. The FDA regulates the preclinical and
clinical testing, manufacture, labeling, distribution and promotion of medical
devices in the United States. Regulatory agencies in the various foreign
countries in which the Company's products may be sold may impose additional
regulatory requirements. Noncompliance with applicable requirements can result
in, among other things, fines, injunctions, civil penalties, recall or service
of products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing clearances or approvals, and criminal prosecution. The
FDA also has authority to request recall, repair, replacement or referral of the
cost of any device manufactured or distributed by the Company.
Following the enactment of the Medical Device Amendments to the FDC Act in
May 1976, the FDA classified medical devices in commercial distribution into one
of three classes, Class I, II or III. This classification is based on the
controls deemed necessary to reasonably ensure the safety and efficacy of
medical devices. Class I devices are those whose safety and efficacy can
reasonably be ensured through general controls, such as adequate labeling,
premarket notification and adherence to FDA-mandated good manufacturing
practices ("GMPs"). Class II devices are generally those whose safety and
efficacy can reasonably be ensured through the use of general and special
controls, such as performance standards, post-market surveillance, patient
registries and FDA guidelines. Class III devices are devices which must receive
premarket approval by the FDA to ensure their safety and efficacy, generally
life-sustaining, life-supporting or implantable devices, and also including all
new devices introduced after May 28, 1976 that are not substantially equivalent
to legally marketed products. Manufacturers must also comply with Medical Device
Reporting ("MDR") requirements that a firm report to the FDA any incident in
which its product may have caused or contributed to a death or serious injury,
or in which its product malfunctioned and, if the malfunction were to recur, it
would be likely to cause or contribute to a death or serious injury. Labelling
and promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. Current FDA enforcement policy
prohibits the marketing of approved medical devices for unapproved uses.
The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with GMP requirements, MDR requirements, and other
applicable regulations. FDA has proposed changes to the GMP regulations which
will likely increase the cost of compliance with GMP requirements. Changes in
existing requirements or adoption of new requirements could have a material
adverse effect on the Company's business, financial condition, and results of
operation. There can be no assurance that the Company will not incur significant
costs to comply with laws and regulations in the future or that laws and
regulations will not have a material adverse effect upon the Company's business,
financial condition or results of operation.
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<PAGE> 48
The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
material adverse effect upon the Company's ability to do business.
If a manufacturer or distributor of medical products can establish that a
new device is "substantially equivalent" to a legally marketed Class I or Class
II medical device or to a Class III medical device for which the FDA has not
required premarket approval ("PMA"), the manufacturer or distributor may seek
FDA marketing clearance for the device by filing a 510(k) notification. The FDA
recently has been requiring more vigorous demonstration of substantial
equivalence than in the past, including in some cases requiring submission of
clinical data. The 510(k) notification and the claim of substantial equivalence
may have to be supported by various types of information indicating that the
device is as safe and effective for its intended use as a legally marketed
predicate device.
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an order
is issued by the FDA. The FDA has no specific time limit by which it must
respond to a 510(k) notification. It generally takes from four to 12 months from
submission to obtain 510(k) premarket clearance, but may take longer. The FDA
may agree with the manufacturer or distributor that the proposed device is
"substantially equivalent" to another legally marketed device, and allow the
proposed device to be marketed in the United States. The FDA may, however,
determine that the proposed device is not substantially equivalent, or may
require further information, such as additional test data, before a substantial
equivalence determination can be made. Such determination or request for
additional information could prevent or delay the market introduction of a new
product. For any devices that are cleared through the 510(k) process,
modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions. There can be no assurance that the Company
will be able to obtain 510(k) approval for the On-Command Catheter or other
necessary regulatory approvals or clearances on a timely basis or at all.
If a manufacturer or distributor cannot establish to the FDA's satisfaction
that a new device is substantially equivalent to a legally marketed medical
device, the manufacturer or distributor will have to seek premarket approval
("PMA") or reclassification of the device. A PMA, which must prove that a device
is safe and effective, must be supported by valid scientific evidence to
demonstrate the safety and effectiveness of the device, typically including the
results of preclinical and clinical trials. The PMA process can be expensive,
uncertain and lengthy. Upon receipt of a PMA application, the FDA makes a
threshold determination as to whether the application is sufficiently complete
to permit a substantive review. If sufficiently complete, the submission is
declared fileable by the FDA and the FDA will begin an in-depth review of the
PMA. The FDA review of a PMA application generally takes one to three years from
the date the PMA is accepted for filing, but may take significantly longer. A
number of devices for which FDA approval has been sought have never been
approved for marketing. Modifications to a device that is the subject of an
approved PMA, its labelling or manufacturing process may require approval by the
FDA of PMA supplements or new PMAs. Supplements to a PMA often require the
submission of the same type of information required for an initial PMA, except
that the supplement is generally limited to that information needed to support
the proposed change from the product covered by the original PMA.
If human clinical trials of a device are required, whether for a 510(k) or
a PMA, and the device presents a "significant risk," the sponsor of the trial
(usually the manufacturer or the distributor of the device) will have to file an
investigational device exemption ("IDE") application prior to commencing human
clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device
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<PAGE> 49
presents a "nonsignificant risk" to the patient, a sponsor may begin the
clinical trial after obtaining approval for the study by one or more appropriate
IRBs without the need for FDA approval. Submission of an IDE does not give
assurances that FDA will approve the IDE and, if it is approved, there can be no
assurance that FDA will determine that the data derived from these studies
support the safety and efficacy of the device or warrant the continuation of
clinical studies. An IDE supplement must be submitted to and approved by the FDA
before a sponsor or investigator may make a change to the investigational plan
that may affect its scientific soundness or the rights, safety or welfare of
human subjects.
Pursuant to the Company's ongoing research and development efforts, the
Company will be making modifications to the existing On-Command Catheter which
the Company believes will not require the submission of new 510(k) notices.
There can be no assurance, however, that the FDA would agree with any of the
Company's determinations not to submit a new 510(k) notice for any of these
changes or would not require the Company to submit a new 510(k) notice for any
of the changes made to the devices. If the FDA requires the Company to submit a
new 510(k) notice for any device modification, the Company may be prohibited
from marketing the modified device until the 510(k) notice is cleared by the
FDA.
There can be no assurance that the Company will be able to obtain necessary
regulatory approvals or clearances on a timely basis or at all, and delays in
receipt of or failure to receive such approvals or clearances, the loss of
previously received approvals or clearances, limitations on intended use imposed
as a condition of such approvals or clearances, or failure to comply with
existing or future regulatory requirements would have a material adverse effect
on the Company's business, financial condition and results of operations.
Sales of medical devices outside of the United States are subject to
regulatory requirements that vary widely from country to country. The time
necessary to obtain approval for sale in other countries may be longer or
shorter than that required for FDA approval, and requirements may differ from
FDA requirements. Some countries have historically permitted human studies
earlier in the product development cycle than the United States. Other
countries, such as Japan, have standards similar to those of the FDA. This
disparity in the regulation of medical devices may result in more rapid product
approvals in certain countries than in the United States, while approvals in
countries such as Japan may require longer than in the United States. The export
of medical devices is also subject to regulation in certain instances.
BMT, as a developer and manufacturer of Class I and Class II medical
devices, is also subject to regulation by the FDA. BMT is registered with the
FDA as a critical device manufacturer, distributor, initial importer, repackager
and relabeler of medical devices. BMT has been placed on an extended
inspectional cycle by the FDA because of its favorable compliance history, thus
an inspection would be expected only once every three years rather than every
two years. BMT's last FDA inspection was in January 1994. BMT has had a
successful history of working with the FDA on product development approvals as
evidenced by 58 510(k) clearances currently held by BMT.
BMT also works with foreign regulators to assure its facilities and
procedures are in conformance with European standards. BMT's current
registration with respect to its distribution of medical devices in the United
Kingdom and other European countries was recently extended until June 1998.
BMT is currently in pursuit of conformance to ISO-900I Standards. BMT has
contracted with a foreign certification services company to act on its behalf
for assessment of compliance to the provisions of the Medical Device Directive
("MDD") of the European Union. The Company's products are classified as Class
IIA, and self certification and authorization for application of the CE mark
under Annex II of the MDD (full quality system in conformance to EN29001 and
EN46001) is expected to be sought in the fourth quarter of 1996. There can be no
assurance that BMT will obtain ISO-9001 certification or CE mark status.
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PRODUCT LIABILITY AND INSURANCE
The business of the Company entails the risk of product liability claims.
Although the Company has not experienced any product liability claims to date,
any such claims could have a material adverse impact on the Company. BMT
maintains product liability insurance in the amount of $5 million and evaluates
its insurance requirements on an ongoing basis. Although UroQuest intends to
obtain product liability insurance after FDA approval and prior to marketing the
On-Command Catheter, it does not currently have such insurance which is
expensive and may not be available on acceptable terms, if at all. There can be
no assurance that product liability claims will not exceed such insurance
coverage limits or that such insurance will be available on commercially
reasonable terms or at all.
EMPLOYEES
As of May 31, 1996, UroQuest employed a total of 8 full-time employees,
including 2 in research and development, 4 in administration and 2 in
regulatory. As of May 31, 1996, BMT employed a total of 215 full-time employees
and 38 part-time employees, including 187 in manufacturing, 27 in research and
development, 16 in administration, 9 in regulatory and quality assurance, and 14
in sales and marketing. The Company believes that it has been successful in
attracting experienced and capable personnel. However, there can be no assurance
that the Company will continue to do so.
None of the Company's employees is covered by collective bargaining
agreements. The Company considers relations with its employees to be good. In
the past six years, BMT has faced two union election contests at its
manufacturing facility, each of which failed. There can be no assurances that
BMT will not face additional attempts to unionize its employees. In the event
BMT becomes subject to a collective bargaining agreement, it may experience
increased labor and related costs that could have a material adverse effect on
the Company's business, financial condition and results of operations.
FACILITIES
The Company's principal facilities consist of UroQuest's headquarters in
Salt Lake City and BMT's headquarters in Gary, Indiana. The Company believes
that its facilities are adequate for its current operations.
BMT owns a 45,000 square foot manufacturing plant located on a 20 acre
parcel of land near Gary, Indiana, on which BMT's operations are headquartered.
The plant's space is allocated as follows: approximately 12,000 square feet
dedicated to equipment-intensive production, approximately 10,000 square feet
dedicated to office and support activity, and approximately 23,000 square feet
dedicated to cleanroom production and packaging. Additionally, BMT leases a
18,600 square foot warehouse/shipping facility located approximately five miles
from the manufacturing plant. The lease runs through December 1998 and the
current annual rate on the lease is approximately $60,000.
UroQuest currently leases approximately 2,300 square feet in Salt Lake
City, Utah pursuant to a lease expiring in September, 2000. The current annual
rate on the lease is $37,017, with annual increases based on the percentage
increase in the prior year's average consumer price index, beginning in October
1998. Current space is dedicated to administration, sales and marketing and
regulatory activities.
LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings, nor is the
property of the Company subject to any such proceedings. There can be no
assurance, however, that the Company will not experience material litigation
with respect to the operation of its business.
BMT
BMT manufactures and markets a series of proprietary products under the BMT
label. BMT's products consist primarily of silicone based medical devices used
in a wide variety of clinical applications, including tracheostomy and
endotracheal tubes for airway management and voice
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prostheses for voice restoration. BMT also produces a range of complex catheter
type products on an OEM and private label basis for other medical device
companies in areas that include gastrointestinal feeding, esophageal management,
cardiac perfusion, hyperalimentation and dialysis.
The current proprietary product line includes over 400 different products
sold to approximately 9,000 customers in 40 different countries. The OEM product
line includes approximately 500 additional products sold to about 20 different
companies, most of which are Fortune 500 medical device companies. For the year
ended December 31, 1995 and the three months ended March 31, 1996, OEM sales
accounted for approximately 40% of BMT's net sales. During each of these
periods, sales to Abbott Laboratories accounted for approximately 20% of total
net sales. The loss of such customer or other OEM customers could have a
material adverse effect on the Company's business, financial conditions and
results of operations.
BMT uses a small direct sales force to market its proprietary products to
medical specialists including ENT surgeons, respiratory therapists, speech
pathologists and anesthesiologists. A group of specialty medical dealers is used
in international markets. Approximately 20% of BMT's net sales are derived from
sales in international markets.
The OEM business is serviced by a team of contract sales agents with
support from the BMT engineering staff. BMT is positioned as a value added
manufacturer providing complete product development, regulatory affairs,
manufacturing and packaging service. BMT emphasizes its broad expertise in
complex catheter manufacturing, silicone fabrication techniques and surface
enhancement technologies.
BMT competes with a number of other silicone fabricators for OEM and
private label business. The OEM business is highly competitive and the timing
and volume of orders can fluctuate significantly. BMT does not attempt to
compete with the high volume molded part producers, but specializes in complete
device assemblies of complex products. Because virtually all of BMT's
proprietary and OEM products incorporate silicone, any cost increase or other
negative development associated with this material could adversely affect its
business financial condition and results of operations. Moreover, BMT is
dependent on Dow Corning for a substantial portion of the supply of medical
grade silicone used in BMT's business, particularly with respect to the
manufacture of proprietary tracheostomy tubes.
BMT's proprietary silicone products compete primarily against non-silicone
counterparts produced by a number of large multinational companies including
Mallinkrodt Group Inc., Sims and Rusch Inc. In addition, there are a number of
smaller companies that compete in other BMT market areas, including InHealth in
voice restoration, and Xomed Surgical Products, Inc. in ENT.
As of May 31, 1996, BMT held 15 issued United States patents and 9 foreign
patents. BMT's issued patents cover technology related to proprietary products
and, except for two patents that expire in 1999 and 2000, have expiration dates
ranging from 2002 to 2014. In addition, BMT holds 5 registered trademarks,
including Bivona(R), Fome-Cuf(R), Aire-Cuf(R), Nu-Trake(R) and Saf T Flo(R) and
16 trademarks for which registration with the PTO is pending.
For additional information with respect to the operations of BMT, see
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business -- Manufacturing,
- -- Research and Development, -- Government Regulation, -- Product Liability and
Insurance, -- Employees, -- Facilities, and -- Legal Proceedings."
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Eric B. Hale 43 President, Chief Executive Officer and Director
Tom E. Brandt 43 Chief Operating Officer and Director Nominee
Richard C. Davis, M.D. 43 Chief Science Officer and Chairman of the Board
Gregory S. Ayers 34 Vice President, Chief Financial Officer
Terrence L. Domin 49 Vice President, Operations and Secretary
Anne T. Carter 41 Director of Clinical & Regulatory Affairs
Jack W. Lasersohn 43 Director
Gary E. Nei(1)(2) 52 Director
Maynard Ramsey, III, M.D., Ph.D.(1) 52 Director
Elizabeth H. Weatherman(2) 35 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
ERIC B. HALE has served as President, Chief Executive Officer and a
Director of the Company since November 1994. Before joining the Company, Mr.
Hale was President and Chief Executive Officer of AgriDyne Technologies, Inc., a
developer and manufacturer of bio-pesticides, from October 1988 until June 1994.
Prior to joining AgriDyne Technologies, Mr. Hale was Vice President and General
Manager of the Scientific Products Division of BaxterTravenol, a medical
products company, from November 1985 until September 1988. Mr. Hale held various
marketing, sales, and general management positions with American Hospital
Supply, a medical products company, from June 1975 to November 1985. Mr. Hale
holds a B.S. in Chemistry/Psychology from Utah State University.
TOM E. BRANDT is a director nominee of the Company. Mr. Brandt has been the
President and Chief Executive Officer of Bivona since June 1989. Prior to
joining Bivona, Mr. Brandt held various management, marketing and engineering
positions with Dow Corning Corporation, a chemical company ("Dow Corning"). Mr.
Brandt holds an M.B.A. from Central Michigan University and a B.S. in
Engineering from Iowa State University. Following the closing of this Offering,
Mr. Brandt will be appointed to the Company's Board of Directors and will serve
as the Company's Chief Operating Officer.
RICHARD C. DAVIS, M.D., founded the Company and has served as Chairman of
the Board since its inception and as Chief Science Officer since November 1994.
Dr. Davis invented the Male On-Command Catheter and is responsible for all
research and development activities of the Company. In 1989, he founded Code
Blue Medical Corporation, a marketer of medical devices ("Code Blue") and served
as Chairman until April 1992, when Code Blue was sold to Ballard Medical
Products, a medical products company. Dr. Davis is named as an inventor in over
40 United States patents. Dr. Davis holds an M.D. from the Medical College of
Virginia and a B.S. in Chemistry from Old Dominion University.
GREGORY S. AYERS has served as Vice President, Chief Financial Officer and
Treasurer of the Company since April 1994. From August 1991 until April 1994,
Mr. Ayers held various senior management positions with Tunstall Consulting,
Inc., a corporate financial planning and consulting firm. From September 1983
until May 1991, Mr. Ayers held various senior management positions with KPMG
Peat Marwick in the United States, England and Australia. Mr. Ayers holds a B.S.
in Accounting from Stetson University. He is a Certified Public Accountant.
TERRENCE L. DOMIN, a co-founder of the Company, has served as Vice
President, Operations and Secretary since April 1992. Previously, Mr. Domin
served as Executive Vice President and Chief
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<PAGE> 53
Operating Officer at Code Blue. From April 1984 until April 1987, Mr. Domin held
various positions at Smith Laboratories, a pharmaceutical company, most recently
as Director, Sales and Marketing, until its sale to The Boots Company of
Nottingham, England. From June 1969 until March 1984, Mr. Domin was with Baxter
Healthcare Corporation a medical products company ("Baxter"), in a series of
domestic and international marketing management positions. Mr. Domin holds a
B.S. in Mathematics from Loyola University, Chicago.
ANNE T. CARTER has served as Director of Clinical & Regulatory Affairs for
the Company since August 1995. Prior to joining the Company, Ms. Carter was the
Director of Clinical & Regulatory Affairs at Iomed, Inc., a specialty
pharmaceutical and biomechanical company, from May 1990 until August 1995. Ms.
Carter has 20 years of diverse medical experience and 16 years of experience in
the clinical development and regulatory affairs of products in the
pharmaceutical, biotechnology, and medical device industries. Ms. Carter holds a
B.S. in Nursing from Westminster College and a B.S. in Health Education from the
University of Utah.
JACK W. LASERSOHN has served as a director of the Company since June 1995.
Mr. Lasersohn has been a Managing Director of the Vertical Group, Inc., a
private venture capital and investment management firm, since its formation in
1989 by former principals of F. Eberstadt & Co., Inc. From 1981 to 1989, he was
a Vice President and later a Managing Director of the venture capital division
of F. Eberstadt & Co., Inc. Mr. Lasersohn also serves as a director of
CardioThoracic Systems, Inc., a medical device company, VitalCom Inc., a medical
products company, and a number of privately-held health care companies. He holds
a J.D. from Yale University, an M.A. from Tufts University and a B.S. in Physics
from Tufts University.
GARY E. NEI has served as a director of the Company since March 1994. Mr.
Nei is currently Chairman of the Board of B&B Publishing, a publishing company,
and has served as such since May 1995. Previously, Mr. Nei served as Chief
Executive Officer of Eon Labs, a pharmaceutical company, from February 1992
until January 1995. From November 1988 until December 1991, he served as the
Chief Executive Officer of Lyphomed, a pharmaceutical company. From 1985 until
1986, he served as Executive Vice President of Baxter International, a
healthcare company. He is also a director of Difco Inc., a biological products
company, W. H. Brady Co., an adhesives and graphics technology company, and Nei
Turner Interactive, a software company. He holds an M.B.A. from Northwestern
University and a B.A. from Rippon College.
MAYNARD RAMSEY, III, M.D., PH.D. has served as a director of the Company
since March 1994. Dr. Ramsey was a founder of Applied Medical Research, Inc., a
medical products company, which was acquired by Johnson & Johnson in 1979 and
became the patient monitoring business of Critikon, Inc., where he served as the
Vice President of Research and Development from 1979 until March 1994. Dr.
Ramsey has received numerous awards for his scientific and research
achievements, holds 16 United States patents, has authored 12 publications and
has presented 21 papers. He holds an M.D. from Duke University, a Ph.D. from
Duke University and a B.A. in Chemistry from Emory University.
ELIZABETH H. WEATHERMAN has served as a director of the Company since June
1995. Ms. Weatherman is a Managing Director of E.M. Warburg, Pincus & Co., Inc.,
a private investment firm, and has been with the firm since June, 1988. Ms.
Weatherman is a director of Cardiotronics Systems, Inc., a medical device
company, VitalCom Inc., a medical products company and several privately-held
health care companies. Ms. Weatherman holds an M.B.A. from Stanford University
and a B.A. from Mount Holyoke College.
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. The Board of
Directors has a Compensation Committee, which establishes compensation policies
and is responsible for determinations regarding cash and equity compensation for
executive officers, and an Audit Committee, which is responsible for reviewing
the scope of and work performed by the Company's independent auditors. Officers
are elected by and serve at the discretion of the Board of Directors. All
executive officers of the Company intend, while employed by the Company, to
devote substantially all of their full working time and attention to the
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<PAGE> 54
Company's business and affairs. There are no family relationships among the
directors or officers of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentive compensation and other forms of compensation for directors, officers
and other employees of the Company. The Compensation Committee also administers
various incentive compensation plans. The Compensation Committee consists of
Gary E. Nei and Elizabeth H. Weatherman. Mr. Hale, who is the Company's
President and Chief Executive Officer, participates in all discussions and
decisions regarding salaries and incentive compensation for all employees of and
consultants to the Company, except that Mr. Hale is excluded from discussions
regarding his own salary and incentive compensation.
KEY EMPLOYEES OF BIVONA
John M. Sandie, 45, has served as Vice President of Operations of Bivona
since September 1989. Prior to joining Bivona, Mr. Sandie held various
production management and engineering positions with Dow Corning. Mr. Sandie
holds a B.S. in Mechanical Engineering from Lake Superior State College.
Harry M. Kaufman, 56, has served as Director of Regulatory Affairs, Quality
Assurance and Quality Control of Bivona since June 1988. Before joining Bivona,
Mr. Kaufman was employed in various management positions with Alcide
Corporation, a pharmaceutical company, Pfizer, a pharmaceutical company, Baxter
Healthcare, a healthcare company, and Martin-Marietta, an aerospace company. Mr.
Kaufman holds an M.B.A. from Sacred Heart University, an M.S. in Microbiology
from Arizona State University and a B.S. in Biology from Texas Western
University.
Stuart J. Marcadis, 36, has served as Director of Engineering/Research and
Development of Bivona since July 1991. Mr. Marcadis was previously with DLP, a
developer and manufacturer of cardiovascular medical devices, serving as
Product/Process Development Engineering Manager from March 1989 to July 1991.
Mr. Marcadis holds a B.S. in Chemical Engineering from Rose-Hulman Institute of
Technology.
Joe H. Flacke, 41, has served as Secretary/Treasurer and Director of
Administration of Bivona since November of 1988. From 1983 to 1988, Mr. Flacke
was General Production Manager for Teknar, Inc., a manufacturer of medical
electronic equipment. Prior to working at Teknar, Mr. Flacke was an electronics
technician at Washington University. Mr. Flacke holds an M.B.A. from Fontbonne
College and a B.S. in Data Processing from Washington University.
MEDICAL ADVISORY BOARD
The Company has established a Medical Advisory Board (the "Advisory Board")
consisting of seven members to review and comment on the scientific aspects of
the Company and to develop suggestions for new ideas and products. Members of
the Advisory Board are appointed for a two-year term, and the Advisory Board
meets two times per year.
The members of the Advisory Board are set forth below. With the exception
of Dr. Rodney Appell, who has served as a member of the Advisory Board since
August 1994, each of the members of the Advisory Board was appointed in April
1996.
Anthony W. Middleton, Jr., M.D. serves as Chairman of the Advisory Board.
Dr. Middleton is currently serving as the Chairman of the Division of Urology at
LDS Hospital in Salt Lake City, Utah, and as Chairman of the Board of UROPAC
(National Urological Political Action Committee). He recently completed a term
as national President of the American Association of Clinical Urologists. In
addition to being a full time practicing urologist, he has published over 100
articles and papers on various aspects of urology and organized medicine. Dr.
Middleton is a graduate of Cornell University Medical College.
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<PAGE> 55
Rodney Appell, M.D. currently serves as Chief of Urology at the Cleveland
Clinic and is a widely published and active researcher in the area of urinary
dysfunction. In addition, Dr. Appell is the Clinical Professor of Urology at the
Louisiana State University School of Medicine. Dr. Appell holds an M.D. from
Jefferson Medical College.
Fray F. Marshall, M.D. has been a Professor of Urology and Director,
Division of Adult Urology, at The Johns Hopkins Hospital, Baltimore, Maryland
since July 1990. Dr. Marshall holds an M.D. from the University of Virginia.
Joseph A. Smith, Jr., M.D. has been the William L. Bray Professor and
Chairman of the Department of Urologic Surgery and Interim Director, Section of
Surgical Sciences at Vanderbilt University School of Medicine, Nashville,
Tennessee since July 1991. Dr. Smith holds an M.D. from the University of
Tennessee.
Shlomo Raz, M.D. has been a Professor, Department of Surgery, Division of
Urology, UCLA School of Medicine, Los Angeles, California since 1985. Dr. Raz
holds an M.D. from the University of Montevideo, Uruguay.
Peter Scardino, M.D. has headed the Department of Urology, Baylor School of
Medicine, Houston, Texas since 1987. Dr. Scardino holds an M.D. from Duke
University.
Larry Wright, M.D. has been the Director of Microbiology Laboratory at LDS
Hospital, Salt Lake City, Utah since 1989. Dr. Wright holds an M.D. from the
University of Utah.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the calendar year
ended December 31, 1995, regarding the compensation of the Company's Chief
Executive Officer and each of the other two most highly compensated executive
officers of the Company (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1)
- ------------------------------------------------------ ---- ------------ ---------------
<S> <C> <C> <C>
Eric B. Hale.......................................... 1995 $190,000 $ 3,600
President and Chief Executive Officer
Terrence L. Domin..................................... 1995 120,000 --
Vice President, Operations
Richard C. Davis...................................... 1995 125,385 --
Chairman of the Board and
Chief Science Officer
</TABLE>
- ---------------
(1) Consists of a $600 per month automobile allowance paid by the Company for a
six-month period.
(2) It is anticipated that Tom E. Brandt, Chief Operating Officer of the
Company, will earn in excess of $100,000 in 1996.
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<PAGE> 56
OPTION GRANTS AND EXERCISES IN THE YEAR ENDED DECEMBER 31, 1995
AND FISCAL YEAR END OPTION VALUES
There were no options granted to the Named Executive Officers listed in the
Summary Compensation Table above during the fiscal year ended December 31, 1995.
The following table sets forth certain information as to options exercised
during the fiscal year ended December 31, 1995 and as to unexercised options
held at the end of such fiscal year by the Named Executive Officer of the
Company:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT YEAR END AT YEAR END(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric B. Hale............... 85,714 $102,557 68,477 216,242 $64,773 $ 110,283
Richard C. Davis........... -- -- 53,452 53,691 $27,261 $ 27,382
Terrence L. Domin.......... -- -- 132,282 187,142 $67,515 $ 95,442
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the Common Stock on
December 31, 1995 of $1.21 per share, as determined by the Company's Board
of Directors, minus the exercise price.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Richard C. Davis,
M.D., its Chairman of the Board and Chief Science Officer, Eric B. Hale, its
President and Chief Executive Officer, Gregory S. Ayers, its Vice President,
Chief Financial Officer, and Treasurer, and Terrence L. Domin, its Vice
President, Operations and Secretary. Dr. Davis's employment agreement provides
for base pay of $130,000 per annum, performance bonuses based upon criteria
measured by the Board of Directors. Mr. Hale's employment agreement provides for
base pay of $195,000 per annum, performance bonuses based upon criteria measured
by the Board of Directors and severance constituting salary and benefits
continuation for up to eighteen months following termination of employment
without cause. The Company's employment agreement with Mr. Domin provides for
base pay of $120,000 per annum. The Company's employment agreements with Messrs.
Davis, Domin and Ayers provide for severance of salary and benefits continuation
for up to nine months following termination without cause. Each of these
employment agreements provides for grants of stock options. All officers will
also be entitled to acceleration of vesting of outstanding stock and options in
the event the Company is acquired. The vesting of each such officer's options
and any stock held subject to repurchase by the Company would accelerate so that
any such stock or options would be 100% vested. In addition, in connection with
the acquisition of BMT, the Company has entered into an employment agreement
with Tom E. Brandt, Chief Operating Officer, which provides for annual base
compensation of $168,000 for five years.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash for services they provide as
directors. All directors of the Company, other than those designated by the
holders of the Company's Series D Convertible Preferred Stock, have each been
granted options to purchase 107,143 shares of Common Stock at an exercise price
of $0.70 per share. The options vest over a five year period, although all
shares become immediately exercisable in the event there is a change in control
of the Company. See "Stock Plans -- 1994 Stock Option Plan" and "Certain
Transactions." The Company does not pay additional amounts for committee
participation or special assignments of the Board of Directors.
COMPENSATION OF MEDICAL ADVISORY BOARD MEMBERS
Pursuant to separate consulting, confidentiality and non-competition
agreements between the Company and each member of its Medical Advisory Board,
the Company has agreed to pay each such Advisory Board member $1,000 per meeting
attended. In addition, in April 1996 the Company granted certain of its Advisory
Board members options to purchase an aggregate of 7,143 shares of Common
54
<PAGE> 57
Stock at a price of approximately $1.75 per share and a cumulative exercise
price of approximately $12,500.
STOCK PLANS
1994 Stock Option Plan. A total of 1,428,571 shares of Common Stock have
been reserved for issuance under the Company's 1994 Stock Option Plan (the
"Stock Plan"). As of March 31, 1996, 137,077 shares had been issued upon the
exercise of stock options granted under the Stock Plan, 1,052,815 shares were
subject to outstanding options and 238,679 shares remained available for future
grant. The Stock Plan is administered by the Board of Directors or a committee
thereof, which determines the terms of awards granted, including recipient, type
of award, exercise price, number of shares subject to the award and vesting
terms. Under the Stock Plan, options may be granted to employees, including
directors who are employees, and consultants. Only employees may receive
"incentive stock options," within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), which are intended to qualify for
certain tax treatment; non-employees receive "nonqualified stock options," which
do not qualify for such treatment. In the event of a change in control of the
Company, including a merger or sale of substantially all of the Company's
assets, outstanding options may be assumed by any successor corporation or may
become exercisable. The exercise price of stock options under the Stock Plan
must at least equal the fair market value of the Common Stock on the date of
grant. Options granted under the Stock Plan generally vest on a cumulative
monthly basis over five years and must be exercised within ten years.
1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors and
approved by the stockholders in July 1996. A total of 250,000 shares of Common
Stock have been authorized for issuance under the Purchase Plan. No shares have
been issued under the Purchase Plan. The Purchase Plan, which is intended to
qualify under Section 423 of the Code, will be administered by the Board of
Directors of the Company or by a committee appointed by the Board of Directors.
Under the Purchase Plan, the Company will withhold a specified percentage (not
to exceed 10%) of each salary payment to participating employees over certain
offering periods. Any employee who is currently employed for at least 20 hours
per week for at least five consecutive months in a calendar year, either by the
Company or by a majority-owned subsidiary of the Company, will be eligible to
participate in the Purchase Plan. Unless the Board of Directors or its committee
determines otherwise, each offering period will run for 24 months and will be
divided into four consecutive purchase periods of approximately six months. The
first offering period and the first purchase period will commence on the date of
this Prospectus. New 24-month offering periods will commence approximately every
six months thereafter. The price at which Common Stock will be purchased under
the Purchase Plan is equal to 85% of the fair market value of the Common Stock
on the first day of the applicable offering period or the last day of the
applicable purchase period, whichever is lower. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
The number of shares that a participant may purchase in any purchase period is
determined by dividing the payroll deductions accumulated during the purchase
period by the purchase price. However, no person may purchase shares under the
Purchase Plan to the extent such person would own 5% or more of the total
combined value or voting power of all classes of the capital stock of the
Company or of any of its subsidiaries, or to the extent that such person's
rights to purchase stock under all employee stock purchase plans would accrue at
a rate that exceeds $25,000 worth of stock for any calendar year, determined as
of the first day of the applicable offering period. In the event of a merger of
the Company with or into another corporation, or the sale of all or
substantially all of the assets of the Company, the offering period then in
progress will be shortened. The Board may amend the Purchase Plan at any time.
The Purchase Plan shall be in effect for a term of ten years unless terminated
earlier pursuant to its terms.
55
<PAGE> 58
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation provides that the Company's
directors will not be liable for monetary damages for breach of the directors'
fiduciary duty of care to the Company and its stockholders. This provision in
the Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Delaware law. Each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for acts or
omissions that the director believes to be contrary to the best interests of the
Company or its stockholders, for any transaction from which the director derived
improper personal benefit, for acts or omissions involving a reckless disregard
for the director's duty to the Company or its stockholders when the director was
aware or should have been aware of a risk of serious injury to the Company or
its stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company believes
that indemnification under its Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. The Company is also empowered
under its Bylaws to enter into indemnification contracts with its directors and
officers and to purchase insurance on behalf of any person it is required or
permitted to indemnify. Pursuant to this provision, the Company has entered into
indemnity agreements with each of its directors and officers.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
CERTAIN TRANSACTIONS
In August 1992, the Company issued 1,285,714 shares of Common Stock and
142,857 shares of Non-Voting Common Stock to Richard C. Davis and to DD Trust, a
trust established by Richard C. Davis on behalf of his children, respectively,
for patents and trademarks totaling $5,000. Dr. Davis, a founder of the Company,
is the Company's Chairman of the Board and Chief Science Officer. In January
1994, the Company issued 1,285,714 shares of Voting Common Stock and 142,857
shares of Non-Voting Common Stock to Richard C. Davis and to DD Trust,
respectively, for all of the outstanding equity of UroCath Corporation, which
was transferred by Dr. Davis and DD Trust to the Company. All shares owned by
Dr. Davis personally have been transferred to a trust established on his behalf
and controlled by Dr. Davis.
During 1994, the Company was assigned patents and trademarks totaling
$250,000 by Excalibur Engineering Corporation for which UroQuest issued a
$250,000 non-interest bearing note. Excalibur is controlled by Dr. Davis. As the
note was non-interest bearing, the Company recorded the note net of a $6,840
discount calculated at 8% over the expected term of the note. The note was paid
in full and the discount completely amortized by December 31, 1995.
In June 1994, the Board of Directors of the Company approved issuance of an
option to purchase 107,143 shares of Common Stock at $.70 per share to each
member of the Board of Directors, which shares shall vest over a five-year term
tied to service on the Board of Directors. All shares shall be exercisable in
full in the event there is a change in control of the Company.
In June 1994, affiliate corporations were formed for the purpose of
transferring non-core businesses into separate entities with similar ownership.
Cash and other assets totaling $235,008 were exchanged
56
<PAGE> 59
with those affiliates for 8% promissory notes. The notes are payable on demand.
In 1994 a valuation provision was established to provide for the notes in full.
All accrued interest on the notes receivable is provided for monthly.
In December 1994, Maynard Ramsey, a director of the Company, purchased
$150,000 of the Company's 12% Secured Promissory Notes Due December 1996. In
December, 1994 Donald Sauey, a director of the Company, purchased $100,000 of
the Company's 12% Secured Promissory Notes Due December 1996.
In June 1995, Dr. Davis sold, at $0.0035 per share, 1,080,000 shares and
120,000 shares of Common Stock to Warburg Pincus Investors, L.P. ("Warburg") and
Vertical Fund Associates, L.P. ("Vertical"), respectively, in conjunction with
Warburg's and Vertical's purchase from the Company, at $3.50 per share, of
565,714 shares and 62,857 shares, respectively, of Series D Convertible
Preferred Stock. In conjunction with the transaction, the Company issued a
warrant to Warburg to purchase 1,285,714 shares of Series D Convertible
Preferred Stock at $3.50 per share and a warrant to Vertical to purchase 142,857
shares of Series D Convertible Preferred Stock at $3.50 per share. Pursuant to a
letter agreement dated June 15, 1995 between the Company and Dr. Davis, and in
consideration of Dr. Davis's sale of such shares of Common Stock to Warburg and
Vertical, the Company agreed to indemnify Dr. Davis from and against any
liabilities arising from or related to such sale.
Pursuant to a Termination Agreement dated June 27, 1996 (the "Termination
Agreement") among the Company, Dr. Davis, Warburg and Vertical, the Stock
Purchase Agreement dated as of June 15, 1995 among the parties will be
terminated upon the closing of this Offering. Upon the closing of this Offering,
Warburg and Vertical agreed to exercise their warrants (for 1,285,714 shares and
142,857 shares of Common Stock, respectively, at $3.50 per share) and Dr. Davis
agreed to sell at $0.001 par value per share 128,571 shares and 14,285 shares of
Common Stock, respectively.
Pursuant to the Termination Agreement, so long as each of Warburg and
Vertical beneficially owns 50% of the Common Stock owned as of the closing of
this Offering, it is entitled to designate three directors to the Board of
Directors. Upon such event, the parties to the Termination Agreement have agreed
not to increase the size of the Board of Directors to more than eleven members.
If each of Warburg and Vertical designated three directors, they would
collectively be able to control the direction, management and policies of the
Company.
All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
57
<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of June 30, 1996, and
as adjusted to reflect the sale of Common Stock offered by the Company hereby
(at the initial public offering price of $12.00 per share), for (i) each person
who is known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each of the Company's directors, (iii) each Named Executive Officer
of the Company and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING(1) OWNED AFTER OFFERING
----------------------- -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------- --------- ------- ---------- -------
<S> <C> <C> <C> <C>
Warburg, Pincus Investors, L.P.(2)..................... 3,059,999 39.0% 3,059,999 27.3%
466 Lexington Ave., 10th Floor
New York, NY 10017
Elizabeth H. Weatherman(3)............................. 3,059,999 39.0% 3,059,999 27.3%
Warburg, Pincus Investors, L.P.
466 Lexington Ave., 10th Floor
New York, NY 10017
Richard C. Davis, M.D.(4).............................. 1,292,501 16.4% 1,292,501 11.5%
4820 Longwater Way
Tampa, FL 33615
Thomas E. Brandt(5).................................... 1,203,750 15.4% 1,203,750 10.8%
206 Anderson Drive,
Valparaiso, IN 46383
Eric B. Hale(6)........................................ 175,810 2.2% 175,810 1.6%
Terrence L. Domin(7)................................... 186,810 2.3% 186,810 1.6%
Jack W. Lasersohn(8)................................... 340,000 4.3% 340,000 3.0%
Maynard Ramsey, III, M.D., Ph.D.(9).................... 94,289 1.2% 94,289 *
Gary E. Nei(10)........................................ 60,000 * 60,000 *
--------- ------- ---------- -------
All Officers and Directors as a group (9
persons)(11)......................................... 6,500,262 77.8% 6,500,262 55.6%
========== ======= ========== =======
</TABLE>
- ---------------
* Less than 1%.
(1) "Beneficial owner" means generally any person who, directly or indirectly,
has or shares voting power or investment power with respect to a security.
Unless otherwise indicated in these footnotes, or pursuant to applicable
state community property laws each stockholder has sole voting and
investment power with respect to the shares beneficially owned. Percentages
are determined based upon 7,840,769 shares of Common Stock outstanding on
June 30, 1996 (assuming the automatic conversion into Common Stock of all
outstanding shares of Preferred Stock and the exercise of certain warrants
upon the closing of this Offering), or issuable upon exercise of warrants
and options exercisable within 60 days of June 30, 1996.
(2) Represents 3,059,999 shares of Common Stock held by Warburg, Pincus
Investors, L.P. The sole general partner of Warburg, Pincus Investors, L.P.
("WP Investors") is Warburg, Pincus & Co., a New York general partnership
("WP"). Lionel J. Pincus is the managing partner of WP and may be deemed to
control it. E.M. Warburg, Pincus & Company, a New York general partnership
that has the same general partners as WP ("EM Warburg"), manages WP
Investors. WP has a 20% interest in the profits of WP Investors and through
its wholly owned subsidiary, E.M. Warburg, Pincus & Co., Inc. ("Warburg,
Pincus") owns 1.13% of the limited partnership interests in WP Investors.
Elizabeth H. Weatherman, a director of the Company, is a Managing Director
of Warburg, Pincus and a general partner of WP, and EM Warburg. As such,
Ms. Weatherman may be deemed to have an indirect pecuniary interest (within
the meaning of Rule 16a-1 under the Exchange Act) in an indeterminate
portion of the shares beneficially owned by WP Investors, Warburg, Pincus,
and WP.
58
<PAGE> 61
(3) Ms. Weatherman, a director of the Company, is a Managing Director of E.M.
Warburg, Pincus & Co., Inc., the general partner of Warburg, Pincus
Investors, L.P. All of the shares indicated as owned by Ms. Weatherman are
owned directly by Warburg, Pincus Investors, L.P. and are included because
of her affiliation with Warburg, Pincus Investors, L.P. As such, Ms.
Weatherman may be deemed to have an indirect pecuniary interest in an
indeterminate portion of the shares beneficially owned by Warburg, Pincus
Investors, L.P. Ms. Weatherman disclaims beneficial ownership of these
shares within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
(4) Represents 1,228,572 shares of Common Stock held by The Richard C. Davis,
Jr. 1993 Revocable Trust, of which Dr. Davis is a Trustee and over which
Dr. Davis has investment and voting control. Dr. Davis disclaims beneficial
ownership of these shares. Also includes 63,929 shares of Common Stock
issuable upon exercise of stock options exercisable within 60 days of June
30, 1996.
(5) Represents 1,203,750 shares of Common Stock to be issued to Mr. Brandt at
the closing as a selling stockholder of Bivona in connection with the
acquisition of Bivona.
(6) Includes 90,096 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.
(7) Includes 186,667 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.
(8) Represents 340,000 shares of Common Stock held by Vetical Fund Associates,
L.P. The sole general partner of the Vertical Fund Associates, L.P.
("Vertical Fund") is Vertical Group, L.P. ("Vertical Group"). Jack W.
Lasersohn, a director of the Company, is a General Partner of the Vertical
Group. As such, Mr. Lasersohn may be deemed to have an indirect pecuniary
interest in an indeterminate portion of the shares beneficially owned by
Vertical Group. Mr. Lasersohn disclaims beneficial ownership of these
shares within the meaning of Rule 13d-3 under the Exchange Act.
(9) Includes 62,514 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996. Also includes 8,918
shares of Common Stock issuable upon exercise of warrants exercisable
within 60 days of June 30, 1996.
(10) Includes 60,000 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.
(11) Includes 500,706 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996. Also includes 8,918
shares of Common Stock issuable upon exercise of warrants exercisable
within 60 days of June 30, 1996.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will consist of 31,000,000
shares of Common Stock, $.001 par value and 5,000,000 shares of Preferred Stock,
$.001 par value, after giving effect to the restatement of the Company's
Certificate of Incorporation upon the closing of this Offering. The following
summaries of certain provisions of the Common Stock and Preferred Stock do not
purport to be complete and are subject to, and qualified in their entirety by,
the provisions of the Company's Certificate of Incorporation, which is included
as an exhibit to the Registration Statement of which this Prospectus forms a
part, and by applicable law.
COMMON STOCK
As of May 31, 1996, there were 11,191,734 shares of Common Stock
outstanding held by 106 stockholders of record.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the
59
<PAGE> 62
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, if any. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon the closing of this Offering will be
fully paid and non-assessable.
Following the completion of this Offering, based on the initial public
offering price of $12.00 per share, the Company will have outstanding warrants
to purchase an aggregate of 19,823 shares of Common Stock of the Company. The
weighted average exercise price of these warrants is $3.50 per share, and these
warrants expire 30 days subsequent to the closing of this Offering.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders. On the date
of this Prospectus, all outstanding shares of Preferred Stock of the Company
will convert automatically into Common Stock. The Company has no present plans
to issue any shares of Preferred Stock.
REINCORPORATION IN DELAWARE
The Company intends to reincorporate in Delaware in connection with this
Offering. The Company believes that Delaware law provides flexibility and that
Delaware courts have particular expertise with matters affecting public
companies and their stockholders. Except as otherwise noted all information in
the Prospectus assumes the reincorporation has occurred.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of 5,824,181 shares of Common Stock (including shares issuable
upon exercise of certain options, warrants and shares issuable pursuant to
anti-dilution provisions) (the "Registrable Securities") or their transferees
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. These rights are provided under the terms of a Second
Amended and Restated Stockholders Agreement dated as of May 31, 1995, between
the Company and the holders of Registrable Securities and a Registration Rights
Agreement dated June 15, 1995 among the Company, Warburg, Pincus Investors, L.P.
("Warburg") and Vertical Fund Associates, L.P. ("Vertical"). Subject to certain
limitations in the agreements, Warburg and Vertical may require that the Company
use its best efforts to register the Registrable Securities for public resale.
If the Company registers any of its Common Stock either for its own account or
for the account of other security holders, the holders of Registrable Securities
are entitled to include their shares of Common Stock in the registration,
subject to the ability of the underwriters to limit the number of shares
included in the offering. The holders of Registrable Securities may also require
the Company on not more than three occasions (and not more than once during any
12-month period) to register all or a portion of their Registrable Securities on
Form S-3 when use of such form becomes available to the Company, provided, among
other limitations, that the proposed aggregate selling price (net of any
underwriters' discounts or commissions) is at least $20 million. All
registration expenses must be borne by the Company and all selling expenses
relating to Registrable Securities must be borne by the holders of the
securities being registered.
60
<PAGE> 63
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), an anti-takeover law. Under Section 203
certain "business combinations" between a Delaware corporation, whose stock
generally is publicly traded or held of record by more than 2,000 stockholders,
and an interested stockholder are prohibited for a three-year period following
the date that such stockholder became an interested stockholder, unless: (i) the
corporation has elected in its certificate of incorporation not to be governed
by Section 203; (ii) the business combination was approved by the Board of
Directors of the corporation before the other party to the business combination
became an interested stockholder; (iii) upon consummation of the transaction
that made it an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the commencement
of the transaction (excluding voting stock owned by directors who are also
officers or held in employee benefit plans in which the employees do not have a
confidential right to tender or vote stock held by the plan); or (iv) the
business combination was approved by the Board of Directors of the corporation
and ratified by 66 2/3% of the voting stock which the interested stockholder did
not own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as those stockholders who become beneficial owners of 15% or more of a
Delaware corporation's voting stock. These provisions, as well as the Board of
Directors' ability to issue Preferred Stock may have the effect of deterring
hostile takeovers or delaying changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C. Its telephone number is (415) 954-9152.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. As
described below, no shares currently outstanding will be available for sale
immediately after this Offering due to certain contractual and legal
restrictions on resale (as described below). Sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon the completion of this Offering, the Company will have 11,191,734
shares of Common Stock outstanding, assuming no exercise of options or warrants
after June 30, 1996. Of these shares, the 3,350,000 shares sold in this Offering
will be freely tradable without restriction under the Securities Act, unless
held by "affiliates" of the Company, as that term is defined in Rule 144 under
the Securities Act. The remaining 7,841,734 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act, and were issued and sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act.
These shares may be sold in the public market only if registered, or pursuant to
an exemption from registration such as Rule 144, 144(k) or 701 under the
Securities Act. All of the Company's current stockholders, including its
officers and directors, are subject to lock-up agreements which provide that
they will not offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of, or agree
61
<PAGE> 64
to dispose of, directly or indirectly, any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into Common Stock owned by them for a period of 180 days after the
date of this Prospectus, without the prior written consent of Dillon, Read & Co.
Inc. The Company has entered into a similar agreement, except that the Company
may grant options and issue stock under its current stock option and stock
purchase plans and pursuant to other currently outstanding options.
As of June 30, 1996, 1,059,958 shares were subject to outstanding options
and 19,823 shares were subject to outstanding warrants. All of these shares are
subject to the lock-up agreements described above. Approximately 30 days after
the date of this Prospectus, the Company intends to file a Registration
Statement on Form S-8 to register all shares issuable under the Company's 1994
Stock Option Plan (including shares subject to then outstanding options) and
1996 Employee Stock Purchase Plan, thus permitting the resale of such shares in
the public market, subject to Rule 144 volume limitations applicable to
affiliates, without restriction under the Securities Act upon expiration of the
applicable lock-up agreements. Upon expiration of such lock-up agreements,
602,267 shares subject to such options will be vested.
Upon expiration of the 180-day lock-up agreements, approximately 427,551
shares of Common Stock held by existing stockholders will be eligible for
immediate public resale without restriction pursuant to Rule 144(k) or Rule 701,
and approximately 3,481,076 shares held by existing stockholders will be
eligible for public resale, subject to the volume limitation and other
restrictions of Rule 144. The remaining 2,057,142 shares held by existing
stockholders will become eligible for public resale pursuant to Rule 144 upon
expiration of their two-year holding periods. Approximately 5,824,181 of the
shares outstanding immediately following the completion of this Offering will be
entitled to registration rights with respect to such shares upon the release of
their respective lock-up agreements. The number of shares sold in the public
market could increase if such rights are exercised.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner, except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 111,900 shares
immediately after this Offering) or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the required
62
<PAGE> 65
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
generally subject to certain manner of sale provisions and notice requirements
and to the availability of current public information about the Company. Under
Rule 144(k), a person who is not deemed to have been an affiliate of the Company
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least three years, is entitled to sell
such shares without having to comply with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Under Rule 701
under the Securities Act, persons who purchase shares upon exercise of options
granted prior to the effective date of this Offering are entitled to sell such
shares 90 days after the effective date of this Offering in reliance on Rule
144, without having to comply with the holding period requirements of Rule 144
and, in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144.
Any employee, officer or director or a consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions, in each case commencing 90
days after the closing of this Offering.
The Securities and Exchange Commission has recently proposed reducing the
Rule 144 holding period to one year and the Rule 144(k) holding period to two
years. There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modifications will have a material effect on the times
when shares of the Company's Common Stock become eligible for resale.
63
<PAGE> 66
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company (subject to the terms and conditions specified in the
Underwriting Agreement) are as follows:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
-------------------------------------------------------------------- ----------------
<S> <C>
Dillon, Read & Co. Inc..............................................
Prudential Securities Incorporated..................................
----------------
Total..................................................... 3,350,000
</TABLE>
The Managing Underwriters are Dillon, Read & Co. and Prudential Securities
Incorporated.
If any of the shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares offered hereby, the
remaining Underwriters, or some of them, must assume such obligations.
The shares of Common Stock offered hereby are being offered severally by
the Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $ per share on sale to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per share on sales to certain other dealers. The offering of
the shares of Common Stock is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 502,500 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the thirtieth
day from the date of the public offering of the shares offered hereby and only
to cover over-allotments made of the shares in connection with this Offering.
The Company, its executive officers and directors and all of its existing
stockholders and optionholders have agreed that they will not, without the prior
written consent of Dillon, Read & Co. Inc., sell, contract to sell, grant any
option to sell, transfer or otherwise dispose of, directly or indirectly, any
shares of the Common Stock, or any securities convertible into, or exercisable
or exchangeable for, Common Stock or warrants or other rights to purchase Common
Stock, prior to the expiration of 180 days from the date of the consummation of
this Offering, except (i) shares of Common Stock issued upon the exercise of
options issued under the Company's existing stock plans and (ii) the grant of
options and other rights to purchase Common Stock to the Company's employees,
officers and directors under its existing stock plans.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including any liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiation between the Company and the
64
<PAGE> 67
Managing Underwriters. Among the factors considered in determining the initial
public offering price were prevailing market and economic conditions, projected
revenues and earnings of the Company, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business, the Company's management and other factors deemed relevant.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Holland & Hart, LLP, Salt Lake City, Utah. Certain legal matters will
be passed upon for the Underwriters by Cooley Godward Castro Huddleson & Tatum,
Menlo Park, California.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995 and for each of the years in the three-year period ended December
31, 1995, and for the period from April 8, 1992 (inception) to December 31,
1995, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of BMT as of December 31, 1994 and
1995 and for each of the years in the three-year period ended December 31, 1995,
have been included herein and in the Registration Statement in reliance upon the
report of Grant Thornton LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The statements in this Prospectus under the captions "Risk
Factors -- Reliance on Patents and Protection of Proprietary Technology" and
"Business -- Patents and Proprietary Rights" as they relate to UroQuest have
been reviewed and approved by Griffin, Butler, Whisenhunt & Kurtossy, Arlington,
Virginia, special patent counsel to UroQuest, as experts in such matters, and as
they relate to BMT have been reviewed and approved by Emrich & Dithmar, special
patent counsel to BMT, as experts in such matters, and such statements are
included herein in reliance upon such review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
including amendments thereto, under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits and schedules filed therewith. For
further information with respect to the Company and such Common Stock, reference
is made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement,
including the exhibits and schedules filed therewith, may be inspected by anyone
without charge at the public reference facilities maintained by the Commission,
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
or at its regional offices located at CitiCorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center,
65
<PAGE> 68
Suite 1300, New York, New York 10048 and copies of all or any part thereof may
be obtained from such offices of the Commission, upon payment of certain fees
prescribed by the Commission.
Prior to this Offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934. After completion of this
Offering, the Company intends to comply with such requirements, including the
distribution to its stockholders of an annual report containing audited
financial statements.
66
<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED):
Pro Forma Statement of Operations for the year ended December 31, 1995
(Unaudited)..................................................................... F-3
Pro Forma Statement of Operations for the three months Ended March 31, 1996
(Unaudited)..................................................................... F-4
Pro Forma Balance Sheet as of March 31, 1996 (Unaudited)........................... F-5
Notes to Pro Forma Combined Financial Statements (Unaudited)....................... F-6
UROQUEST CORPORATION:
Independent Auditors' Report....................................................... F-7
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(Unaudited)..................................................................... F-8
Consolidated Statements of Operations for each of the years in the three year
period ended December 31, 1995 and for the period from April 3, 1992 (date of
inception) to December 31, 1995 and for the three months ended March 31, 1995
and 1996 (Unaudited) and for the period from April 8, 1992 (date of inception)
to March 31, 1996 (Unaudited)................................................... F-9
Consolidated Statements of Shareholders' Equity for each of the years in the three
year period ended December 31, 1995 and for the three months ended March 31,
1996 (Unaudited)................................................................ F-10
Consolidated Statements of Cash Flows for each of the years in the three year
period ended December 31, 1995 and for the period from April 8, 1992 (date of
inception) to December 31, 1995 and for the three months ended March 31, 1995
and 1996 (Unaudited) and for the period from April 8, 1992 (date of inception)
to March 31, 1996 (Unaudited)................................................... F-11
Notes to Consolidated Financial Statements........................................... F-12
BMT, INC.:
Report of Independent Certified Public Accountants................................. F-18
Consolidated Balance Sheets as of December 31, 1994 and 1995,
and March 31, 1996 (Unaudited).................................................. F-19
Consolidated Statements of earnings for the years ended December 31, 1993, 1994 and
1995, and for the three months ended March 31, 1995 and 1996 (Unaudited)........ F-20
Consolidated Statement of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and for the three months ended March 31, 1996
(Unaudited)..................................................................... F-21
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994
and 1995, and for the three months ended March 31, 1995 and 1996 (Unaudited).... F-22
Notes to Consolidated Financial Statements......................................... F-23
</TABLE>
F-1
<PAGE> 70
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
UroQuest Medical Corporation was formed in April 1992 to design, develop
and market advanced products for the management and diagnosis of both male and
female urological disorders. UroQuest has entered into a definitive agreement to
acquire BMT, Inc. ("BMT"), pursuant to which BMT will merge with and into an
acquisition subsidiary of UroQuest. Pursuant to the merger, shareholders of BMT
will receive, in the aggregate, $10 million cash and 1,875,000 newly issued
shares of Common Stock. The consummation of the acquisition of BMT by UroQuest
is contingent upon the closing of this Offering. The following unaudited pro
forma financial statements give effect to the proposed acquisition, which will
be accounted for under the purchase method of accounting.
The unaudited pro forma balance sheet gives effect to the acquisition, as
if the acquisition had occurred as of March 31, 1996 and reflects as a liability
the cash consideration to be paid to the shareholders of BMT. The unaudited pro
forma balance sheet also presents, as supplemental pro forma information, the
effect of the issuance of Common Stock pursuant to this Offering. The unaudited
pro forma statements of operations present pro forma results from operations for
the year ended December 31, 1995 and for the three months ended March 31, 1996,
in each case as if the purchase had occurred as of the beginning of the
respective periods.
The total of the excess of the deemed purchase price over the book value of
the net assets of BMT acquired has been classified as "goodwill." Upon closing
of the acquisition, the Company will undertake a study to determine the fair
value of the net assets acquired and will allocate deemed purchase price
accordingly, including intangible assets designated as acquired in-process
research and development, if any.
Unaudited pro forma adjustments are based upon historical information,
preliminary estimates and certain assumptions management deems appropriate. The
unaudited pro forma financial data presented herein is not necessarily
indicative of the results UroQuest would have obtained had such events occurred
at the beginning of such periods, as assumed, or of the future results of
UroQuest. The pro forma combined financial statements should be read in
conjunction with the other Financial Statements and notes thereto appearing
elsewhere in the Prospectus.
F-2
<PAGE> 71
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED PRO FORMA
UROQUEST BIVONA COMPANIES ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.................... $ -- $14,257,413 $14,257,413 $ -- $14,257,413
Cost of sales................ -- 7,228,308 7,228,308 7,228,308
----------- ------------ ------------ ------------ ------------
Gross profit............ -- 7,029,105 7,029,105 -- 7,029,105
Operating expenses:
Research and development... 1,106,631 986,265 2,092,896 2,092,896
General and
administrative.......... 397,523 1,653,197 2,050,720 2,050,720
Sales, marketing and
distribution............ 46,262 1,692,881 1,739,143 1,739,143
Amortization of goodwill... -- -- -- 1,420,000(d) 1,420,000
----------- ------------ ------------ ------------ ------------
Total operating
expenses......... 1,550,416 4,332,343 5,882,759 1,420,000 7,302,759
----------- ------------ ------------ ------------ ------------
Operating income (loss)...... (1,550,416) 2,696,762 1,163,346 (1,420,000) (273,654)
Other income (expense):
Interest expense........... (54,809) (315,232) (370,041) (370,041)
Interest income............ 60,688 84 60,772 60,772
Other, net................. 30,790 -- 30,790 30,790
----------- ------------ ------------ ------------ ------------
36,669 (315,148) (278,479) -- (278,479)
Provision for income taxes... -- 950,000 950,000 (950,000)(e) --
----------- ------------ ------------ ------------ ------------
Net earnings
(loss)........... $(1,513,747) $ 1,431,614 $ (82,133) $ (470,000) $ (552,133)
=========== ============ ============ ============ ============
Pro forma net loss per
share...................... $ (0.36) $ (0.05)
=========== ============
Shares used in computing pro
forma net loss per share... 4,190,511 10,844,082
=========== ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-3
<PAGE> 72
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED PRO FORMA
UROQUEST BIVONA COMPANIES ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales....................... $ -- $3,796,943 $3,796,943 $ -- $3,796,943
Cost of sales................... -- 2,011,826 2,011,826 -- 2,011,826
---------- ---------- ---------- ---------- ----------
Gross profit............... -- 1,785,117 1,785,117 -- 1,785,117
Operating expenses:
Research and development...... 277,822 252,518 530,340 530,340
General and administrative.... 120,838 452,425 573,263 573,263
Sales, marketing and
distribution............... 47,572 375,872 423,444 423,444
Amortization of goodwill...... -- -- -- 355,000(d) 355,000
---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 446,232 1,080,815 1,527,047 355,000 1,882,047
---------- ---------- ---------- ---------- ----------
Operating income (loss)......... (446,232) 704,302 258,070 (355,000) (96,930)
Other income (expense):
Interest expense.............. (11,700) (76,526) (88,226) (88,226)
Interest income............... 11,139 22 11,161 11,161
---------- ---------- ---------- ---------- ----------
(561) (76,504) (77,065) -- (77,065)
Provision for income taxes...... -- 250,000 250,000 (250,000)(e) --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)... $ (446,793) $ 377,798 $ (68,995) $ (105,000) $ (173,995)
========== ========== ========== ========== ==========
Pro forma net loss per share.... $ (0.10) $ (0.02)
========== ==========
Shares used in computing pro
forma net loss per share...... 4,545,186 11,198,757
========== ==========
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-4
<PAGE> 73
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
COMBINED PRO FORMA SUPPLEMENTAL AS
UROQUEST BIVONA COMPANIES ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
---------- ---------- ---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 753,228 $ 5,907 $ 759,135 $ 5,000,000(c) $ 5,759,135 $ 36,886,000(f) $32,255,135
(10,000,000)(f)
(390,000)(f)
Accounts receivable...... -- 2,767,650 2,767,650 2,767,650 2,767,650
Inventories.............. 11,662 2,569,245 2,580,907 2,580,907 2,580,907
Prepaid expenses and
other current assets... 12,111 145,899 158,010 158,010 158,010
Deferred income taxes.... -- 105,000 105,000 105,000 105,000
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total current
assets........... 777,001 5,593,701 6,370,702 5,000,000 11,370,702 28,496,000 37,866,702
---------- ---------- ---------- ------------ ----------- ------------ -----------
Property and equipment,
net...................... 173,699 2,071,252 2,244,951 2,244,951 2,244,951
Patents and trademarks,
net...................... 408,643 34,865 443,508 443,508 443,508
Deposits and other......... -- 132,596 132,596 132,596 132,596
Pro forma goodwill......... -- -- -- 28,442,515(a) 28,442,515 28,442,515
Deferred income taxes...... -- 253,000 253,000 253,000 253,000
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total assets....... $1,359,343 $8,085,414 $9,444,757 $ 33,442,515 $42,887,272 $ 26,496,000 $69,383,272
========== ========== ========== ============ =========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......... $ 200,527 $ 489,735 $ 690,262 $ $ 690,262 $ $ 690,262
Accrued expenses......... 93,595 471,188 564,783 564,783 564,783
Notes payable under line
of credit.............. -- 480,000 480,000 480,000 480,000
Secured promissory
notes.................. 390,000 -- 390,000 390,000 (390,000)(f) --
Current portion of
long-term debt......... -- 408,435 408,435 408,435 408,435
Income taxes payable..... -- 42,813 42,813 42,813 42,813
Cash consideration
payable to BMT
shareholders........... -- -- -- 10,000,000(a) 10,000,000 (10,000,000)(f) --
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total current
liabilities...... 684,122 1,892,171 2,576,293 10.000,000 12,576,293 (10,390,000) 2,186,293
---------- ---------- ---------- ------------ ----------- ------------ -----------
Long-term debt............. -- 2,135,758 2,135,758 2,135,758 2,135,758
Shareholders' equity:
Preferred stock.......... 1,253 -- 1,253 (1,253)(b) -- --
Voting common stock...... 2,999 796,500 799,499 (791,657)(a,b,c) 7,842 3,350(f) 11,192
Non-voting common
stock.................. 286 -- 286 (286)(b) -- --
Additional paid-in
capital................ 4,433,140 7,800 4,440,940 27,488,896(a,c) 31,929,836 36,882,650(f) 68,812,486
Deferred compensation.... (270,066) -- (270,066) (270,066) (270,066)
Retained earnings
(deficit accumulated
during development
stage)................. (3,492,391) 3,655,505 163,114 (3,655,505)(a) (3,492,391) (3,492,391)
Less common stock in
treasury at cost....... -- (402,320) (402,320) 402,320(a) -- --
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total shareholders'
equity........... 675,221 4,057,485 4,732,706 23,442,515 28,175,221 36,886,000 65,061,221
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total liabilities
and shareholders'
equity........... $1,359,343 $8,085,414 $9,444,757 $ 33,442,515 $42,887,272 $ 26,496,000 $69,383,272
========== ========== ========== ============ =========== ============ ===========
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-5
<PAGE> 74
UROQUEST MEDICAL CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The adjustments to arrive at the unaudited pro forma financial statements
are as follows:
(a) Recognition of $10 million cash payment and issuance of 1,875,000
shares of common stock ($22.5 million based upon the assumed offering price
of $12.00 per share) to BMT shareholders in exchange for all of BMT's
outstanding common stock. Treasury stock of BMT in the amount of $402,320
was canceled in the transaction. Goodwill in the amount of $28,442,515
($32.5 million purchase price less net assets acquired of $4,057,485) is
recorded in this transaction. The acquisition has been accounted for as a
purchase.
(b) Conversion of series A, B, C, and D preferred stock and non-voting
common stock into common stock of Uroquest Medical Corporation.
(c) Receipt of $5 million cash in connection with the issuance of
1,428,571 shares of common stock upon exercise of certain warrants by the
Company's principal stockholder.
(d) Amortization of the goodwill recognized in the purchase of BMT as
if the amortization had commenced January 1, 1995. Goodwill will be
amortized over a twenty year period.
(e) Elimination of BMT's provision for income taxes due to offsets
from Uroquest Medical Corporation's net loss from operations assuming the
transaction had been consummated as of January 1, 1995.
(f) Receipt of the proceeds from issuance of 3,350,000 shares of
common stock (assuming an offering price of $12.00 per share) less
underwriting discounts and commissions, and estimated offering expenses.
Proceeds from the offering were used to pay the $10 million cash to BMT
stockholders as described in (a) above and to pay off $390,000 in secured
promissory notes.
Listed below is a reconciliation of common stock, additional paid in
capital, retained earnings (deficit accumulated in development stage) and
treasury stock to recognize the transaction described above:
<TABLE>
<CAPTION>
RETAINED EARNINGS
(DEFICIT
ACCUMULATED
ADDITIONAL DURING
PREFERRED COMMON PAID-IN DEVELOPMENT TREASURY
STOCK STOCK CAPITAL STAGE) STOCK
--------- -------- ---------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Combined Companies............................ $ 1,253 799,499 4,440,940 219,331 (402,320)
Adjustments:
Exercise of 1,428,571 warrants @ $0.001
par....................................... -- 1,429 4,998,571 -- --
Offering of 3,350,000 shares @ $0.001 par... -- 3,350 36,882,650 -- --
Purchase of BMT equity:
Issuance of Uroquest common stock......... -- 1,875 22,498,125 -- --
Elimination of BMT equity in
consolidation........................... -- (796,500) (7,800) (3,655,505) 402,320
Conversion of preferred stock to common..... (1,253) 1,539 --
------- -------- ---------- ---------- --------
-- 11,192 68,812,486 (3,492,391)
======= ======== ========== ========== ========
</TABLE>
(g) The weighted average shares outstanding used to calculate pro
forma loss per share is based on the estimated average number of shares of
common stock outstanding during the period calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
Weighted average shares of UroQuest......... 4,190,511 4,545,186
Shares issued to the stockholders of BMT.... 1,875,000 1,875,000
Shares issued upon exercise of warrants..... 1,428,571 1,428,571
Shares issued in the Offering............... 3,350,000 3,350,000
----------
10,844,082 11,198,757
==========
</TABLE>
Intercompany sales are immaterial and therefore have not been
eliminated on the pro forma financial statements.
F-6
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
UroQuest Medical Corporation:
We have audited the accompanying consolidated balance sheets of UroQuest
Medical Corporation and subsidiary (a development stage company) as of December
31, 1994 and 1995 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1995, and for the period April 8, 1992 (inception) to
December 31, 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UroQuest
Medical Corporation and subsidiary (a development stage company) as of December
31, 1994 and 1995 and the results of their operations and their cash flows for
each of the years in the three year period ended December 31, 1995, and for the
period April 8, 1992 (inception) to December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
March 20, 1996, except as to
Note 10 which is as of
June 28, 1996
F-7
<PAGE> 76
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- -----------
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 564,097 $ 1,113,594 $ 753,228
Inventories.............................................. -- 9,590 11,662
Prepaid expenses and other current assets................ 2,090 14,311 12,111
----------- ----------- -----------
Total current assets.............................. 566,187 1,137,495 777,001
----------- ----------- -----------
Property and equipment, net (note 2)....................... 67,603 142,321 173,699
Patents and trademarks, net (notes 3 and 7)................ 571,483 441,211 408,643
----------- ----------- -----------
Total assets...................................... $ 1,205,273 $ 1,721,027 $ 1,359,343
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $ 84,125 $ 200,416 $ 200,527
Accrued expenses......................................... 54,935 83,485 93,595
Notes payable............................................ 70,000 -- --
Secured promissory notes (note 3)........................ -- 390,000 390,000
Amounts payable to related parties....................... 31,404 -- --
----------- ----------- -----------
Total current liabilities......................... 240,464 673,901 684,122
----------- ----------- -----------
Long-term liabilities:
Secured promissory notes (note 3)........................ 390,000 -- --
Note payable -- related party (note 7)................... 162,188 -- --
----------- ----------- -----------
552,188 -- --
----------- ----------- -----------
Commitments and contingencies (notes 3 and 9)
Stockholders' equity: (notes 4 and 10):
Convertible preferred stock, $.001 par value:
Series D: 8,000,000 shares authorized, 628,571 shares
issued and outstanding (liquidation preference
$2,200,000).......................................... -- 629 629
Series A: 316,667 shares authorized, 90,476 shares
issued and outstanding (liquidation preference
$190,000)............................................ 90 90 90
Series B: 955,494 shares authorized; 272,998 shares
issued and outstanding (liquidation preference
$687,956)............................................ 273 273 273
Series C: 1,009,107 shares authorized; 250,571, 260,571
and 260,571 shares issued and outstanding at December
31, 1994 and 1995 and March 31, 1996 respectively
(liquidation preference $912,000).................... 251 261 261
Voting common stock, $.001 par value; 30,000,000 shares
authorized; 2,816,654, 2,947,368 and 2,998,874 shares
issued and outstanding as of December 31, 1994 and
1995 and March 31, 1996, respectively................ 2,862 2,947 2,999
Non-voting common stock, $.001 par value; 1,000,000
shares authorized; 285,714 shares issued and
outstanding.......................................... 286 286 286
Additional paid-in capital............................. 1,940,710 4,088,238 4,433,140
Deferred compensation.................................. -- -- (270,066)
Deficit accumulated during development stage........... (1,531,851) (3,045,598) (3,492,391)
----------- ----------- -----------
Total stockholders' equity........................ 412,621 1,047,126 675,221
----------- ----------- -----------
Total liabilities and stockholders' equity................. $ 1,205,273 $ 1,721,027 $ 1,359,343
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 77
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FROM FROM
APRIL 8, 1992 THREE MONTHS ENDED APRIL 8, 1992
YEAR ENDED DECEMBER 31, (INCEPTION) TO MARCH 31, (INCEPTION) TO
--------------------------------------- DECEMBER 31, ---------------------- MARCH 31,
1993 1994 1995 1995 1995 1996 1996
--------- ----------- ----------- -------------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net sales................. $ 979 $ 2,801 $ -- $ 3,780 $ -- $ -- $ 3,780
Cost of sales............. 832 2,381 -- 3,213 -- -- 3,213
--------- ----------- ----------- ----------- ----------- --------- ---------
Gross profit.......... 147 420 -- 567 -- -- 567
--------- ----------- ----------- ----------- ----------- --------- ---------
Operating expenses:
Research and
development........... 120,531 431,295 1,106,631 1,658,457 193,700 277,822 1,936,279
General and
administrative........ 156,647 483,399 397,523 1,048,803 77,548 120,838 1,169,641
Sales and marketing..... 38,392 30,257 46,262 114,911 3,523 47,572 162,483
--------- ----------- ----------- ----------- ----------- --------- ---------
Total operating
expenses........ 315,570 944,951 1,550,416 2,822,171 274,771 446,232 3,268,403
--------- ----------- ----------- ----------- ----------- --------- ---------
Operating loss............ (315,423) (944,531) (1,550,416) (2,821,604) (274,771) (446,232) (3,267,836)
Other income (expense):
Interest expense........ -- (29,939) (54,809) (84,748) (13,770) (11,700) (96,448)
Interest income......... -- 4,284 60,688 64,972 5,874 11,139 76,111
Other, net (note 7)..... -- (235,008) 30,790 (204,218) (14) -- (204,218)
--------- ----------- ----------- ----------- ----------- --------- ---------
-- (260,663) 36,669 (223,994) (7,910) (561) (224,555)
Provision for income taxes
(note 6)................ -- -- -- -- -- -- --
--------- ----------- ----------- ----------- ----------- --------- ---------
Net loss.............. $(315,423) $(1,205,194) $(1,513,747) $ (3,045,598) $(282,681) $(446,793) $ (3,492,391)
========= =========== =========== =========== =========== ========= =========
Pro forma net loss per
share................... $ (0.36) $ (0.10)
=========== =========
Shares used in computing
pro forma net loss per
share................... 4,190,511 4,545,186
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 78
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PERIOD FROM APRIL 8, 1992 (INCEPTION) TO DECEMBER 31, 1995
AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
SERIES PREFERRED STOCK VOTING NON-VOTING ADDITIONAL DURING TOTAL
------------------------- COMMON COMMON PAID-IN DEFERRED DEVELOPMENT SHAREHOLDERS'
D A B C STOCK STOCK CAPITAL COMPENSATION STAGE EQUITY
---- --- --- --- ------ ---------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April
8, 1992
(inception)... $ -- -- -- -- -- -- -- -- -- --
Issuance of
1,428,571
shares of
Common Stock
for patents
and trademarks
(note 7)...... -- -- -- -- 1,286 143 3,571 -- -- 5,000
Net loss........ -- -- -- -- -- -- -- -- (11,234 ) (11,234)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1992.......... -- -- -- -- 1,286 143 3,571 -- (11,234 ) (6,234)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
90,476 shares
of Series A
Preferred
Stock for
cash, net of
issuance costs
of $2,784..... -- 90 -- -- -- -- 187,127 -- -- 187,217
Issuance of
285,714 shares
of Common
Stock for
cash.......... -- -- -- -- 286 -- 199,714 -- -- 200,000
Net loss........ -- -- -- -- -- -- -- -- (315,423 ) (315,423)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1993.......... -- 90 -- -- 1,571 143 390,413 -- (326,657 ) 65,560
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
1,428,571
shares of
Common Stock
for
acquisition of
subsidiary
(note 7)...... -- -- -- -- 1,286 143 3,571 -- -- 5,000
Issuance of 143
shares of
Common Stock
for cash...... -- -- -- -- -- -- 100 -- -- 100
Issuance of
272,998 shares
of Series B
Preferred
Stock for
cash, net of
issuance costs
of $3,542..... -- -- 273 -- -- -- 684,141 -- -- 684,414
Issuance of
4,511 shares
of Common
Stock for
consulting
services...... -- -- -- -- 5 -- 11,362 -- -- 11,367
Issuance of
189,428 shares
of Series C
Preferred
Stock for
cash, net of
issuance costs
of $25,626.... -- -- -- 190 -- -- 637,184 -- -- 637,374
Issuance of
61,143 shares
of Series C
Preferred
Stock, in
exchange for
notes
payable....... -- -- -- 61 -- -- 213,939 -- -- 214,000
Net loss........ -- -- -- -- -- -- -- -- (1,205,194 ) (1,205,194)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1994.......... -- 90 273 251 2,862 286 1,940,710 -- (1,531,851 ) 412,621
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
628,571 shares
of Series D
Preferred
Stock for
cash, net of
issuance costs
of $87,048.... 629 -- -- -- -- -- 2,112,323 -- -- 2,112,952
Issuance of
10,000 shares
of Series C
Preferred
Stock, in
exchange for
notes
payable....... -- -- -- 10 -- -- 34,990 -- -- 35,000
Issuance of
85,714 shares
of Common
Stock for
cash, upon
exercise of
stock
options....... -- -- -- -- 85 -- 215 -- -- 300
Net loss........ -- -- -- -- -- -- -- -- (1,513,747 ) (1,513,747)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1995.......... $629 90 273 261 2,947 286 4,088,238 -- (3,045,598 ) 1,047,126
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
51,363 shares
of Common
Stock for
cash, upon
exercise of
stock options
(unaudited)... -- -- -- -- 52 -- 35,902 -- -- 35,954
Deferred
compensation
related to
grant of stock
options
(unaudited)... -- -- -- -- -- -- 309,000 (309,000) -- --
Amortization for
deferred
compensation
(unaudited)... -- -- -- -- -- -- -- 38,934 -- 38,934
Net loss
(unaudited)... -- -- -- -- -- -- -- -- (446,793 ) (446,793)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance, March
31, 1996
(unaudited)... $629 90 273 261 2,999 286 4,433,140 (270,066) (3,492,391 ) 675,221
==== == === === ===== === ========= ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 79
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FROM FROM
APRIL 8, 1992 THREE MONTHS ENDED APRIL 8, 1992
YEAR ENDED DECEMBER 31, (INCEPTION) TO MARCH 31, (INCEPTION) TO
------------------------------------- DECEMBER 31, ---------------------- MARCH 31,
1993 1994 1995 1995 1995 1995 1996
--------- ----------- ----------- -------------- --------- ---------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss....................... $(315,423) $(1,205,194) $(1,513,747) $ (3,045,598) $(282,681) $ (446,793) $ (3,492,391)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization................. 5,269 58,244 139,022 206,373 33,966 74,620 280,993
Issuance of Common Stock in
exchange for consulting
services..................... -- 11,367 -- 11,367 -- -- 11,367
Provisions for loss on notes
receivable -- 235,008 614 235,622 14 -- 235,622
Changes in operating assets and
liabilities:
Inventories.................. -- -- (9,590) (9,590) -- (2,072) (11,662)
Prepaid expenses and other
current assets............. (1,590) -- (12,221) (14,311) -- 2,200 (12,111)
Accounts payable............. 58,117 26,008 116,291 200,416 18,837 111 200,527
Amounts payable to related
parties.................... 59,104 (66,500) (31,404) -- -- -- --
Accrued expenses............. -- 54,935 28,550 83,485 9,720 10,110 93,595
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash used in operating
activities............... (194,523) (886,132) (1,282,485) (2,332,236) (220,144) (361,824) (2,694,060)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment.................. (5,272) (159,819) (83,468) (279,463) (5,809) (34,496) (313,959)
Purchases of patents and
trademarks................. -- (400,000) -- (400,000) -- -- (400,000)
Cash
advances -- affiliates..... -- (92,290) (614) (92,904) (14) -- (92,904)
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash used in investing
activities............... (5,272) (652,109) (84,082) (772,367) (5,823) (34,496) (806,863)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of:
Stock...................... 387,217 1,321,888 2,113,252 3,822,357 -- 35,954 3,858,311
Notes...................... -- 674,000 -- 674,000 -- -- 674,000
Repayment of Notes........... -- (80,972) (197,188) (278,160) (66,355) -- (278,160)
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash provided by (used
in) financing
activities............... 387,217 1,914,916 1,916,064 4,218,197 (66,355) 35,954 4,254,151
--------- ----------- ----------- ----------- --------- ---------- -----------
Net increase in cash and cash
equivalents.................. 187,422 376,675 549,497 -- (292,322) (360,366) 753,228
Cash and cash equivalents at
beginning of period.......... -- 187,422 564,097 1,113,594 564,097 1,113,594 --
--------- ----------- ----------- ----------- --------- ---------- -----------
Cash and cash equivalents at
end of period................ $ 187,422 $ 564,097 $ 1,113,594 $ 1,113,594 $ 271,775 $ 753,228 $ 753,228
========= =========== =========== =========== ========= ========== ===========
Supplemental disclosures of
cash flow information:
Cash paid for interest....... $ -- $ 20,899 $ 63,849 $ 84,748 $ 11,700 $ 11,700 $ 96,448
Supplemental disclosure of
non-cash investing and
financing activities:
Conversion of notes payable
to preferred stock......... -- 214,000 35,000 249,000 -- -- 249,000
Issuance of note payable, net
of discount, for patents
and trademarks............. -- 243,160 -- 243,160 -- -- 243,160
Common stock issued for
patents and trademarks..... -- -- -- 5,000 -- -- 5,000
Common stock issued for
common stock of
subsidiary................. -- 5,000 -- 5,000 -- -- 5,000
Notes received in exchange
for patents and
trademarks................. -- 30,000 -- 30,000 -- -- 30,000
Note received in exchange for
fixed assets............... -- 112,718 -- 112,718 -- -- 112,718
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 80
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company was incorporated in the state of Florida on April 8, 1992, and
commenced operations for the purpose of designing, developing, and marketing
disposable urological catheters and other urological devices. The Company is
considered a development stage company under the guidelines of Statement of
Financial Accounting Standards No. 7. The Company has had limited operating
revenues as its activities have focused on product development and raising
capital. The accumulated deficit from inception through December 31, 1995, was
$3,045,598.
Principles of Consolidation
The consolidated financial statements include the assets and liabilities of
UroQuest's wholly owned subsidiary -- UroCath Corporation. All significant
intercompany transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash equivalents of $564,097 and $1,084,375 at December 31, 1994 and 1995,
respectively, consist of liquid money market funds. For the purposes of the
statements of cash flows, the Company considers all investments with original
maturities of three months or less to be cash equivalents.
Fair Value Disclosure
At December 31, 1994 and 1995 the book value of the Company's financial
instruments approximates fair value.
Inventories
Inventories are comprised of finished goods that are stated at the lower of
cost or market, using the average cost method.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, which range
from 3 to 10 years. Manufacturing tooling equipment has not been depreciated as
production has not yet begun.
Patents and trademarks
Patents and trademarks have been recorded at historical cost. Patents and
trademarks are amortized using the straight line method over their remaining
lives, not to exceed five years. Patents include male and female urological
catheters and a urinary diagnostic test system, both acquired from the founder
of the Company. Accumulated amortization as of December 31, 1995 was $181,949.
Management evaluates the recoverability of these net assets on a periodic basis
based on the projected cash flows from estimated future sales.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences
F-12
<PAGE> 81
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, operating loss,
and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Discounts
Discounts recorded on non-interest bearing notes payable are amortized
using the effective interest method over the life of the related note.
Estimates
The preparation of financial statements in accordance 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.
Pro Forma Net Loss Per Share
Pro forma net loss per share amounts are based on the weighted average
number of common shares and common share equivalents (if dilutive) resulting
from options and warrants outstanding during the periods, after giving
retroactive effect to the common stock reverse stock split and the conversion of
preferred shares into common shares at their respective issuance dates as
discussed in notes 4 and 10.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock and common stock options issued for consideration below the
assumed initial public offering price of $12.00 per share during the
twelve-month period prior to the date of the filing of the Registration
Statement, even when antidilutive, have been included in the calculation of
common share equivalents, using the treasury stock method, as if they were
outstanding for all periods presented.
Interim Financial Information
The accompanying interim financial statements for the three month periods
ended March 31, 1995 and 1996 are unaudited, but in the opinion of management
reflect all adjustments necessary for a fair presentation of the results of such
periods. The results of operations for any interim period are not necessarily
indicative of results for the respective full year.
Research and Development Costs
Research and development costs are expensed as incurred.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
<S> <C> <C>
Manufacturing tooling...................................... 45,174 109,370
Office furniture and equipment............................. 38,102 57,374
------- -------
Total............................................ 83,276 166,744
Less accumulated depreciation.............................. (15,673) (24,423)
------- -------
Property and equipment, net................................ 67,603 142,321
======= =======
</TABLE>
F-13
<PAGE> 82
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SECURED PROMISSORY NOTES
In December 1994, the Company issued 12% Secured Promissory Notes
("Notes"), totaling $390,000 all of which are to shareholders of the Company.
The Notes are secured by an interest in certain patents and are due December 31,
1996. Interest is payable quarterly and the Notes are callable by the Company at
any time. Note holders receive .2857 of a warrant to purchase Series C Preferred
Shares at $3.50 per share for each dollar of interest earned and are entitled to
receive a 5% royalty on sales of UroQuest's products utilizing certain
technology through December 31, 1996.
4. CONVERTIBLE PREFERRED STOCK
During the period from June 15, 1993 to November 15, 1993 the Company
issued 90,476 shares of Series A Convertible Preferred Stock (Series A Preferred
Shares) for $2.10 per share. During the period from February 12, 1994 to April
15, 1994, the Company issued 272,998 shares of Series B Convertible Preferred
Stock (Series B Preferred Shares) for $2.52 per share. During the period from
October 7, 1994 through June 15, 1995 the Company issued 260,571 shares of
Series C Convertible Preferred Stock (Series C Preferred Shares) for $3.50 per
share. On June 15, 1995 the Company issued 628,571 shares of Series D
Convertible Preferred Stock (Series D Preferred Shares) for $3.50 per share and
1,428,571 warrants to purchase Series D Preferred Shares for $3.50 per share.
Preferred Shares are convertible into common shares at the option of the
holder. Each Preferred Share shall automatically convert into one common share
if the Company obtains a firm underwriting commitment for a public offering. The
conversion rate will be adjusted for stock dividends, stock splits, and other
dilutive events. The Preferred Stockholders are entitled to one vote for each
common share equivalent. Shares automatically convert in the event of sale of
all or substantially all of the assets or stock of the Company.
Preferred shareholders are entitled to a liquidation preference over common
shareholders of $2.10, $2.52, $3.50, and $3.50 per share, for Series A, B, C and
D, respectively, together with any declared but unpaid dividends. Series D
Preferred Shares have liquidation preference over all other classes of stock. If
any assets remain after payment of the liquidation preferences to the holders of
the Preferred Stock, the holders of the Preferred Stock will share in
distribution of the remaining assets with the holders of Common Stock on a fully
diluted, as-converted basis.
5. STOCK OPTIONS AND WARRANTS
The Company has a stock option plan (the "1994 Stock Option Plan") whereby
it has reserved 1,428,571 shares of its common stock for issuance to Company
employees, directors and consultants. Options granted under this Plan may be
either incentive stock options or non-qualified stock options. The exercise
price of these options shall not be less than the fair market value at the date
of the grant. Options under this Plan must be granted by March 31, 2004. Options
granted must be exercised within ten years of the grant date. At December 31,
1995 outstanding stock options and warrants to purchase shares of the Company's
stock were as follows:
F-14
<PAGE> 83
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EXPIRATION NUMBER AGGREGATE
DATES OF SHARES EXERCISE PRICE
------------------- --------- --------------
<S> <C> <C> <C>
June 6, 2004 to
Voting Common September 26,
Stock Options............. 2005............... 1,115,606 $ 751,071
Series D Convertible
Preferred Stock
Warrants.................. June 15, 1997 1,428,571 5,000,000
Series C Convertible
Preferred Stock
Warrants.................. December 31, 1999 14,250 49,876
</TABLE>
No options were granted, exercised or cancelled in 1993. Information
relating to stock options granted, exercised, and canceled for the years ended
December 31, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
--------- ------------
<S> <C> <C>
Balance, December 31, 1993............... -- --
Granted................................ 1,232,528 $.0035 - .70
--------- ---------
Balance, December 31, 1994............... 1,232,528 .0035 - .70
--------- ---------
Granted................................ 47,143 .70
Canceled............................... (78,351) .70
Exercised.............................. (85,714) .0035
--------- ---------
Balance, December 31, 1995............... 1,115,606 $.0035 - .70
========= =========
</TABLE>
Of the 1,115,606 options outstanding, 377,043 are exercisable at December
31, 1995 at a weighted average price of $.63 per share.
For financial statement presentation purposes, the Company has recorded as
deferred compensation expense the excess of the deemed value of the common stock
at the date of grant over the exercise price. The compensation expense will be
amortized ratably over the vesting period of the options and warrants and will
aggregate a maximum of $309,000. Amortization expense for the three months ended
March 31, 1996 was $38,934.
6. INCOME TAXES
There was no Federal income tax expense in 1993, 1994, and 1995 due to net
operating losses. The difference between the expected tax benefit and actual tax
benefit is primarily attributable to the effect of these net operating losses
being offset by an increase in the Company's valuation allowance.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1993, 1994, and 1995 are
presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1993 1994 1995
--------- -------- ----------
<S> <C> <C> <C>
Start up and organization costs....... $ 76,940 268,534 434,065
Net operating loss carryforwards...... 44,903 215,189 614,285
Allowance for bad debts............... -- 87,657 87,657
--------- -------- ----------
Total....................... 121,843 571,380 1,136,007
Less valuation allowance.............. (121,843) (571,380) (1,136,007)
--------- -------- ----------
Net deferred tax assets............... $ -- -- --
========= ======== ==========
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1993, 1994, and 1995 was an increase of approximately $117,653,
$449,537 and $564,627, respectively. Subsequently
F-15
<PAGE> 84
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recognized tax benefits relating to the valuation allowance for deferred tax
assets will be recognized as an income tax benefit to be reported in the
statement of operations.
At December 31, 1995 the Company had total tax net operating losses of
approximately $1,600,000 that can be carried forward to reduce federal income
taxes. If not utilized, the tax loss carryforwards expire beginning in 2007.
Under the rules of the Tax Reform Act of 1986, the Company has undergone a
greater that 50% change of ownership. Consequently, a certain amount of the
Company's net operating loss carryforward available to offset future taxable
income in any one year may be limited. The maximum amount of carryforwards
available in a given year is limited to the product of the Company's value on
the date of ownership change and the federal long-term tax-exempt rate, plus any
limited carryforwards not utilized in prior years.
7. RELATED PARTY TRANSACTIONS
Upon organization of the Company, patents and trademarks were acquired from
the founder of the Company for which 1,285,714 shares of voting common stock and
142,857 shares of non-voting common stock were issued as consideration and
nominally valued at $5,000.
In January 1994 the Company issued 1,285,714 shares of voting common stock
and 142,857 shares of non-voting common stock to the founder of the Company in
consideration for all of the outstanding equity of UroCath Corporation. The
acquisition of UroCath was accounted for as a combining of entities under common
control. Accordingly, the assets were recorded at their historical cost. Due to
the immateriality of the assets acquired and no significant previous operations,
comparative prior years' financial statements have not been retroactively
restated.
During 1994 the Company acquired patents and trademarks totaling $250,000
from Excalibur Engineering Corporation for which UroQuest issued a $250,000
non-interest bearing note. Excalibur is controlled by the founder of the
Company. As the note was non-interest bearing, the Company recorded the note net
of a $6,840 discount calculated at 8% over the expected term of the note. At
December 31, 1994 the unamortized portion of the discount was $4,017. As of
December 31, 1995, the note was paid in full and the discount completely
amortized.
In 1994, nonaffiliated corporations were formed by certain shareholders of
the Company. Cash and other non-core business assets of the Company totaling
$235,008 were transferred to those corporations in exchange for 8% promissory
notes. The notes are payable on demand. In 1994 a valuation allowance was
established to account for possible non-collection of the notes.
8. ACCOUNTING STANDARDS ISSUED NOT YET ADOPTED
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (FASB 123). The Company is required to adopt the provisions of this
statement in 1996. This statement encourages all entities to adopt a fair value
based method of accounting for employee stock options or similar equity
instruments. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic-value method of accounting
prescribed by APB opinion No. 25, Accounting for Stock Issued to Employees (APB
25). Entities electing to remain with the accounting in APB 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting defined in this statement had been applied. It is
currently anticipated that the Company will continue to
F-16
<PAGE> 85
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
account for employee stock options or similar equity instruments in accordance
with APB 25 and provide the disclosures required by FASB 123.
9. LEASE OBLIGATIONS AND COMMITMENTS
The Company leases office space and certain equipment under operating
leases that expire over a period of three to five years. Minimum future
obligations under noncancelable operating leases as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------------- --------
<S> <C>
1996.............................................. $ 43,402
1997.............................................. 43,402
1998.............................................. 41,273
1999.............................................. 37,017
2000.............................................. 24,678
--------
Total............................................. $189,772
========
</TABLE>
Total rent expense for operating leases in 1993, 1994, and 1995 was
approximately $10,600, $23,300 and $36,200, respectively.
10. SUBSEQUENT EVENTS AND PRO FORMA CAPITAL AMOUNTS
The following events occurred in June, 1996:
The Board of Directors approved a 1-for-3.5 reverse stock split of the
Company's common stock. The number of common shares and per share amounts
presented in the accompanying financial statements have been restated for
the effects of this reverse split.
The Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission permitting the
Company to sell shares of its common stock to the public.
The Company entered into a definitive agreement and plan of merger to
acquire all of the issued and outstanding common stock of BMT, Inc. which
is to occur concurrently with completion of the contemplated offering of
shares of the Company's common stock to the public. In the acquisition,
shareholders of BMT, Inc. will receive, in the aggregate, a combination of
$10 million cash and newly issued shares of common stock equal in value to
$22.5 million. Based on an assumed initial public offering price of $12.00
per share, an aggregate of 1,875,000 shares of common stock will be issued
pursuant to the acquisition. The acquisition will be accounted for under
the purchase method of accounting.
A significant stockholder of the Company provided a commitment to
finance the Company, if necessary, through August 1997.
F-17
<PAGE> 86
MALE ON-COMMAND(R) CATHETER
FEMALE ON-COMMAND(R) CATHETER
[This is a diagram of the male and female anatomy showing the Male and Female
On Command Catheters in place with the following parts of the devices labeled:
Bladder Balloon, Urethral Anchoring Balloon, Catheter Shaft, External Anchoring
Cap and Magnetic Valve.]
The Male On-Command(R) Catheter consists of two separable units, the
endourethral catheter portion and the detachable inflator section. When the two
units are connected, prior to use, the device closely resembles a Foley
catheter. The device is inserted non-surgically through the urethra in a simple
five-minute procedure. Two balloons are inflated, one in the bladder to seal
the bladder neck and one in the urethra on the downstream side of the prostrate
gland to anchor the device. The inflator portion is then detached and
discarded, allowing the device to reside completely inside the urethra with no
exposed components, thereby reducing the risk of infection. The device is
designed to remain in place for up to 30 days.
The Female On-Command(R) Catheter also employs a catheter with a detachable
inflation section and a magnetically actuated valve. The device is shorter than
the Male On-Command Catheter and substitutes the urethral anchoring balloon
with a small rounded external cap which anchors the device in place beneath the
labial folds of the vagina. The device is designed to remain in place for 15 to
30 days making it more convenient than many other products requiring multiple
changes per day. Because the external anchoring cap extends past the urethral
opening, infection rates in the Female On-Command Catheter are expected to be
higher than the Male On-Command Catheter which resides entirely inside the
urethra.
BMT ACQUISITION IN CONNECTION WITH THIS OFFERING
[This is a photograph of the inside of BMT manufacturing facility showing
medical products being packaged and assembled.]
In June 1996, the Company entered into a definitive agreement to acquire BMT,
BMT develops, manufactures and markets a line of proprietary silicone medical
device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical
device companies. BMT is one of a limited number of specialty manufacturers of
silicone catheters in the United States. BMT has been a contract manufacturer
for the Company since June 1994 and has manufactured approximately 2,200 Male
On-Command Catheters. The acquisition will enable the Company to control its
own production source while providing necessary capacity and flexibility in the
manufacturing process. The product development and production expertise of BMT
is also anticipated to be utilized by the Company to develop additional
On-Command Catheter products and other new devices related to the management
and diagnosis of urological disorders.
<PAGE> 87
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SHARES OF
COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 15
Acquisition of BMT.................... 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Financial Data............... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 28
Management............................ 52
Certain Transactions.................. 58
Principal Stockholders................ 60
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 63
Underwriting.......................... 65
Legal Matters......................... 66
Experts............................... 66
Additional Information................ 66
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
UROQUEST
MEDICAL
CORPORATION
------------------------
3,350,000 SHARES
COMMON STOCK
PROSPECTUS
, 1996
------------------------
DILLON, READ & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
------------------------------------------------------
------------------------------------------------------
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the issuance and distribution of the Common Stock being registered. All of
the amounts listed below will be borne by the Company. All of the amounts shown
are estimates, except the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
SEC registration fee............................................. $ 17,270
NASD filing fee.................................................. 5,509
Nasdaq National Market filing fee................................ 20,479
Accounting fees and expenses..................................... 110,000
Legal fees and expenses.......................................... 215,000
Blue sky fees and expenses....................................... 17,000
Printing and engraving costs..................................... 100,000
Transfer agent and registrar fees................................ 10,000
Miscellaneous expenses........................................... 4,742
----------
Total.................................................. $ 500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive officers
and may indemnify its other officers, employees and other agents to the fullest
extent not permitted by Delaware law.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as an exhibit to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise. In addition to the foregoing, the Registrant intends to
II-1
<PAGE> 89
acquire insurance from commercial carriers against certain liabilities which may
be incurred by its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) In December 1993, the Registrant issued 90,476 shares of Series A
Convertible Preferred Stock to certain investors at a price of $2.10 per share
for an aggregate purchase price of $190,000.
(2) In July 1994, the Registrant issued 272,998 shares of Series B
Convertible Preferred Stock to certain investors at a price of $2.52 per share
for an aggregate purchase price of $687,956.
(3) In November 1994, the Registrant issued 260,571 shares of Series C
Convertible Preferred Stock to certain investors at a price of $3.50 per share
for an aggregate purchase price of $912,000.
(4) In June 1995, the Registrant issued 628,571 shares of Series D
Convertible Preferred Stock to Warburg, Pincus Investors, L.P. and Vertical Fund
Associates, L.P., venture capital firms, at a price of $3.50 per share for an
aggregate purchase price of $2,200,000, and 1,428,571 warrants to purchase
Series D Convertible Preferred Stock for $3.50 per share.
(5) From June 1993 to April 1996, the Registrant granted stock options to
employees, directors and consultants to purchase shares of Common Stock at
average exercise prices ranging from $0.70 to $1.75, of which options to
purchase an aggregate of 1,059,958 shares of Common Stock are outstanding.
The sales of securities referenced in paragraph (1) through (4) were deemed
to be exempt from registration under the Securities Act of 1933 in reliance on
Section 4(2) thereof or Regulation D thereunder. The sales of securities
referenced in paragraph (5) were deemed to be exempt from registration under the
Securities Act of 1933 in reliance on Rule 701 promulgated under Section 3(b)
thereof, as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, though their relationships with the Company, to information
about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits to the Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1* Form of Merger Agreement for Delaware reincorporation.
2.2 Agreement and Plan of Merger dated as of June 27, 1996 among the Registrant, BMT
Acquisition Co. and BMT, Inc.
3.1* Certificate of Incorporation of UroQuest Medical Corporation, a Delaware
corporation, as in effect immediately following reincorporation.
3.2* Form of Restated Certificate of Incorporation of UroQuest Medical Corporation, a
Delaware corporation, to be filed after the closing of this Offering made under
this Registration Statement.
3.3* Bylaws of UroQuest Medical Corporation, a Delaware corporation, as in effect
immediately following reincorporation.
4.1* Specimen Common Stock Certificate.
4.2 Second Amended and Restated Stockholders Agreement dated May 31, 1995.
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
5.1* Opinion of Holland & Hart LLP.
10.1* Form of Indemnification Agreement between the Registrant and each of its
directors and officers.
10.2 1994 Stock Option Plan and form of Stock Option Agreement thereunder.
10.3* 1996 Employee Stock Purchase Plan and form of Subscription Agreement.
10.4 Letter of intent dated February 20, 1996, between B. Braun Bistol S.A. and
Registrant.
10.5 12% Secured Promissory Notes due December 31, 1996, in aggregate principal amount
of $390,000, including contingent 5% royalty payments on sales of On-Command
Catheter technology through December 31, 1996.
10.6 Commercial Security Agreement (Patents) dated December 7, 1994, by UroCath
Corporation for the benefit of holders of 12% Secured Promissory Notes due
December 31, 1996.
10.7 Lease of office space dated July 6, 1996 between 265 East Associates and the
Registrant.
10.8 Lease of Office Space dated December 16, 1995 between JVM Realty Corporation and
Bivona, Inc.
10.9*+ Fabricator Contract dated January 1, 1994 between Dow Corning Corporation and
Bivona, Inc.
10.10 Employment Agreement (as amended) dated November 1, 1994 for Eric B. Hale.
10.11 Employment Agreement (as amended) dated December 1, 1994 for Richard C. Davis,
Jr.
10.12 Employment Agreement effective June 1, 1995 for Terrence L. Domin.
10.13 Employment Agreement effective June 1, 1995 for Gregory S. Ayers.
10.14* Employment Agreement effective June , 1996 for Tom E. Brandt.
10.15* Termination Agreement dated June 27, 1996, among Registrant, Warburg, Pincus
Investors, L.P., Vertical Fund Associates, L.P. and Richard C. Davis, Jr.
11.1 Statement regarding computation of per share loss.
21.1* Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Grant Thornton LLP.
23.3 Consent of Holland & Hart LLP (included in Exhibit 5.1).
23.4 Consent of Griffin, Butler, Whisenhut & Kurtossy.
23.5 Consent of Emrich & Dithmar.
24.1 Power of Attorney (See page II-5).
99.1 Consent of Person About to Become a Director
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-3
<PAGE> 91
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Company hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(3) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Salt Lake City, State of Utah,
on June 28, 1996.
UROQUEST MEDICAL CORPORATION
By: /s/ ERIC B. HALE
--------------------------------------
Eric B. Hale, President
and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Eric B.
Hale and Gregory S. Ayers and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------- -------------
<S> <C> <C>
/s/ RICHARD C. DAVIS, M.D. Chairman of the Board June 28, 1996
- ------------------------------------------
Richard C. Davis, M.D.
/s/ ERIC B. HALE President, Chief Executive June 28, 1996
- ------------------------------------------ Officer and Director
Eric B. Hale (principal executive officer)
/s/ GREGORY S. AYERS Vice President, Finance June 28, 1996
- ------------------------------------------ and Chief Financial Officer
Gregory S. Ayers (principal accounting and
financial officer)
/s/ JACK W. LASERSOHN Director June 28, 1996
- ------------------------------------------
Jack W. Lasersohn
/s/ GARY E. NEI Director June 28, 1996
- ------------------------------------------
Gary E. Nei
/s/ MAYNARD RAMSEY, III, M.D., PH.D. Director June 28, 1996
- ------------------------------------------
Maynard Ramsey, III, M.D., Ph.D.
/s/ ELIZABETH H. WEATHERMAN Director June 28, 1996
- ------------------------------------------
Elizabeth H. Weatherman
</TABLE>
II-5
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------- ------------
<S> <C> <C>
1.1* Form of Underwriting Agreement.............................
2.1* Form of Merger Agreement for Delaware reincorporation......
2.2 Agreement and Plan of Merger dated as of June 27, 1996
among the Registrant, BMT Acquisition Co. and BMT, Inc.....
3.1* Certificate of Incorporation of UroQuest Medical
Corporation, a Delaware corporation, as in effect
immediately following reincorporation......................
3.2* Form of Restated Certificate of Incorporation of UroQuest
Medical Corporation, a Delaware corporation, to be filed
after the closing of this Offering made under this
Registration Statement.....................................
3.3* Bylaws of UroQuest Medical Corporation, a Delaware
corporation, as in effect immediately following
reincorporation............................................
4.1* Specimen Common Stock Certificate..........................
4.2 Second Amended and Restated Stockholders Agreement dated
May 31, 1995...............................................
5.1* Opinion of Holland & Hart LLP..............................
10.1* Form of Indemnification Agreement between the Registrant
and each of its directors and officers.....................
10.2 1994 Stock Option Plan and form of Stock Option Agreement
thereunder.................................................
10.3* 1996 Employee Stock Purchase Plan and form of Subscription
Agreement..................................................
10.4 Letter of intent dated February 20, 1996, between B. Braun
Bistol S.A. and Registrant.................................
10.5 12% Secured Promissory Notes due December 31, 1996, in
aggregate principal amount of $390,000, including
contingent 5% royalty payments on sales of On-Command
Catheter technology through December 31, 1996..............
10.6 Commercial Security Agreement (Patents) dated December 7,
1994, by UroCath Corporation for the benefit of holders of
12% Secured Promissory Notes due December 31, 1996.........
10.7 Lease of office space dated July 6, 1996 between 265 East
Associates and the Registrant..............................
10.8 Lease of Office Space dated December 16, 1995 between JVM
Realty Corporation and Bivona, Inc.........................
10.9*+ Fabricator Contract dated January 1, 1994 between Dow
Corning Corporation and Bivona, Inc........................
10.10 Employment Agreement (as amended) dated November 1, 1994
for Eric B. Hale...........................................
10.11 Employment Agreement (as amended) dated December 1, 1994
for Richard C. Davis, Jr...................................
10.12 Employment Agreement effective June 1, 1995 for Terrence L.
Domin......................................................
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------- ------------
<S> <C> <C>
10.13 Employment Agreement effective June 1, 1995 for Gregory S.
Ayers......................................................
10.14* Employment Agreement effective June , 1996 for Tom E.
Brandt.....................................................
10.15* Termination Agreement dated June 27, 1996, among
Registrant, Warburg, Pincus Investors, L.P., Vertical Fund
Associates, L.P. and Richard C. Davis, Jr..................
11.1 Statement regarding computation of per share loss..........
21.1* Subsidiaries of Registrant.................................
23.1 Consent of KPMG Peat Marwick LLP...........................
23.2 Consent of Grant Thornton LLP..............................
23.3 Consent of Holland & Hart LLP (included in Exhibit 5.1)....
23.4 Consent of Griffin, Butler, Whisenhut & Kurtossy...........
23.5 Consent of Emrich & Dithmar................................
24.1 Power of Attorney..........................................
99.1 Consent of Person About to Become a Director...............
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
BETWEEN
UROQUEST CORPORATION,
BMT ACQUISITION CO.
AND
BMT, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Recitals ................................................................................................ 1
ARTICLE I DEFINITIONS.......................................................................... 1
ARTICLE II THE MERGER AND RELATED MATTERS....................................................... 5
2.01 The Merger.......................................................... 5
2.02 Effective Time of Merger............................................ 5
2.03 Closing............................................................. 6
2.04 Merger Consideration and Conversion of Shares....................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF UROQUEST AND
SUB.................................................................................. 7
3.01 Organization, Good Standing, Power,
Etc................................................................. 7
3.02 Subsidiaries........................................................ 8
3.03 Authorization of Agreement, Etc..................................... 8
3.04 Capitalization...................................................... 10
3.05 Financial Statements................................................ 11
3.06 Absence of Certain Changes or
Events.............................................................. 11
3.07 Defaults............................................................ 12
3.08 Tax Matters......................................................... 12
3.09 Trademarks, Copyrights, Etc......................................... 13
3.10 Title to Properties; Absence of Liens and Encumbrances;
Leases, Etc......................................................... 13
3.11 Litigation.......................................................... 14
3.12 Brokers and Finders................................................. 15
3.13 Compliance with Laws................................................ 15
3.14 Registration Statement.............................................. 15
3.15 Material Contracts.................................................. 16
3.16 No Misrepresentation................................................ 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BMT................................................ 16
4.01 Organization, Good Standing, Power, Etc............................. 16
4.02 Subsidiaries........................................................ 17
4.03 Authorization of Agreement, Etc..................................... 17
4.04 Capitalization...................................................... 19
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
4.05 Financial Statements................................................ 19
4.06 Absence of Certain Changes or Events................................ 19
4.07 Employee Benefit Plans.............................................. 21
4.08 Brokers and Finders................................................. 25
4.09 Defaults............................................................ 25
4.10 Tax Matters......................................................... 25
4.11 Trademarks, Copyrights, Etc......................................... 27
4.12 Title to Properties; Absence of
Liens and Encumbrances; Leases, Etc................................. 27
4.13 Litigation.......................................................... 28
4.14 No Misrepresentation................................................ 29
4.15 Compliance with Laws................................................ 29
4.16 Environmental Compliance............................................ 30
4.17 Material Contracts.................................................. 30
ARTICLE V COVENANTS OF BMT..................................................................... 31
5.01 Approvals........................................................... 31
5.02 Investigation by UroQuest........................................... 31
5.03 Acquisition Proposals............................................... 31
5.04 Conduct of Business................................................. 32
5.05 No Charter Amendments............................................... 34
5.06 No Issuance or Disposition of Securities............................ 34
5.07 No Dividends........................................................ 34
5.08 No Disposal of Property............................................. 34
5.09 No Acquisitions..................................................... 34
5.10 No Breach or Default................................................ 35
5.11 No Indebtedness..................................................... 35
5.12 Payment of Liabilities.............................................. 35
5.13 Employee Matters.................................................... 35
5.14 Stockholders' Meeting............................................... 36
5.15 Notice and Cure..................................................... 36
5.16 Furnish Information for UroQuest Statements......................... 37
ARTICLE VI COVENANTS OF UROQUEST AND SUB........................................................ 37
6.01 Approvals........................................................... 37
6.02 Conduct of Business................................................. 38
6.03 Investigation by BMT................................................ 38
6.04 Registration........................................................ 38
6.05 Nasdaq Quotation.................................................... 38
6.06 Notice and Cure..................................................... 38
6.07 Reincorporation in Delaware......................................... 39
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
6.08 No Issuance or Disposition of
Securities.......................................................... 39
6.09 No Dividends........................................................ 39
6.10 No Disposal of Property; No
Acquisitions........................................................ 39
6.11 Activities of Sub................................................... 40
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF
UROQUEST, SUB AND BMT................................................................ 40
7.01 Stockholder Approvals............................................... 40
7.02 Consents and Approvals.............................................. 40
7.03 Consummation of Offering............................................ 40
7.04 No Injunctions or Restraints;
Illegality.......................................................... 40
7.05 Stockholder Representation Letters.................................. 41
7.06 Tax Opinion......................................................... 41
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF BMT........................................... 41
8.01 Accuracy of Representations and
Warranties.......................................................... 41
8.02 Performance of Covenants, Agreements
and Conditions...................................................... 41
8.03 Officers' Certificate, Etc.......................................... 42
8.04 Opinion of UroQuest Counsel......................................... 42
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF UROQUEST AND
SUB.................................................................................. 43
9.01 Accuracy of Representations and
Warranties.......................................................... 43
9.02 Performance of Covenants, Agreements
and Conditions...................................................... 44
9.03 Officers' Certificates, Etc......................................... 44
9.04 Opinion of Counsel for BMT.......................................... 44
9.05 Employment Agreements............................................... 45
9.06 Stock Escrow........................................................ 45
ARTICLE X TERMINATION, AMENDMENTS AND WAIVER................................................... 45
10.01 Termination......................................................... 45
10.02 Effect of Termination............................................... 46
10.03 Amendment........................................................... 47
10.04 Waiver.............................................................. 47
ARTICLE XI OTHER AGREEMENTS; NONSURVIVAL OF
REPRESENTATIONS AND WARRANTIES....................................................... 47
11.01 Confidentiality..................................................... 47
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
11.02 Public Announcements................................................ 47
11.03 Indemnification; Directors' and
Officers' Insurance................................................. 47
11.04 Additional Agreements............................................... 49
11.05 Available Remedies.................................................. 49
11.06 Election of Director................................................ 49
11.07 Nonsurvival of Representations and
Warranties.......................................................... 49
ARTICLE XII MISCELLANEOUS........................................................................ 49
12.01 Expenses............................................................ 49
12.02 Notices............................................................. 49
12.03 Entire Agreement.................................................... 50
12.04 Binding Effect; Benefits............................................ 51
12.05 Assignment.......................................................... 51
12.06 Applicable Law...................................................... 51
12.07 Article and Section Headings........................................ 51
12.09 Counterparts........................................................ 51
</TABLE>
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is dated as of
June 27, 1996, among UroQuest Corporation, a Florida corporation ("UroQuest"),
BMT Acquisition Co., a Delaware corporation and wholly owned subsidiary of
UroQuest ("Sub") and BMT, Inc., an Indiana corporation ("BMT").
RECITALS
A. The respective Boards of Directors of UroQuest, Sub and BMT deem it
advisable and in the best interests of their respective stockholders that
UroQuest and BMT enter into this Agreement in order to advance the long-term
business interests of such companies.
B. The respective Boards of Directors of UroQuest, Sub and BMT, by
resolutions duly adopted, have approved this Agreement providing for the merger
of BMT with and into Sub (the "Merger") under Section 368(a)(2)(D) of the
Internal Revenue Code. The Boards of Directors of Sub and BMT have recommended
the Merger and the Merger Agreement (as defined hereafter) for approval by the
stockholders of Sub and BMT in accordance with the terms of this Agreement and
applicable law.
C. UroQuest, Sub and BMT desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated by this Agreement and to prescribe various terms and conditions to
such transactions.
AGREEMENT
In consideration of the premises and the mutual representations,
warranties, covenants and agreements herein set forth, the parties to this
Agreement have agreed, and hereby agree, subject to the terms and conditions
hereinafter set forth, as follows:
ARTICLE I
<PAGE> 7
DEFINITIONS
Capitalized terms used herein shall have the meanings ascribed to them
in this Article I, unless such terms are defined elsewhere in this Agreement.
1933 Act: the Securities Act of 1933, as amended.
Acquisition Proposal: as defined in Section 5.03.
Affiliate: any corporation or other trade or business under common
control (within the meaning of Section 414(b), (c), (m) and (o) of the Code or
Section 4001(a)(14) or 4001(b) of ERISA) with BMT, either currently or at any
time since January 1, 1994.
Balance Sheet: as defined in Section 3.05 and 4.05, respectively.
Balance Sheet Date: as defined in Section 3.05.
Bivona: an Indiana corporation which is a wholly owned subsidiary of
BMT.
Bivona Pension Benefit Plan: any Pension Benefit Plan maintained at any
time by BMT or Bivona or an Affiliate or to which BMT or Bivona or an Affiliate
contributes, is required to contribute or has contributed for employees or
former employees of BMT or Bivona.
Bivona Welfare Benefit Plan: any Welfare Benefit Plan maintained at any
time by BMT or Bivona or an Affiliate or to which BMT or Bivona or an Affiliate
contributes, is required to contribute or has contributed for employees or
former employees of BMT or Bivona.
BMT Certificate: as defined in Section 9.03
BMT Common Stock: the shares of Common Stock of BMT, without par value.
BMT Disclosure Schedule: as defined in Section 4.02.
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<PAGE> 8
BMT Financial Statements: as defined in Section 4.05.
BMT Opinion: as defined in Section 9.04.
BMT Stockholder Letters: as defined in Section 7.06.
Cash Consideration: as defined in Section 2.04(a).
Closing: as defined in Section 2.01(b).
Code: the Internal Revenue Code of 1986, as amended.
Commission: the Securities and Exchange Commission.
Constituent Corporations: UroQuest and BMT.
Delaware Law: The Delaware General Corporation Law, as amended.
Effective Time of the Merger: as defined in Section 2.03.
Employment Agreements: as defined in Section 9.05.
Environmental Damages: all claims, judgments, damages, losses,
penalties, fines, liabilities, encumbrances, liens, costs and expenses of
defense of a claim, good faith settlements of judgment, and costs and expenses
of reporting, investigating, removing and/or remediating Hazardous Materials,
matured or unmatured, foreseeable or unforeseeable, any of which arise out of or
relate to the existence of Hazardous Materials.
Environmental Requirements: all applicable statutes, regulations,
policies, actions, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations and similar items of all branches, agencies,
departments, commissions, boards, bureaus and instrumentalities of all federal,
state, county, local and other governments having jurisdiction, and all
applicable judicial and administrative and regulatory decisions, decrees,
judgments, and orders and all covenants running with the land that relate to the
protection of health or the environment.
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<PAGE> 9
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
Final Closing: as defined in Section 2.03(c).
Governmental Entity: any court, government, governmental agency,
commission or instrumentality, domestic or foreign.
Hazardous Materials: any substance: (i) the presence or release of
which requires reporting, investigation, removal or remediation under any
Environmental Requirement; (ii) that is or becomes defined as a "hazardous
waste," "hazardous substance" or "pollutant or contaminate" under any
Environmental Requirement; (iii) that is toxic, explosive, corrosive, flammable,
ignitable, infectious, radioactive, reactive, carcinogenic, mutagenic or
otherwise hazardous and is or becomes regulated under any Environmental
Requirement; (iv) the presence of which causes or could cause a nuisance; (v)
that is or contains gasoline, diesel fuel or other petroleum hydrocarbons in any
unconfined manner; or (vi) that contains PCBs, asbestos or urea formaldehyde
foam insulation.
Indemnified Parties: as defined in Section 11.03(a).
Indiana Law: the Indiana Business Corporation Law, as amended.
Initial Closing: as defined in Section 2.03(a).
Initial Public Offering: the initial public offering of UroQuest Common
Stock.
IRS: the Internal Revenue Service.
Legal Requirements: any law, statute, ordinance, decree, requirement,
order, judgment, rule or regulation of, including the terms of any license,
certificate, franchise or permit issued by, the United States, any state,
commonwealth, territory or possession thereof and any political or judicial
subdivision or instrumentality of the foregoing, including, without limitation,
courts, departments, commissions, boards, bureaus or agencies.
4
<PAGE> 10
Material Adverse Effect: with respect to any party hereto, a material
adverse effect on the business, properties, financial condition or results of
operations of such party and its parent and subsidiary corporations, taken as a
whole.
Merger Agreement: that form of Agreement of Merger by and among Sub and
BMT attached hereto as Annex A and incorporated herein by reference.
PBGC: the Pension Benefit Guaranty Corporation.
Pension Benefit Plan: any "employee pension benefit plan" (as defined
in Section 3(2) of ERISA), including any multiemployer pension plan (as
described in either Section 3(37) or Section 4001(a)(3) of ERISA and not
described in Section 4(b) of ERISA).
Registration Statement: the registration statement on Form S-1 of
UroQuest relating to shares of UroQuest Common Stock to be issued in the Initial
Public Offering.
Related Party: as defined in Section 3.06.
Share Consideration: as defined in Section 2.04(a).
Stock Pledge Agreement: as defined in Section 9.06.
Sub Common Stock: the Shares of Common Stock of Sub, $.01 par value per
share.
Subsequent Closing: as defined in Section 2.03(b).
Subsidiary: any corporation or other entity whose voting securities are
owned directly or indirectly by UroQuest, Sub or BMT, as the case may be, in an
amount sufficient to elect at least a majority of the Board of Directors or
other managers of such corporation or other entity.
Surviving Corporation: Sub subsequent to the Effective Time of the
Merger.
Tax Opinions: as defined in Section 7.06.
5
<PAGE> 11
Tax Return: any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachments thereto, and including any
amendment thereof.
Taxes: (i) all net income, gross income, gross receipts, sales and use,
ad valorem, franchise, profits, licenses, withholding, payroll, excise,
severance, stamp, occupation, property, customs duties or other taxes, fees or
charges of any kind whatsoever imposed by a foreign, federal, state, county or
local taxing authority together with any interest or penalty thereon, and/or
(ii) the liability for the payment of any consolidated tax, including penalty or
interest thereon, of the type described in the immediately preceding subsection
(i), including any federal , state or local consolidated income tax liability
including any penalty or interest thereon, as a result of being a member of, and
which may be imposed upon, an affiliated group (as defined in Section 1504(a) of
the Code, or other applicable law).
UroQuest Certificate: as defined in Section 8.03.
UroQuest Common Stock: the shares of Common Stock of UroQuest, $.001
par value per share.
UroQuest Disclosure Schedule: as defined in Section 3.02.
UroQuest Financial Statements: as defined in Section 3.05.
UroQuest Opinion: as defined in Section 8.04.
Welfare Benefit Plan: any "employee welfare benefit plan" (as defined
in Section 3(1) of ERISA).
ARTICLE II
THE MERGER AND RELATED MATTERS
2.01 The Merger. In accordance with the provisions of Delaware
Law and Indiana Law and the terms of this
6
<PAGE> 12
Agreement, BMT shall be merged with and into Sub, with Sub surviving such Merger
as the Surviving Corporation.
2.02 Effective Time of Merger. Subject to the provisions of
this Agreement, the Surviving Corporation and BMT shall cause Certificates of
Merger to be executed and filed with the Secretary of State of Delaware and the
Secretary of State of Indiana, respectively, as soon as practicable following
the Final Closing, or on such earlier or later date as may be mutually agreed to
by the parties. The Merger shall become effective upon the filing of such
Certificates of Merger or at such time thereafter as is provided therein (the
"Effective Time of the Merger").
2.03 Closing.
(a) The initial closing of the Merger (the "Initial Closing")
shall take place at the office of Holland & Hart LLP, 215 South State Street,
Suite 500, Salt Lake City, Utah 84111 as soon as practicable after the
satisfaction or written waiver of the conditions set forth in Sections 7.01,
7.05, 9.05 and 9.06 of this Agreement. At the time of the Initial Closing, the
following executed documents shall be placed in escrow with Holland & Hart LLP
pending completion of the Final Closing: (i) certificates of the secretaries of
Sub and BMT, respectively, that the Stockholder approvals referred to in Section
7.01 have been obtained; (ii) the Employment Agreements; (iii) the Stock Escrow
Agreement; and (iv) the BMT Stockholder Letters.
(b) The subsequent closing of the Merger (the "Subsequent
Closing") shall take place at the offices of Holland & Hart LLP, 215 South State
Street, Suite 500, Salt Lake City, Utah 84111 as soon as practicable after
satisfaction or written waiver of the conditions set forth in Sections 7.02,
7.04, 7.06, 8.01, 8.02, 8.03, 8.04, 9.01, 9.02, 9.03 and 9.04 of this Agreement.
At the time of the Subsequent Closing, the following executed documents shall be
placed in escrow with Holland & Hart LLP pending completion of the Final
Closing: (i) the UroQuest Certificate; (ii) the UroQuest Opinion; (iii) the BMT
Certificate; (iv) the BMT Opinion and (v) the Tax Opinions.
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<PAGE> 13
(c) The final closing of the Merger (the "Final Closing")
shall occur contemporaneously with the satisfaction of the condition set forth
in Section 7.03 of this Agreement.
2.04 Merger Consideration and Conversion of Shares.
(a) The aggregate consideration to be paid for all issued and
outstanding shares of BMT Common Stock shall be $32,500,000, which shall consist
of (i) $10,000,000 in cash (the "Cash Consideration"), and (ii) such number of
shares of UroQuest Common Stock when multiplied by the initial public offering
price per share shall equal $22,500,000 (the "Share Consideration").
(b) At the Effective Time of the Merger, each share of BMT
Common Stock, by virtue of the Merger and without any action on the part of the
holder thereof, automatically shall be converted into and become the right to
receive, without interest, the following:
(i) cash in the amount equal to the Cash
Consideration divided by the number of
shares of BMT Common Stock issued and
outstanding as of the Effective Time of the
Merger; and
(ii) the number of shares of UroQuest Common
Stock which, when multiplied by the initial
public offering price per share, equals the
Share Consideration divided by the number of
shares of BMT Common Stock issued and
outstanding as of the Effective Time of the
Merger.
(c) Notwithstanding anything herein to the contrary, no
certificate or scrip evidencing fractional shares of UroQuest Common Stock shall
be issued in the Merger, and such fractional share interests will not entitle
the owner thereof to vote or to any rights as a stockholder of UroQuest. In lieu
of any such fractional shares, each holder of BMT Common Stock shall be paid an
amount in cash (without interest), rounded to the nearest cent, determined by
multiplying (i) the initial public offering price per share of UroQuest Common
Stock by (ii) the fractional interest of UroQuest Common Stock to which such
holder would
8
<PAGE> 14
otherwise be entitled (after taking into account all shares of BMT Common Stock
held of record by such holder at the Effective Time of the Merger).
(d) As soon as practicable after the Effective Time of the
Merger, each former shareholder of record of shares of BMT Common Stock will be
sent a letter of transmittal from UroQuest with instructions for the exchange by
holders of BMT stock certificates for: (i) a certificate representing the number
of shares of UroQuest Common Stock to which such shareholder is entitled as a
result of the Merger; (ii) such shareholder's share of the Cash Consideration
payable in the Merger; and (iii) any cash payment in lieu of issuing fractional
shares. No cash will be paid to any former BMT shareholder nor will any
certificates for shares of UroQuest Common Stock be issued to such shareholder
until the letter of transmittal has been properly completed, executed and
delivered to UroQuest together with the certificates for all shares of BMT
Common Stock owned by such shareholder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF UROQUEST AND SUB
UroQuest and Sub hereby represent and warrant to BMT as
follows:
3.01 Organization, Good Standing, Power, Etc. Each of UroQuest
and Sub is a corporation duly organized, validly existing and in good standing
under the laws of the States of Florida and Delaware, respectively, and has all
requisite corporate power and authority to own, operate and lease its respective
properties and assets and to carry on its respective businesses as now being
conducted. Each of UroQuest and Sub is duly qualified to do business and is in
good standing as a foreign corporation or other entity in each other
jurisdiction in which the ownership, operation or leasing of its properties or
assets or the nature of its business requires such qualification, except where
the failure to so qualify would not have a Material Adverse Effect on UroQuest
or Sub.
9
<PAGE> 15
3.02 Subsidiaries. Section 3.02 of the disclosure schedule
delivered by UroQuest to BMT on or before the date of this Agreement (the
"UroQuest Disclosure Schedule") sets forth all of the Subsidiaries of UroQuest
and Sub, together with the authorized and outstanding shares of capital stock of
each. Except for the Subsidiaries, or as otherwise listed in Section 3.02 of the
UroQuest Disclosure Schedule, neither UroQuest, Sub nor any of their
Subsidiaries directly or indirectly owns any voting securities in any other
corporation or other entity.
3.03 Authorization of Agreement, Etc.
(a) Each of UroQuest and Sub has all requisite corporate power
and authority to enter into and perform all of its obligations under this
Agreement. The execution and delivery of this Agreement by UroQuest and Sub and
the consummation by UroQuest and Sub of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
UroQuest and Sub. This Agreement has been duly executed and delivered by
UroQuest and Sub and constitutes the legal, valid and binding obligation of
UroQuest and Sub enforceable against UroQuest and Sub in accordance with its
terms except as enforceability may be subject to (i) any applicable bankruptcy,
insolvency, reorganization or other law relating to or affecting creditors'
rights generally and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(b) Neither the execution and delivery of this Agreement by
UroQuest and Sub nor the consummation of the transactions contemplated hereby to
be performed by UroQuest and Sub will (i) violate or conflict with any provision
of the Articles of Incorporation, as amended, or By-laws, as currently in
effect, of UroQuest or Sub or (ii) violate or conflict with any provision of any
law, rule, regulation, order, permit, certificate, writ, judgment, injunction,
decree, determination, award or other decision of any Governmental Entity, other
regulatory or self-regulatory body or association or arbitrator binding upon
UroQuest or Sub or any of their respective properties, except where such
violations or conflicts would not in the aggregate have a Material Adverse
Effect on UroQuest or
10
<PAGE> 16
Sub or a material adverse effect on the ability of UroQuest and Sub to
consummate the transactions contemplated hereby, and except for violations that
will be cured, waived or terminated prior to the Effective Time of the Merger.
(c) Neither the execution and delivery of this Agreement by
UroQuest and Sub nor the consummation of the transactions contemplated hereby to
be performed by UroQuest and Sub will result in a breach of or constitute a
default (or with notice or lapse of time or both result in a breach of or
constitute a default) under, or give rise to a right of termination,
cancellation, acceleration or repurchase of any obligation or a right of first
refusal with respect to any material property or asset or a loss of a material
benefit or the imposition of a material penalty under, any of the terms,
conditions or provisions of (i) any mortgage, indenture, loan or credit
agreement or any other agreement or instrument evidencing indebtedness for money
borrowed to which UroQuest or Sub is a party or by which it or any of its
properties is bound, or pursuant to which UroQuest or Sub has guaranteed the
indebtedness or preferred stock of any person or entity, or (ii) any lease,
license, tariff, contract or other agreement or instrument to which UroQuest or
Sub is a party or by which they or any of their properties are bound, except in
the case of each of clauses (i) or (ii) above, (x) for any such breaches,
defaults, rights, losses or penalties that do not have a Material Adverse Effect
on UroQuest or Sub or a material adverse effect on the ability of UroQuest or
Sub to consummate the transactions contemplated hereby, and (y) for such third
party consents as will be obtained prior to the Effective Time of the Merger.
(d) Neither the execution and delivery by UroQuest and Sub of
this Agreement nor the consummation of the transactions contemplated hereby to
be performed by UroQuest and Sub will result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature upon or with respect to any of the
properties or other assets owned by UroQuest and Sub, except where such would
not in the aggregate have a Material Adverse Effect on UroQuest or Sub or a
material adverse effect on the ability of UroQuest or Sub to consummate the
transactions contemplated hereby.
11
<PAGE> 17
(e) No consent, approval, order, certificate or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by UroQuest or Sub in connection with the execution and delivery of
this Agreement by UroQuest or Sub or the consummation by UroQuest or Sub of the
transactions contemplated hereby, other than such filings or registrations that,
if not made, and such authorizations, consents or approvals, that, if not
received, would not in the aggregate have a Material Adverse Effect on UroQuest
or Sub or a material adverse effect on the ability of UroQuest or Sub to
consummate the transactions contemplated hereby.
(f) UroQuest and Sub have made or obtained each registration,
filing, submission, license, permit, certificate, determination or governmental
approval necessary to enable it to carry on its business, except for: (i)
various approvals of Governmental Entities required to manufacture and sell
medical devices to be produced by UroQuest and (ii) those which the failure to
make or obtain does not have a Material Adverse Effect on UroQuest or Sub. All
such registrations, filings and submissions with any Governmental Entity
relating to the operations of UroQuest and Sub were in material compliance with
applicable law when filed, and to the knowledge of UroQuest and Sub no material
deficiencies have been asserted by any such authority with respect to such
registrations, filing or submissions.
3.04 Capitalization.
(a) At the Effective Time of the Merger, all of the
outstanding shares of capital stock of Sub shall be duly authorized and validly
issued and shall be fully paid and nonassessable and held of record and
beneficially owned by UroQuest.
(b) The authorized capital stock of UroQuest as of the date
hereof consists of 47,081,268 shares, $.001 par value, divided into the
following: (i) 316,667 shares of Series A Convertible Preferred Stock; (ii)
955,494 shares of Series B Convertible Preferred Stock; (iii) 1,009,107 shares
of Series C Convertible Preferred Stock; (iv) 8,000,000 shares of Series D
12
<PAGE> 18
Convertible Preferred Stock; (v) 5,800,000 shares of undesignated Serial
Preferred Stock; (vi) 30,000,000 shares of Voting Common Stock; and (vii)
1,000,000 shares of Non-Voting Common Stock. As of the date of this Agreement,
4,384,161 shares of UroQuest Preferred Stock and 10,496,060 shares of UroQuest
Voting Common Stock and 1,000,000 shares of Non-Voting Common Stock are issued
and outstanding. Following reincorporation in Delaware and upon the consummation
of the Initial Public Offering, the authorized capital stock of UroQuest will
consist of 31,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock. There are no outstanding options, warrants, or other rights to purchase
shares of UroQuest Common Stock or UroQuest Preferred Stock, except as set forth
on Section 3.04 of the UroQuest Disclosure Schedule. All shares of capital stock
of UroQuest which are outstanding as of the date hereof are duly authorized,
validly issued, fully paid and nonassessable, and are not subject to, or issued
in violation of, any preemptive rights. Except as set forth above or in Section
3.04 of the UroQuest Disclosure Schedule, there are no shares of capital stock
of UroQuest authorized or outstanding, and there are no subscriptions,
options, warrants or other rights to purchase shares of the capital stock of
UroQuest, and no conversion or exchange rights, preemptive rights or other
agreements, claims or commitments of any nature whatsoever (whether firm or
conditional) to which UroQuest is a party obligating UroQuest to issue,
transfer, deliver or sell, or cause to be issued, transferred, delivered or
sold, additional shares of the capital stock or other securities or interests of
UroQuest or obligating UroQuest to grant, extend or enter into any such
agreement or commitment.
3.05 Financial Statements. UroQuest has delivered to BMT the
audited consolidated balance sheet of UroQuest as of December 31, 1995 (the
"Balance Sheet Date") and the related audited consolidated statements of income
and stockholders' equity of UroQuest for the three years then ended, together
with the notes related thereto, certified by KPMG Peat Marwick LLP. All items
referred to above are collectively referred to hereby as the "UroQuest Financial
Statements." Except as set forth in Section 3.05 of the UroQuest Disclosure
Schedule, each such UroQuest Financial Statement (and the notes relating
thereto) was prepared in conformity with generally accepted accounting
principles consistently applied (except for the absence of notes,
13
<PAGE> 19
in the case of the unaudited financial statements), is true, complete and
correct in all material respects and fairly presents the consolidated financial
condition of UroQuest as of the respective date thereof and the related
consolidated results of operations, stockholders' equity and cash flows in
conformity with generally accepted accounting principles.
3.06 Absence of Certain Changes or Events. Except as has
occurred in the ordinary course of business consistent with prior practices, or
as set forth in Section 3.06 of the UroQuest Disclosure Schedule, since the
Balance Sheet Date, neither UroQuest, Sub nor any Subsidiary thereof has (i)
borrowed, or agreed to borrow, funds (ii) incurred or become subject to, or
agreed to incur or become subject to, any material obligation or liability,
contingent or otherwise, except liabilities incurred, and obligations under
contracts entered into, in the ordinary course of its business, (iii) declared,
set aside or paid any dividend or other distribution (whether in cash, stock or
property) in respect of its capital stock, (iv) mortgaged, pledged or subjected
to lien, charge or other encumbrance, or agreed so to do, any of the assets
material to the operation of its business, tangible or intangible, (v) sold,
assigned, transferred, conveyed, leased or otherwise disposed of or agreed to
sell, assign, transfer, convey, lease or otherwise dispose of any material
assets or properties, or the sale of inventory, in the ordinary course of
business, (vi) canceled or compromised any debt or claim, except for immaterial
adjustments made in the ordinary course of business, or waived or released any
rights, regardless of whether in the ordinary course of business, which, in the
aggregate, are material, (vii) increased, or agreed to increase, the monthly
rate of compensation payable or to become payable by it to any of its officers,
directors or other key management employees over the rate being paid to them or
accrued for at the Balance Sheet Date, (viii) increased, or agreed to increase,
the rate of compensation payable or to become payable by it to any of its
employees (other than officers, directors and other key management employees)
over the rate being paid to them or accrued for at the Balance Sheet Date, or
other than in accordance with its established procedures for annual or other
periodic reviews and increments, (ix) made or permitted, or agreed to make or
permit, any material amendment or termination of any material contract,
mortgage, lease, license, agreement or
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<PAGE> 20
other instrument to which it is a party or by which any of its properties or
assets are bound, (x) made, or agreed to make, any accrual or arrangement for or
payment of bonuses or special compensation in excess of $25,000 of any kind to
any employee (or $100,000 in the aggregate for all employees), (xi) directly or
indirectly paid, or agreed to pay, any severance or termination pay to any
employee in excess of $10,000 (or $50,000 in the aggregate for all employees)
which was not accrued for at the Balance Sheet Date, (xii) made, or agreed to
make, any changes in its accounting methods or practices, (xiii) entered into or
modified in any material respect any contract with any officer, director or
stockholder of UroQuest or Sub or with any entity in which any such officer,
director or stockholder has a 10% or more equity interest (a "Related Party"),
(xiv) made capital expenditures which, in the aggregate, exceed $100,000, or,
entered into any commitment therefor, or (xv) experienced any Material Adverse
Effect.
3.07 Defaults. Neither UroQuest nor Sub is in default in any
material respect under any borrowings or leases of material properties, and
there has not occurred any event which, with or without the giving of notice or
the lapse of time or both, would constitute such a default by UroQuest or Sub.
3.08 Tax Matters. Except as provided in Section 3.08 of the
UroQuest Disclosure Schedule.
(a) All returns or reports relating to Taxes that are required
to have been filed by or on behalf of UroQuest and Sub at or prior to the
Effective Time of the Merger have been timely filed and all such returns and
reports are true and correct in all material respects.
(b) All Taxes due for periods covered by such Tax returns or
reports or claims by any taxing authority to be due and payable have been paid
in full (or adequate provision has been made therefor, as described in the
following subsection (c)), except such Taxes, if any, as are being (or will be)
contested in good faith and as to which adequate reserves have been provided.
Neither UroQuest nor Sub has not executed any presently effective waiver or
extension of any statute of limitations against assessment or collection of any
Taxes.
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<PAGE> 21
Proper amounts have been withheld by UroQuest from employees with respect to
compensation in full compliance with all applicable laws. UroQuest and Sub have
no knowledge of, and have not received from any Governmental Entity a notice of,
any pending examination of any tax return of UroQuest. There are no existing
liens on any of the assets or property of UroQuest or Sub for Taxes, except for
Taxes not yet due and payable.
(c) The reserves for Taxes reflected on the December 31, 1995
balance sheet ("Balance Sheet") in the UroQuest Financial Statements are
sufficient for the payment of all unpaid Taxes of UroQuest accrued for or
applicable to the period then ended and the years and periods prior thereto.
3.09 Trademarks, Copyrights, Etc. Section 3.09 of the UroQuest
Disclosure Schedule sets forth: (i) a list of all federal, state and foreign
patent, trademark, trade name, service marks and copyright registrations of
UroQuest and its subsidiaries and (ii) a list of all agreements, obligations and
commitments under which such patents, trademarks, trade names, service marks,
copyrights or other proprietary rights of UroQuest or Sub have been licensed,
encumbered or otherwise transferred or assigned, in whole or in part, to other
parties. UroQuest owns or has the right to use, without any material payment to
any other party, all of the patents, trademarks (registered or unregistered),
trade names, service marks and copyrights used in their businesses as currently
conducted and the consummation of the Merger will not alter or impair the
ability to use such rights in any material adverse respect. Except as provided
in Section 3.09 of the UroQuest Disclosure Schedule, there have not been
asserted against UroQuest any claims that any product, activity or operation of
UroQuest infringes upon, or had resulted in the infringement of, any proprietary
right of any other person, corporation or other entity; and no proceedings have
been instituted, are pending or, to the knowledge of UroQuest, are threatened
which challenge the rights of UroQuest with respect thereto.
3.10 Title to Properties; Absence of Liens and Encumbrances;
Leases, Etc.
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<PAGE> 22
(a) Section 3.10 of the UroQuest Disclosure Schedule lists all
of the real properties owned by UroQuest or Sub. UroQuest has the ownership in
fee and good marketable title to all real property owned by it, if any, and good
title to its other owned properties and assets, tangible and intangible,
including, without limitation, the properties and assets reflected in the
Balance Sheet (except personal properties since sold or otherwise disposed of in
the ordinary course of business and except for personal properties and assets
not material to the operation of its business), free and clear of all mortgages,
liens, pledges, charges and encumbrances of any nature whatsoever, except (i) as
reflected in the Balance Sheet, (ii) liens in respect of pledges or deposits
under workmen's compensation, unemployment insurance, social security and public
liability laws and other similar legislation, (iii) liens imposed by law, such
as carriers', warehousemen's or mechanics' liens incurred in good faith in the
ordinary course of business, (iv) liens for property taxes accrued, but not yet
payable, and (v) such imperfections of title and other encumbrances, if any,
which do not in the aggregate materially interfere with the use of such
properties or assets or otherwise materially impair the business operations of
UroQuest.
(b) Section 3.10 of the UroQuest Disclosure lists all of the
real properties leased by UroQuest or Sub. UroQuest has previously made
available to BMT correct and complete copies of all leases or agreements under
which UroQuest is lessee of, or holds or operates, any real property owned by
any third party which is material to the operation of its business. UroQuest is
not in material default under the terms of any such lease or agreement. Each
such lease under which the lessor is a Related Party has been identified on
Section 3.10 of the UroQuest Disclosure Schedule and was, at the time entered
into, on terms not materially less favorable to UroQuest than if made with an
independent third party in an arm's-length transaction. UroQuest, and to the
knowledge of UroQuest, each lessor, have in all material respects performed all
the obligations required to be performed by them to date and are not in default
in any material respect under any such lease or agreement. None of the rights of
UroQuest in such property under any such lease or agreement is subject to
termination as the result of the transactions contemplated by this Agreement.
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<PAGE> 23
(c) All structures and other improvements located on such real
property and other tangible personal property material to the conduct of the
business of UroQuest are in good operation condition and repair, subject to
ordinary wear and tear. UroQuest is not in violation of any applicable zoning
regulation, ordinance or other similar laws, order, regulation or requirement
relating to its operations or properties which, if enforced, would have a
Material Adverse Effect on UroQuest.
3.11 Litigation. Except where (individually or in the
aggregate) such would not have a Material Adverse Effect upon UroQuest or Sub:
(a) There is no claim, action, suit, proceeding, arbitration,
or to the knowledge of UroQuest or Sub any investigation or inquiry, before any
Governmental Entity, other regulatory or self-regulatory body or association or
arbitrator, now pending or, to the knowledge of UroQuest or Sub, threatened
against UroQuest or Sub or the assets, properties or business of UroQuest or Sub
or that questions the validity of this Agreement.
(b) There is not in existence any order, judgment or decree of
any Governmental Entity, other regulatory or self-regulatory body or association
or arbitrator enjoining or prohibiting UroQuest or Sub from taking, or requiring
UroQuest to take, any action of any kind to which UroQuest or Sub is a party or
which specifically names UroQuest or Sub.
(c) Neither UroQuest nor Sub is in default in any respect
under any order, writ, injunction or decree of any Governmental Entity, other
regulatory or self-regulatory body or association or arbitrator outstanding
against any of them where such default would have a Material Adverse Effect on
UroQuest or Sub.
3.12 Brokers and Finders. No person has acted on behalf of
UroQuest or Sub in connection with any negotiations relative to this Agreement
and the transactions contemplated hereby, and such negotiations have been
carried on by it without the intervention of any person acting on behalf of
UroQuest or Sub, in such manner as to give rise to any valid claim for a
18
<PAGE> 24
brokerage commission, finder's fee or other like payment against BMT, Bivona,
UroQuest, Sub or any shareholders thereof.
3.13 Compliance with Laws. Except where non-compliance would
not have a Material Adverse Effect upon UroQuest or Sub, UroQuest and Sub are in
compliance in all material respects with all Legal Requirements applicable to
any of its properties or assets and/or the ownership, operation and use thereof,
and UroQuest nor Sub has received notice of any noncompliance or alleged
noncompliance with any Legal Requirement relating or applicable to any of its
properties or assets or to the operation of its business, the existence or
enforcement of which would have a Material Adverse Effect on UroQuest's or Sub's
ability to operate them on the same basis as currently conducted and operated or
which would require the payment of material refunds, fines, penalties or
restitution in respect of matters occurring prior to the Effective Time of the
Merger.
3.14 Registration Statement. The Registration Statement of
UroQuest will not at the time the Registration Statement is declared effective
by the Commission contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading; provided
no representation or warranty is given with regard to the information contained
in the Registration Statement with regard to the business of BMT, Bivona or its
officers, directors or share ownership therein.
3.15 Material Contracts. To the extent not otherwise listed in
the UroQuest Disclosure Schedule, Section 3.15 of the UroQuest Disclosure
Schedule lists, and UroQuest has provided to BMT with true and correct copies
of, all of the following to which UroQuest or Sub are parties: (i) stock plans
or agreements; (ii) partnership or joint venture agreements; (iii) distributor
agreements; (iv) employment agreements; (v) noncompetition agreements; or (vi)
other contracts providing for payments in the aggregate in excess of $50,000 or
financing a duration greater than one year. Neither UroQuest nor Sub are in
breach of or in default under any of the contracts, obligations or commitments
to which it is a party, including, but not limited
19
<PAGE> 25
to those set forth in Section 3.15 of the UroQuest Disclosure Schedule, and no
event has occurred that, with the giving of notice or the lapse of time or both,
would constitute a breach or default by UroQuest, except as would not have a
Material Adverse Effect on UroQuest.
3.16 No Misrepresentation. No representation or warranty by
UroQuest and Sub in this Agreement, nor any statement, document, certificate or
schedule furnished by or on behalf of UroQuest or Sub pursuant to this
Agreement, contains or will contain any untrue statement of material fact or
omits or will omit to state a material fact necessary to make statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BMT
BMT hereby represents and warrants to UroQuest as follows:
4.01 Organization, Good Standing, Power, Etc. Each of BMT and
Bivona is a corporation duly organized and validly existing under the laws of
its state of Indiana and has all requisite corporate power and authority to own,
operate and lease its respective properties and assets and to carry on its
respective businesses as now being conducted. Each of BMT and Bivona is duly
qualified to do business and is in good standing as a foreign corporation or
other entity in each other jurisdiction in which the ownership, operation or
leasing of its properties or assets or the nature of its business require such
qualification, except where the failure so to qualify would not have a Material
Adverse Effect on BMT or Bivona. BMT has furnished to UroQuest true, correct and
complete copies of its Articles of Incorporation and By-laws and the Articles of
Incorporation and By-laws of Bivona, in each case as amended and supplemented to
the date hereof.
4.02 Subsidiaries. Section 4.02 of the disclosure schedule
delivered by BMT to UroQuest on or before the date of
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<PAGE> 26
this Agreement (the "BMT Disclosure Schedule") sets forth all of the
Subsidiaries of BMT and Bivona, together with the authorized and outstanding
shares of capital stock of each. Except for the Subsidiaries, or as otherwise
listed in Section 4.02 of the BMT Disclosure Schedule, neither BMT, Bivona nor
any of their Subsidiaries directly or indirectly owns any voting securities in
any other corporation or other entity.
4.03 Authorization of Agreement, Etc.
(a) BMT has all requisite corporate power and authority to
enter into and perform all of its obligations under this Agreement. The
execution and delivery of this Agreement by BMT and the consummation by BMT of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of BMT, subject only to the approval of the common
shareholders of BMT. This Agreement has been duly executed and delivered by BMT
and constitutes the legal, valid and binding obligation of BMT, enforceable
against BMT in accordance with its terms except as enforceability may be subject
to (i) any applicable bankruptcy, insolvency, reorganization or other law
relating to or affecting creditors' rights generally and (ii) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(b) Neither the execution and delivery of this Agreement by
BMT, nor the consummation of the transactions contemplated hereby to be
performed by BMT, will (i) violate or conflict with any provision of the
Articles of Incorporation, as amended, or By-laws, as currently in effect, of
BMT or Bivona or (ii) violate or conflict with any provision of any law, rule,
regulation, order, permit, certificate, writ, judgment, injunction, decree,
determination, award or other decision of any Governmental Entity, other
regulatory or self-regulatory body or association or arbitrator binding upon BMT
or Bivona or any of their respective properties, except where such violations or
conflicts would not in the aggregate have a Material Adverse Effect on BMT or
Bivona or a material adverse effect on the ability of BMT to consummate the
transactions contemplated hereby and except for violations that will be cured,
waived or terminated prior to the Effective Time of the Merger.
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<PAGE> 27
(c) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby to be performed by BMT
will result in a breach of or constitute a default (or with notice or lapse of
time or both result in a breach of or constitute a default) under, or give rise
to a right of termination, cancellation, acceleration or repurchase of any
obligation or a right of first refusal with respect to any material property or
asset or a loss of a material benefit or the imposition of a material penalty
under, any of the terms, conditions or provisions of (i) any mortgage,
indenture, loan or credit agreement or any other agreement or instrument
evidencing indebtedness for money borrowed to which BMT or Bivona is a party or
by which it or Bivona or any of their respective properties is bound, or
pursuant to which BMT or Bivona has guaranteed the indebtedness or preferred
stock of any person or entity, or (ii) any lease, license, tariff, contract or
other agreement or instrument to which BMT or Bivona is a party or by which it
or Bivona or any of their properties is bound, except in the case of each of
clauses (i) and (ii) above, (x) for any such breaches, defaults, rights, losses
or penalties that do not have any Material Adverse Effect on BMT or a material
adverse effect on the ability of BMT to consummate the transactions contemplated
hereby, and (y) for such third party consents as will be obtained prior to the
Effective Time of the Merger.
(d) Neither the execution and delivery by BMT of this
Agreement nor the consummation of the transactions contemplated hereby to be
performed by BMT will result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature upon or with respect to any of the properties or other
assets owned by BMT and Bivona, except where such would not in the aggregate
have a Material Adverse Effect on BMT or Bivona or a material adverse effect on
the ability of BMT to consummate the transactions contemplated hereby.
(e) No consent, approval, order, certificate or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to BMT or Bivona in connection with the execution
and delivery of this Agreement by BMT or the consummation by BMT of the
transactions
22
<PAGE> 28
contemplated hereby, other than such filings or registrations which, if not
made, and such authorizations, consents or approvals which, if not received,
would not in the aggregate have a Material Adverse Effect on BMT or Bivona or a
material adverse effect on the ability of BMT to consummate the transactions
contemplated hereby.
(f) Each of BMT and Bivona have made or obtained each
registration, filing, submission, license, permit, certificate, determination or
governmental approval necessary to enable it to carry on its business, except
for those which the failure to make or obtain does not have a Material Adverse
Effect on BMT or Bivona. All such registrations, filings and submissions with
any Governmental Entity relating to the operations of BMT and Bivona were in
material compliance with applicable law when filed, and to the knowledge of BMT
no material deficiencies have been asserted by any such authority with respect
to such registrations, filings or submissions.
4.04 Capitalization.
(a) At the Effective Time of the Merger, all of the
outstanding shares of capital stock of Bivona shall be duly authorized and
validly issued and shall be fully paid and nonassessable and held of record and
beneficially by BMT.
(b) The authorized capital stock of BMT consists of 1,000,000
common shares of BMT Common Stock, without par value. On the date of this
Agreement, there were 676,000 shares of BMT Common Stock issued and outstanding.
There are no outstanding options, warrants or other rights to purchase shares of
BMT Common Stock. All the shares of capital stock of BMT which are outstanding
as of the date hereof are duly authorized, validly issued and are fully paid and
nonassessable, and are not or will not be subject to, or issued in violation of,
any preemptive rights. Except as set forth above or in Section 4.04 of the BMT
Disclosure Schedule, there are no shares of capital stock of BMT authorized or
outstanding, and there are no subscriptions, options, warrants or other rights
to purchase shares of the capital stock of BMT, and no conversion or exchange
rights, preemptive rights or other agreements, claims or commitments of any
nature whatsoever (whether firm or conditional) to which BMT
23
<PAGE> 29
is a party obligating BMT to issue, transfer, deliver or sell, or cause to be
issued, transferred, delivered or sold, additional shares of the capital stock
or other securities or interests of BMT or obligating BMT to grant, extend or
enter into any such agreement or commitment.
4.05 Financial Statements. BMT has delivered to UroQuest the
audited consolidated balance sheet of BMT as of December 31, 1995 (the "Balance
Sheet Date") and the related audited consolidated statements of income and
stockholders' equity of BMT for the three years then ended, together with the
notes related thereto, certified by Grant Thornton. All items referred to above
are collectively referred to hereby as the "BMT Financial Statements." Except as
set forth in Section 4.05 of the BMT Disclosure Schedule, each such BMT
Financial Statement (and the notes relating thereto) was prepared in conformity
with generally accepted accounting principles consistently applied (except for
the absence of notes, in the case of the unaudited financial statements), is
true, complete and correct in all material respects and fairly presents the
consolidated financial condition of BMT as of the respective date thereof and
the related consolidated results of operations, stockholders' equity and cash
flows in conformity with generally accepted accounting principles.
4.06 Absence of Certain Changes or Events. Except as has
occurred in the ordinary course of business consistent with prior practices, or
as set forth in Section 4.06 of the BMT Disclosure Schedule, since the Balance
Sheet Date, neither BMT nor any Subsidiary thereof has (i) borrowed or loaned,
or agreed to borrow or loan, funds (ii) incurred or become subject to, or agreed
to incur or become subject to, any material obligation or liability, contingent
or otherwise, except liabilities incurred, and obligations under contracts
entered into, in the ordinary course of its business, (iii) declared, set aside
or paid any dividend or other distribution (whether in cash, stock or property)
in respect of its capital stock, (iv) mortgaged, pledged or subjected to lien,
charge or other encumbrance, or agreed so to do, any of the assets material to
the operation of its business, tangible or intangible, (v) sold, assigned,
transferred, conveyed, leased or otherwise disposed of or agreed to sell,
assign, transfer, convey, lease or otherwise dispose of
24
<PAGE> 30
any material assets or properties, or the sale of inventory, in the ordinary
course of business, (vi) canceled or compromised any debt or claim, except for
immaterial adjustments made in the ordinary course of business, or waived or
released any rights, regardless of whether in the ordinary course of business,
which, in the aggregate, are material, (vii) increased, or agreed to increase,
the monthly rate of compensation payable or to become payable by it to any of
its officers, directors or other key management employees over the rate being
paid to them or accrued for at the Balance Sheet Date, (viii) increased, or
agreed to increase, the rate of compensation payable or to become payable by it
to any of its employees (other than officers, directors and other key management
employees) over the rate being paid to them or accrued for at the Balance Sheet
Date, or other than in accordance with its established procedures for annual or
other periodic reviews and increments, (ix) made or permitted, or agreed to make
or permit, any material amendment or termination of any material contract,
mortgage, lease, license, agreement or other instrument to which it is a party
or by which any of its properties or assets are bound, (x) made, or agreed to
make, any accrual or arrangement for or payment of bonuses or special
compensation in excess of $25,000 of any kind to any employee (or $100,000 in
the aggregate for all employees), (xi) directly or indirectly paid, or agreed to
pay, any severance or termination pay to any employee in excess of $10,000 (or
$50,000 in the aggregate for all employees) which was not accrued for at the
Balance Sheet Date, (xii) made, or agreed to make, any changes in its accounting
methods or practices, (xiii) entered into or modified in any material respect
any contract with any officer, director or stockholder of BMT or Bivona or with
any entity in which any such officer, director or stockholder has a 10% or more
equity interest (a "Related Party"), (xiv) made capital expenditures which, in
the aggregate, exceed $100,000, or, entered into any commitment therefor, or
(xv) experienced any Material Adverse Effect.
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4.07 Employee Benefit Plans.
(a) Employee Welfare Benefit Plans. Section 4.07 of the BMT
Disclosure Schedule lists each and every Bivona Welfare Benefit Plan, and BMT
has prior to the date of this Agreement delivered or made available to UroQuest
true and complete copies of each and every Bivona Welfare Benefit Plan together
with all documents or instruments establishing or constituting any related trust
or other funding instrument.
(i) Except as disclosed on Section 4.07 of the
BMT Disclosure Schedule, no Bivona Welfare
Benefit Plan provides for continuing
benefits or coverage for any participant or
beneficiary of a participant after such
participant's termination of employment,
except to the extent required by law;
provided that any disclosure shall set
forth: (1) the number of individuals
currently receiving such continuing benefits
or coverage; (2) the limit on Seller's
liability with respect to such coverage; (3)
the terms and conditions of such coverage;
and (4) the maximum number of current
employees or independent contractors of
Seller who could become eligible for such
continuing benefits or coverage.
(ii) Except as disclosed on Section 4.07 of the
BMT Disclosure Schedule, no Bivona Welfare
Benefit Plan is a "multiple employer welfare
arrangement" within the meaning of ERISA
3(40).
(iii) Bivona does not maintain any self insured
Bivona Welfare Benefit Plan.
(iv) Except as disclosed on Section 4.07
of the BMT Disclosure Schedule,
Bivona and BMT do not maintain and
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<PAGE> 32
do not have any obligation to
contribute to any "voluntary
employees' beneficiary association"
within the meaning of Code
501(c)(9) or other funding
arrangement for the provision of
welfare benefits (such disclosure
to include the amount of any such
funding).
(v) Except as disclosed on Section 4.07 of the
BMT Disclosure Schedule, no Bivona Welfare
Benefit Plan is intended to satisfy Code
125.
(vi) All of the Bivona Welfare Benefit
Plans, to the extent applicable,
are in compliance with the
continuation of group health
coverage provisions contained in
Section 4980B of the Code and
Sections 601 through 609 of ERISA
and Section 1862(b)(1) of the
Social Security Act, except for
such instances of noncompliance
that would not in the aggregate
have a Material Adverse Effect on
BMT or Bivona.
(b) Employee Pension Benefit Plans.
(i) Section 4.07 of the BMT Disclosure
Schedule lists each and every Bivona
Pension Benefit Plan and BMT has prior
to the date of this Agreement delivered
or made available to UroQuest true and
complete copies of each and every such
Bivona Pension Benefit Plan together
with such copies of all documents or
instruments establishing or constituting
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<PAGE> 33
any related trust or other funding
instruments.
(ii) Except as set forth in Section 4.07
of the BMT Disclosure Schedule, as
of the date hereof, no Pension
Benefit Plan that is subject to
Title IV of ERISA has benefit
liabilities (as defined in
Section 4001(a)(16) of ERISA)
exceeding the assets of such plan.
(iii) None of the Pension Benefit Plans
has incurred any accumulated
funding deficiency (as defined in
Section 302 of ERISA and
Section 412 of the Code), whether
or not waived; and all accrued
contributions, premiums and other
payments that would be but are not
yet due from BMT or Bivona to (or
under) any Bivona Pension Benefit
Plan listed in Section 4.07 of the BMT
Disclosure Schedule have been adequately and
properly reserved for.
(iv) Each Bivona Pension Benefit Plan
intended to qualify under Section
401(a) of the Code has been
determined by the Internal Revenue
Service to so qualify and each
trust maintained pursuant thereto
has been determined by the IRS to
be exempt from taxation under
Section 501 of the Code. Except as
disclosed in Section 4.07 of the
BMT Disclosure Schedule, nothing
has occurred since the date of the
IRS's favorable determination
letter that could adversely affect
the qualification of any such plan
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and its related trust. Bivona
timely and properly applied for a
written determination by the IRS on
the qualification of each such
Bivona Pension Benefit Plan and its
related trust under Section 401(a)
of the Code, as amended by the Tax
Reform Act of 1986 and subsequent
legislation enacted through the
date hereof, and Section 501, and
has made or will make any changes
required by the IRS as a condition
to the issuance of a favorable
determination letter.
(v) No "reportable event" within the meaning of
Section 4043(c)(2), (2), (3), (5), (6), (7),
(10) or (13) has occurred and is continuing
with respect to any Bivona Pension Benefit
Plan.
(c) ERISA, Code and Other Laws Compliance. All Bivona Pension
Benefit Plans and Bivona Welfare Benefit Plans and any related trust agreements
or any other document relating to the funding of such plans in all material
respects comply and have complied in the past with the provisions of ERISA, the
Code, any predecessor to the Code, and the Age Discrimination in Employment Act.
Each Bivona Pension Benefit Plan intended to qualify under Section 401(a) of the
Code satisfies the requirements of Section 401(a) and 501(a) of the Code. No
benefits provided or to be provided under a Bivona Welfare Benefit Plan will
result in the imposition of material excise taxes under Section 4976 of the
Code. No Bivona Welfare Benefit Plan or related trust has or will have been
deemed to have unrelated business income under Section 512(a)(3) of the Code.
(d) Administration of Plans. Except as set forth in Section
4.07 of the Bivona Disclosure Schedule, the administration of all Bivona Pension
Benefit Plans and all Bivona Welfare Benefit Plans has been consistent with and
in compliance in all material respects with applicable requirements of the Code,
ERISA and any other applicable law, including, without
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limitation, compliance on a timely basis with all requirements for reporting and
disclosure concerning each Bivona Welfare Benefit Plan and Bivona Pension
Benefit Plan.
(e) Bivona has not incurred any withdrawal liability with
respect to any multiemployer plan within the meaning of Sections 4201 and 4204
of ERISA. No liabilities exist with respect to withdrawals from any
multiemployer plans that could subject BMT or Bivona to any controlled group
liability under Section 4001(b) of ERISA.
(f) There is no suit, action, dispute, claim, arbitration or
legal, administrative or other proceeding or governmental investigation pending,
or, to the best knowledge of BMT or Bivona, threatened, alleging any breach of
the terms of any plan or of any fiduciary duties thereunder or violation of any
applicable law with respect to any Bivona Pension Benefit Plan or Bivona Welfare
Benefit Plan, nor, to the best knowledge of BMT or Bivona, any arbitration,
proceeding or investigation.
(g) BMT, Bivona and each "party in interest" (as defined in
ERISA 3(14)) or "disqualified person" (as defined in Code Section 4975)
with respect to any Bivona Pension Benefit Plan or Bivona Welfare Benefit Plan
has not engaged in a "prohibited transaction" within the meaning of Code
4975 or ERISA 406.
(h) Other Employee Benefit Arrangements. BMT has delivered to
UroQuest and every other personnel policy, employment agreement, stock option
plan, collective bargaining agreement, bonus, incentive award, vacation pay,
severance pay, consulting agreement or any other employee benefit plan,
agreement, arrangement or understanding which BMT or Bivona maintains or has
maintained at any time since October 1, 1992, or to which BMT or Bivona
contributes, is required to contribute or has contributed and which is not
required under Section 4.07(a) or (b) above to be listed in Section 4.07 of the
BMT Disclosure Schedule (including with respect to any such matters that are
unwritten, a written description of eligibility, participation, benefits,
funding arrangements, assets and any other matters which relate to the
obligations of BMT or Bivona).
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(i) Other Plan Documents; Reports. True and complete copies of
each plan, trust, agreement, arrangement or understanding referred to in this
Section 4.07 and any amendments thereto, the most recent determination letter
issued by the IRS with respect to each Bivona Pension Benefit Plan, annual
reports on Form 5500 financial statements and actuarial reports (if any)
required to be filed with any governmental agency for each Bivona Welfare
Benefit Plan and each Bivona Pension Benefit Plan for the five most recent plan
years, as well as all summary plan descriptions, summaries of material
modifications and all other written material communications to employer relating
to such plans for the same period have been delivered or made available by BMT
to UroQuest. Each plan listed on Section 4.07 of the BMT Disclosure Schedule may
be amended or terminated to the extent provided in accordance with its terms.
(j) No Union Contracts. Neither BMT nor Bivona has ever been a
party to any agreement with, and no employees are or have been represented by,
any union or collective bargaining unit.
4.08 Brokers and Finders. No person has acted on behalf of BMT
or Bivona in connection with any negotiations relative to this Agreement and the
transactions contemplated hereby, and such negotiations have been carried on by
such parties without intervention of any person acting on behalf of either BMT
or Bivona, in such a manner as to give rise to any valid claim or a brokerage
commission, finder's fee or any other like payment against UroQuest, Sub, BMT,
Bivona, or the stockholders thereof.
4.09 Defaults. Neither BMT nor Bivona is in default in any
material respect under any borrowings or leases of material properties, and
there has not occurred any event which, with or without the giving of notice or
the lapse of time or both, would constitute such a default by BMT or Bivona.
4.10 Tax Matters.
(a) Each of BMT and its Subsidiaries has filed all Tax Returns
that it was required to file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by any of
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BMT and its Subsidiaries (whether or not shown on any Tax Return) have been
paid. None of BMT and its Subsidiaries currently is the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever been
made by an authority in a jurisdiction in which any of BMT and its Subsidiaries
do not file Tax Returns that they are or may be subject to taxation by that
jurisdiction. There are no security interests or liens on any of the assets of
any of BMT and its Subsidiaries that arose in connection with any failure (or
alleged failure) to pay any Tax.
(b) Each of BMT and its Subsidiaries has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or other third
party.
(c) Neither BMT nor its Subsidiaries expects any authority to assess
any additional Taxes for any period for which Tax Returns have been filed. There
is no dispute or claim concerning any Tax liability of any of BMT and its
Subsidiaries either (i) claimed or raised by any authority in writing or (ii) as
to which any of the directors and officers (and employees responsible for Tax
matters) of BMT and its Subsidiaries has knowledge based upon personal contact
with any agent of such authority. Section 4.10(c) of the Disclosure Schedule
lists all federal, state, local, and foreign income Tax Returns filed with
respect to any of BMT and its Subsidiaries for taxable periods ended on or after
October 2, 1992, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. BMT has
delivered to the Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by any of BMT and its Subsidiaries since October 2, 1992.
(d) None of BMT and its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(e) Since October 2, 1992, none of BMT or its Subsidiaries has filed a
consent under Section 341(f) of the Code concerning collapsible corporations.
None of BMT and its Subsidiaries has made any payments, is obligated to make any
payments, or is a
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party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Section 280G of the Code.
None of BMT and its Subsidiaries has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. None of BMT
and its Subsidiaries is or was a party to any Tax allocation or sharing
agreement. None of BMT and its Subsidiaries since October 2, 1992 (i) has been a
member of an affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which was BMT, or (ii) has any
liability for the Taxes of any Person (other than any of BMT and its
Subsidiaries) under Reg. Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
(f) BMT shall provide to UroQuest on or before July 15, 1996 the
following information with respect to each of BMT and its Subsidiaries (or, in
the case of clause (ii) below, with respect to each of the Subsidiaries) as of
the most recent practicable date (as well as on an estimated pro forma basis of
the Closing giving effect to the consummation of the transactions contemplated
hereby): (i) the basis of BMT or its Subsidiaries in its assets; (ii) the basis
of the stockholders of the Subsidiaries in their stock (or the amount of any
Excess Loss Account); (iii) the amount of any net operating loss, net capital
loss, unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to BMT and its Subsidiaries; and (iv) the
amount of any deferred gain or loss allocable to BMT or its Subsidiaries arising
out of any Deferred Intercompany Transaction.
(g) The unpaid Taxes of BMT and its Subsidiaries: (i) did not, as of
the most recent fiscal month end, exceed the reserve for Tax liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the most recent BMT
Balance Sheet (rather than in any notes thereto), and (ii) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of BMT and its Subsidiaries in
filing their Tax Returns.
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4.11 Trademarks, Copyrights, Etc. Section 4.11 of the BMT
Disclosure Schedule sets forth: (i) a list of all federal, state and foreign
patent, trademark, trade name, service marks and copyright registrations of BMT
and Bivona and (ii) a list of all agreements, obligations and commitments under
which such patents, trademarks, trade names, service marks, copyrights or other
proprietary rights of BMT or Bivona have been licensed, encumbered or otherwise
transferred, in whole or in part, to other parties. BMT and Bivona own or have
the right to use, without any material payment to any other party, all of the
patents, trademarks (registered or unregistered), trade names, service marks and
copyrights used in their businesses as currently conducted and the consummation
of the Merger will not alter or impair the ability to use such rights in any
material adverse respect. Except as provided in Section 4.11 of the BMT
Disclosure Schedule, there have not been asserted against BMT or Bivona any
claims that any product, activity or operation of BMT or Bivona infringes upon,
or had resulted in the infringement of, any proprietary right of any other
person, corporation or other entity; and no proceedings have been instituted,
are pending or, to the knowledge of BMT or Bivona , are threatened which
challenge the rights of BMT or Bivona with respect thereto.
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4.12 Title to Properties; Absence of Liens and Encumbrances;
Leases, Etc.
(a) Section 4.12 of the BMT Disclosure Schedule lists of the
real properties owned by BMT or Bivona. Each of BMT and Bivona has the ownership
in fee and good marketable title to all real property owned by it, if any, and
good title to its other owned properties and assets, tangible and intangible,
including, without limitation, the properties and assets reflected in the
December 31, 1995 balance sheet in the BMT Financial Statements ("BMT Balance
Sheet") (except personal properties since sold or otherwise disposed of in the
ordinary course of business and except for personal properties and assets not
material to the operation of its business), free and clear of all mortgages,
liens, pledges, charges and encumbrances of any nature whatsoever, except (i) as
reflected in the BMT Balance Sheet, (ii) liens in respect of pledges or deposits
under workmen's compensation, unemployment insurance, social security and public
liability laws and other similar legislation, (iii) liens imposed by law, such
as carriers', warehousemen's or mechanics' liens incurred in good faith in the
ordinary course of business, (iv) liens for property taxes accrued, but not yet
payable, and (v) such imperfections of title and other encumbrances, if any,
which do not in the aggregate materially interfere with the use of such
properties or assets or otherwise materially impair the business operations of
BMT or Bivona.
(b) Section 4.12 of the BMT Disclosure Schedule lists all of
the real properties leased by BMT or Bivona. BMT has previously made available
to UroQuest correct and complete copies of all leases or agreements under which
BMT or Bivona is lessee of, or holds or operates, any real property owned by any
third party which is material to the operation of its business. BMT is not in
material default under the terms of any such lease or agreement. Each such lease
under which the lessor is a Related Party has been identified on Section 4.12 of
the BMT Disclosure Schedule and was, at the time entered into, on terms not
materially less favorable to BMT than if made with an independent third party in
an arm's-length transaction. BMT, and to the knowledge of BMT, each lessor, have
in all material respects performed all the obligations required to be performed
by them to date and are not in default in any material respect under any
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such lease or agreement. None of the rights of BMT in such property under any
such lease or agreement is subject to termination as the result of the
transactions contemplated by this Agreement.
(c) All structures and other improvements located on such real
property and other tangible personal property material to the conduct of the
business of BMT are in good operation condition and repair, subject to ordinary
wear and tear. BMT is not in violation of any applicable zoning regulation,
ordinance or other similar laws, order, regulation or requirement relating to
its operations or properties which, if enforced, would have a Material Adverse
Effect on BMT.
4.13 Litigation. Except where (individually or in the
aggregate) such would not have a Material Adverse Effect upon BMT or Bivona:
(a) There is no claim, action, suit, proceeding, arbitration,
or to the knowledge of BMT or Bivona any investigation or inquiry, before any
Governmental Entity, other regulatory or self-regulatory body or association or
arbitrator, now pending or, to the knowledge of BMT or Bivona, threatened
against BMT or Bivona or the assets, properties or business of BMT or Bivona or
that questions the validity of this Agreement.
(b) There is not in existence any order, judgment or decree of
any Governmental Entity, other regulatory or self-regulatory body or association
or arbitrator enjoining or prohibiting BMT or Bivona from taking, or requiring
BMT or Bivona to take, any action of any kind to which BMT or Bivona is a party
or which specifically names BMT or Bivona.
(c) Neither BMT nor Bivona is in default in any respect under
any order, writ, injunction or decree of any Governmental Entity, other
regulatory or self-regulatory body or association or arbitrator outstanding
against any of them where such default would have a Material Adverse Effect on
BMT or Bivona.
4.14 No Misrepresentation. No representation or warranty by
BMT in this Agreement, nor any statement,
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certificate, document or schedule furnished by or on behalf of BMT pursuant to
this Agreement, contains or will contain any untrue statement of material fact
or omits or will omit to state a material fact necessary to make statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading. The information provided by BMT, Bivona or the officers or
directors of BMT or Bivona for inclusion in the Registration Statement does not
contain any untrue statement of material fact or omit to state any material fact
required in order to make the statements with regard to BMT, Bivona or the
officers and directors of BMT or Bivona in the Registration Statement, in light
of the circumstances under which they are made, not misleading.
4.15 Compliance with Laws. Except where non-compliance would
not have a Material Adverse Effect upon BMT or Bivona, each of BMT and Bivona is
in compliance in all material respects with all Legal Requirements applicable to
any of its properties or assets and/or the ownership, operation and use thereof,
and neither BMT or Bivona has received notice of any noncompliance or alleged
noncompliance with any Legal Requirement relating or applicable to any of its
properties or assets or to the operation of its business, the existence or
enforcement of which would have a material adverse effect on BMT or Bivona's
ability to operate them on the same basis as currently conducted and operated or
which would require the payment of material refunds, fines, penalties or
restitution in respect of matters occurring prior to the Effective Time of the
Merger.
4.16 Environmental Compliance. Except as set forth in Section
4.16 of the Bivona Disclosure Schedule, to the best knowledge of BMT:
(a) Neither BMT nor Bivona, or any executive officer thereof,
has received any notice or other communication concerning (i) any violation or
alleged or probable violation of any Environmental Requirements, whether or not
corrected to the satisfaction of the appropriate authority, or (ii) any alleged
liability for Environmental Damages in connection with any real property owned
or leased by Bivona or BMT, or material transported to, from or across any real
property. There is no lawsuit, claim, proceeding, citation, directive, summons
or
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investigation pending or threatened relating to the ownership, use, maintenance
or operation of any real property owned or leased by Bivona or BMT by any person
or governmental authority, or relating to any alleged violation of any
applicable Environmental Requirements or the suspected presence of any Hazardous
Materials thereon, and no reasonable basis exists for the institution or filing
of any such lawsuit, claim, proceeding, citation, directive, summons or
investigation.
(b) No Hazardous Materials are produced, used or incorporated
in any construction, deposited, stored, located or otherwise present at, on,
under, in or about any real property owned or leased by BMT or Bivona.
(c) No underground improvement, including without limitation,
treatment or storage tank, is located on any real property owned or leased by
Bivona or BMT.
(d) All real property owned or leased by BMT and Bivona and
all current and past activities thereon, including without limitation the use,
maintenance and operation of such real property and all activities and conduct
of business related thereto, currently comply and at all times in the past have
complied with all Environmental Requirements.
(e) BMT and Bivona (i) have all permits and licenses required
to be issued to them by any Governmental Entity with respect to all activities
conducted on all real property owned or leased by the Company and (ii) are in
full compliance in all material respects with the terms and conditions of such
permits and licenses.
4.17 Material Contracts. To the extent not otherwise listed in
the Bivona Disclosure Schedule, Section 4.17 of the Bivona Disclosure Schedule
lists, and BMT has provided UroQuest with true and correct copies of, all of the
following to which BMT or Bivona are parties: (i) stock plans or agreements;
(ii) partnership or joint venture agreements; (iii) distributor agreements; (iv)
employment agreements (v) noncompetition agreements; or (vi) other contracts
providing for payments in the aggregate in excess of $50,000 or which have a
duration greater than one year. Neither BMT nor Bivona is in breach of or in
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default under any of the contracts, obligations or commitments to which it is a
party, including, but not limited to, those set forth in Section 4.17 of the
Bivona Disclosure Schedule, and no event has occurred that, with the giving of
notice or the lapse of time or both, would constitute a breach or default by BMT
and Bivona, except as would not have a Material Adverse Effect on BMT and
Bivona.
ARTICLE V
COVENANTS OF BMT
BMT covenants and agrees with UroQuest and Sub that, at all times prior
to the Effective Time of the Merger or the termination of this Agreement, BMT at
its expense will comply, and cause Bivona to comply, with all covenants and
provisions of this Article V, except to the extent UroQuest and Sub may
otherwise consent in writing or to the extent otherwise expressly required or
permitted by this Agreement.
5.01 Approvals. BMT shall (i) take all reasonable steps and
use all reasonable efforts necessary or desirable to recommend the granting of
and to obtain, as promptly as practicable, all approvals, authorizations,
certificates, franchises, licenses, consents and clearances of Governmental
Entities and of third parties, required of BMT to consummate the transactions
contemplated hereby, (ii) provide such other information and communications to
such Governmental Entities as UroQuest or such authorities may reasonably
request, and (iii) cooperate with UroQuest in obtaining, as promptly as
practicable, all approvals, authorizations, certificates, franchises, licenses,
consents and clearances of Governmental Entities required of UroQuest to
consummate the transactions contemplated hereby.
5.02 Investigation by UroQuest. BMT shall provide UroQuest,
its counsel, accountants, actuaries and other representatives with reasonable
access during normal business hours, to all facilities, officers, directors,
employees, agents, accountants, actuaries, assets, properties, books and records
of BMT and Bivona, and will furnish UroQuest and such other persons
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during such period with all such other information and data concerning the
business, operations and affairs of BMT and Bivona or the transactions
contemplated hereby as UroQuest or any of such other persons reasonably may
request.
5.03 Acquisition Proposals.
(a) From the date hereof until the earlier of the termination
of this Agreement or the Effective Time of the Merger, neither BMT nor Bivona
nor any of their controlling shareholders, officers, directors, employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by BMT) shall initiate or solicit,
directly or indirectly, any inquiries or the making of any proposal with respect
to a merger, share exchange, tender offer, consolidation, reorganization,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets of, or any equity interest in, BMT or Bivona
(an "Acquisition Proposal") or engage in any negotiations concerning, or provide
any confidential information or data to, or otherwise knowingly facilitate any
effort or attempt to make or implement an Acquisition Proposal, or to consummate
or commit to consummate any Acquisition Proposal. BMT and Bivona will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. BMT and Bivona will notify UroQuest orally (within one
(1) business day) and in writing (as promptly as practicable) if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with BMT.
5.04 Conduct of Business. BMT agrees that during the period
from the date of this Agreement to the Effective Time of the Merger, except as
expressly contemplated by this Agreement or to the extent that UroQuest may
otherwise consent in writing, each of BMT and Bivona will conduct its business
only in the ordinary course and consistent with past practice. Without limiting
the generality of the foregoing:
(a) BMT shall use all reasonable efforts to (i) preserve
intact BMT and Bivona's present business
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organization, reputation and customer and franchisee relations, (ii) keep
available the services of BMT and Bivona's present officers, employees, agents,
consultants and other similar representatives, (iii) maintain all material
licenses, qualifications and authorizations of each of BMT and Bivona to do
business in each jurisdiction in which it is so licensed, qualified or
authorized, (iv) maintain all material assets and properties of BMT and Bivona
in good working order and condition, ordinary wear and tear excepted and (v)
continue all current marketing and selling activities relating to the business,
operations or affairs of BMT and Bivona.
(b) BMT shall cause the books and records of BMT and Bivona to
be maintained in the usual manner and consistent with past practice and custom
and will not adopt a material change in any operational, financial reporting or
accounting practice or policy of BMT or Bivona or in any assumption underlying
such a practice or policy, or in any method of calculating any bad debt,
contingency or other reserve for financial reporting purposes or for other
accounting purposes.
(c) BMT and Bivona shall (i) prepare properly and file duly,
validly and timely all reports and all tax returns required to be filed with any
governmental or regulatory authorities with respect to the business, operations
or affairs of such corporation, and (ii) pay duly and fully all taxes indicated
by such tax returns or otherwise levied or assessed upon such corporation or any
of its assets and properties, and withhold or collect and pay to the proper
taxing authorities or hold in separate bank accounts for such payment all taxes
that such corporation is required to so withhold or collect and pay, unless such
taxes are being or will be contested in good faith and, if appropriate,
reasonable reserves therefor have been established and reflected in the books
and records of such corporation and in accordance with generally accepted
accounting principles consistently applied.
(d) BMT shall use all reasonable efforts to maintain in full
force and effect until the Effective Time of the Merger substantially the same
levels of coverage as the insurance afforded for BMT and Bivona under the
contracts in force as of the date of this Agreement.
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(e) BMT and Bivona shall comply, in all material respects,
with all Legal Requirements applicable to their business, operations or affairs,
except where the failure to comply would not have a Material Adverse Effect on
BMT or Bivona.
(f) Except in the ordinary course of business consistent with
past practice, neither BMT nor Bivona shall (i) enter into or execute any
contract, agreement, lease, indenture, note or other commitment; (ii) hire,
terminate, promote, transfer, change the salary or other form of compensation
of, grant any leave of absence to, or change any policies or employment
arrangements or agreements BMT or Bivona may have with respect to, the officers,
directors or employees of BMT or Bivona whose compensation in the last preceding
year (12 months) exceeded $50,000, or increase the annual level of compensation
of any other officer, director or employee of BMT or Bivona; (iii) make or
permit or agree to make or permit any material amendment or termination of any
material contract, mortgage, lease, license, agreement or other instrument to
which it is a party or by which any of its properties or assets are bound; or
(iv) waive or relinquish any of its material rights, claims or authority, or
give any material consents to action or inaction, under any of the agreements,
arrangements, commitments, leases or other bases of its rights or obligations.
(g) BMT agrees that during the period from the date of this
Agreement to the Effective Time of the Merger, except as expressly contemplated
by this Agreement or to the extent that UroQuest may otherwise consent in
writing, BMT and Bivona will not engage in any activity or suffer any event,
which would or reasonably would be expected to result in any of the
representations and warranties in Article IV being or becoming untrue in any
material respect, or has or reasonably would be expected to have a material
adverse effect on the ability of BMT to consummate the transactions contemplated
by this Agreement or a Material Adverse Effect on BMT.
5.05 No Charter Amendments. Neither BMT nor Bivona shall amend
or propose to amend its Articles of Incorporation or By-laws or take any action
with respect to any such amendment.
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5.06 No Issuance or Disposition of Securities. Neither BMT nor
Bivona shall (i) authorize or issue any shares of such corporation's capital
stock or other equity securities or enter into any contract granting any option,
warrant or right calling for the authorization or issuance of any such shares or
other equity securities, (ii) create or issue any securities directly or
indirectly convertible into or exchangeable for any such shares or other equity
securities, (iii) create or issue any options, warrants or rights to purchase
any such convertible securities, (iv) pledge, assign, transfer or otherwise
dispose of or encumber any shares of, or any options, warrants or rights to
purchase any shares of, any equity securities of BMT or Bivona, or (v) split,
combine or reclassify any equity securities of BMT or Bivona.
5.07 No Dividends. Neither BMT nor Bivona shall declare, set
aside or pay any dividend or other distribution in respect of its capital stock
or other equity securities, or directly or indirectly redeem, purchase or
otherwise acquire any shares of BMT or Bivona capital stock or other equity
securities, or any interest in or right to acquire any such shares or other
equity securities.
5.08 No Disposal of Property. Except as expressly provided in
this Agreement, neither BMT nor Bivona shall (i) dispose of or assign any of its
assets or properties or permit any of its assets and properties to be subjected
to any liens, except to the extent any such disposition or any such lien is made
or incurred in the ordinary course of the business consistent with past
practice, or (ii) sell any material part of its operations or business to any
third party.
5.09 No Acquisitions. Neither BMT nor Bivona shall (i) merge,
consolidate or otherwise combine or agree to merge, consolidate or otherwise
combine with any other person, (ii) acquire all or substantially all, or a
material portion of all, the assets, capital stock or other equity securities of
any other person, or any business division of any other person or (iii)
otherwise acquire control or ownership of any other person.
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5.10 No Breach or Default. Neither BMT nor Bivona shall
violate, breach or default, or take or fail to take any action that (with or
without notice or lapse of time or both) would constitute a violation, breach or
default under, any term or provision of any contract to which BMT or Bivona is a
party or by which any of their assets are or may be bound and as to which such
violation, breach or default, individually or in the aggregate, has or
reasonably would be expected to have a material adverse effect on the validity
or enforceability against BMT of this Agreement or a Material Adverse Effect on
BMT.
5.11 No Indebtedness. Except in the ordinary course of
business consistent with past practice and pursuant to the existing bank
revolving credit agreement, neither BMT nor Bivona shall create, incur, assume,
guarantee or otherwise become liable for any debt, obligation or other liability
for money borrowed.
5.12 Payment of Liabilities. Neither BMT nor Bivona shall
delay or postpone beyond normal past practice and custom the payment of any
material account payable or other debt, obligation or other liability.
5.13 Employee Matters.
(a) Continued Administration. Between the date of this
Agreement and the Effective Time of the Merger, BMT agrees to employ and cause
Bivona to employ all reasonable efforts to administer each and every Bivona
Pension Benefit Plan and Bivona Welfare Benefit Plan described in Section 4.07
in accordance with the provisions of the Code and ERISA in all material
respects, or cause them to be so administered.
(b) No Changes to Plans; Funding. Except in connection with
the transfer of the administration of Bivona's 401(k) Plan from NBD Bank to
First Chicago NBD to be effected July 1, 1996, between the date of this
Agreement and the Effective Time of the Merger, BMT agrees not to amend or
terminate, or allow Bivona to amend or terminate, partially or completely, any
Bivona Pension Benefit Plan or Bivona Welfare Benefit Plan employee benefit plan
described in Section 4.07 without the prior written consent of UroQuest.
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(c) Claims or Litigation. BMT agrees to notify UroQuest in
writing of receipt of any notice of investigation or administrative proceeding
by the IRS, Department of Labor, PBGC or other Governmental Entity, involving
any Bivona Pension Benefit Plan or Bivona Welfare Benefit Plan described in
Section 4.07, or of any action or claim by any person under any Bivona Pension
Benefit Plan or Bivona Welfare Benefit Plan described in Section 4.07 other than
ordinary and usual claims for benefits by participants or beneficiaries or
actions seeking qualified domestic relations orders, and promptly furnish to
UroQuest a copy of any such written notice.
(d) Other Employee Benefit Plans or Arrangements. BMT agrees
that after the Effective Time of the Merger any Bivona Welfare Benefit Plan,
Bivona Pension Benefit Plan or any other employee benefit plan described in
Section 4.07 may be amended, terminated or continued for the benefit of its
employees on or after the Effective Time of the Merger at the sole discretion of
the Surviving Corporation so long as the plan as amended, terminated or
continued complies with ERISA, the Code and other applicable law. No employee of
BMT or Bivona shall be entitled to benefits under any such employee benefit plan
from and after the Effective Time of the Merger except to the extent that either
(i) such benefits are expressly provided under the terms of said plan such as
the continuation of benefits or payment of earned but unpaid benefits in the
event of termination of coverage or (ii) UroQuest and/or BMT elects to continue
sponsorship from and after the Effective Time of the Merger of a particular
plan.
(e) Employee Benefit Plans. Prior to the Closing, BMT shall
cause each of the Bivona Pension Benefit Plan or Bivona Welfare Benefit Plan
listed on Schedule 4.07 that UroQuest and BMT have mutually agreed to be
terminated, to be terminated (i) in a manner such that BMT has no further
obligation with respect thereto, (ii) at no cost to BMT except for benefits
earned but unpaid prior to the termination and (iii) without any payments made
thereunder subject to the golden parachute provisions of Section 280G or Section
4999 of the Code. On or after the Closing, BMT shall take any and all actions
needed to transfer sponsorship of any Bivona Pension Benefit Plan or Bivona
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Welfare Benefit Plan that UroQuest elects in its sole discretion to adopt.
5.14 Stockholders' Meeting. To the extent not held prior to
the date of this Agreement, BMT shall duly call a meeting of all of the holders
of capital stock of BMT entitled to vote on the Merger Agreement and the Merger
to be held as soon as practicable for the purpose of voting upon and approving
this Agreement and the Merger and the transactions contemplated thereby, or, BMT
will seek a written consent in lieu of such meeting.
5.15 Notice and Cure. BMT shall notify UroQuest promptly in
writing of, and contemporaneously will provide UroQuest with true, complete and
correct copies of any and all information or documents relating to, and will use
all reasonable efforts to cure before the Effective Time of the Merger, any
event, transaction or circumstance that results in or will result in any
covenant or agreement of BMT under this Agreement to be breached in any material
respect, or that renders or will render untrue in any material respect any
representation or warranty of BMT contained in this Agreement as if the same
were made on or as of the date of such event, transaction or circumstance. BMT
will use all reasonable efforts to cure, at the earliest practicable date and
prior to the Effective Time of the Merger, any violation or breach of any
representation, warranty, covenant or agreement made by BMT in this Agreement,
whether occurring or arising before or after the date of this Agreement.
5.16 Furnish Information for UroQuest Statements. BMT shall
furnish UroQuest all the information concerning BMT and Bivona required for
inclusion in the Registration Statement, and in applications required under the
Blue Sky laws of various states respecting the shares of UroQuest Common Stock
to be issued in the Initial Public Offering, or in any statement or application
made by UroQuest to any Governmental Entity in connection with the transactions
contemplated in this Agreement. BMT will promptly notify UroQuest in writing
upon the occurrence of any material event which warrants the preparation and
filing of any amendment of or supplement to any such registration statement,
application or statement.
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ARTICLE VI
COVENANTS OF UROQUEST AND SUB
UroQuest and Sub covenant and agree with BMT that, at all times prior
to the Effective Time of the Merger, UroQuest and Sub at their expense will
comply with all covenants and provisions of this Article VI, except to the
extent BMT may otherwise consent in writing or to the extent otherwise expressly
required or permitted by this Agreement.
6.01 Approvals. UroQuest shall (i) take all reasonable steps
and use all reasonable efforts necessary or desirable to recommend the granting
of and to obtain, as promptly as practicable, all approvals, authorizations,
certificates, franchises, licenses, consents and clearances of Governmental
Entities and of third parties, required of UroQuest to consummate the
transactions contemplated hereby, (ii) provide such other information and
communications to such Governmental Entities as BMT or such authorities may
reasonably request, and (iii) cooperate with BMT in obtaining, as promptly as
practicable, all approvals, authorizations and clearances of Governmental
Entities required of BMT to consummate the transactions contemplated hereby.
6.02 Conduct of Business. UroQuest agrees that during the
period from the date of this Agreement to the Effective Time of the Merger,
except as expressly contemplated by this Agreement or to the extent that BMT may
otherwise consent in writing, UroQuest will not engage in any activity or suffer
any event, which would or reasonably would be expected to result in any of the
representations and warranties in Article IV being or becoming untrue in any
material respect, or has or reasonably would be expected to have a material
adverse effect on the ability of UroQuest to consummate the transactions
contemplated by this Agreement or a Material Adverse Effect on UroQuest or Sub.
6.03 Investigation by BMT. UroQuest shall provide BMT, its
counsel, accountants, actuaries and other representatives with reasonable access
upon prior notice and
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during normal business hours to all facilities, officers, directors, employees,
agents, accountants, actuaries, assets, properties, books and records of
UroQuest, and will furnish BMT and such other persons during such period with
all such other information and data concerning the business, operations and
affairs of UroQuest or the transactions contemplated hereby as BMT or any of
such other persons reasonably may request.
6.04 Registration. UroQuest shall prepare and file with the
Commission the Registration Statement as promptly as practicable, provided that
it shall have received from BMT all information with respect to BMT and Bivona
required to be included therein, and will use its reasonable efforts to cause
such Registration Statement to be declared effective under the 1933 Act.
UroQuest will notify BMT promptly of the receipt of any comments from the
Commission or its staff and of any requests by the Commission or its staff for
amendments or supplements to the Registration Statement or for additional
information, and will supply BMT with copies of all correspondence with the
Commission or its staff with respect to the Registration Statement. Nothing set
forth in this Section 6.04 shall require UroQuest or Sub to enter into an
underwriting agreement or allow to go effective a Registration Statement on
terms and conditions unsatisfactory to UroQuest and Sub.
6.05 Nasdaq Quotation. UroQuest shall use its reasonable
efforts to cause the shares of UroQuest Common Stock to be issued in the Merger
to be approved for quotation on the Nasdaq National Market, subject to official
notice of issuance, prior to the Closing.
6.06 Notice and Cure. UroQuest shall notify BMT promptly in
writing of, and contemporaneously will provide BMT with true, complete and
correct copies of any and all information or documents relating to, and will use
all reasonable efforts to cure prior to the Effective Time of the Merger, any
event, transaction or circumstance occurring after the date of this Agreement
that results in or will result in any covenant or agreement of UroQuest under
this Agreement to be breached, or that renders or will render untrue any
representation or warranty of UroQuest contained in this Agreement as if the
same were made on or as of the date of such event, transaction or circumstance.
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UroQuest also will use all reasonable efforts to cure, at the earliest
practicable date and before the Effective Time of the Merger, any violation or
breach of any representation, warranty, covenant or agreement made by it in this
Agreement, whether occurring or arising before or after the date of this
Agreement.
6.07 Reincorporation in Delaware. Prior to the consummation of
the Initial Public Offering, UroQuest shall reincorporate in Delaware under the
name UroQuest Medical Corporation.
6.08 No Issuance or Disposition of Securities. From the date
hereof until the earlier of the termination of this Agreement or the Effective
Time of the Merger, UroQuest shall not (i) authorize or issue any shares of such
corporation's capital stock or other equity securities or enter into any
contract granting any option, warrant or right calling for the authorization or
issuance of any such shares or other equity securities, (ii) create or issue any
securities directly or indirectly convertible into or exchangeable for any such
shares or other equity securities, (iii) create or issue any options, warrants
or rights to purchase any such convertible securities, (iv) pledge, assign,
transfer or otherwise dispose of or encumber any shares of, or any options,
warrants or rights to purchase any shares of, any equity securities of UroQuest,
or (v) split, combine or reclassify any equity securities of UroQuest.
Notwithstanding the foregoing, UroQuest may: (i) reincorporate in Delaware as
provided in Section 6.07; (ii) effectuate a 1-for-3.5 reverse stock split in
connection with such reincorporation; and (iii) authorize the issuance of shares
as are necessary or desirable in connection with the Initial Public Offering and
the transactions contemplated under this Agreement.
6.09 No Dividends. From the date hereof until the earlier of
the termination of this Agreement or the Effective Time of the Merger, UroQuest
shall not declare, set aside or pay any dividend or other distribution in
respect of its capital stock or other equity securities, or directly or
indirectly redeem, purchase or otherwise acquire any shares of its capital stock
or other equity securities, or any interest in or right to acquire any such
shares or other equity securities.
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6.10 No Disposal of Property; No Acquisitions. From the date
hereof until the earlier of the termination of this Agreement or the Effective
Time of the Merger, except as expressly provided in this Agreement, UroQuest
shall not (i) dispose of or sell any material part of its operations or business
to any third party, or (ii) (a) merge, consolidate or otherwise combine or agree
to merge, consolidate or otherwise combine with any other person, (b) acquire
all or substantially all, or a material portion of all, the assets, capital
stock or other equity securities of any other person, or any business division
of any other person or (c) otherwise acquire control or ownership of any other
person.
6.11 Activities of Sub. From the date hereof until the earlier
of the termination of this Agreement or the Effective Time of Merger, Sub shall
not engage in any activities of any nature except as provided in or contemplated
under this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF UROQUEST, SUB AND BMT
Notwithstanding any other provision of this Agreement, the obligation
of each of UroQuest, Sub and BMT to consummate the transactions contemplated
hereby shall be subject to the fulfillment, prior to or at the Effective Time of
the Merger, of each of the following conditions precedent, any one of which may
be waived by such entity:
7.01 Stockholder Approvals. The Merger Agreement and the
Merger shall have been approved and adopted by the affirmative vote of a
majority of the votes cast in person or by proxy by the holders of BMT Common
Stock and the holder of the Sub Common Stock.
7.02 Consents and Approvals. Other than the filings provided
in Section 2.02, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
Governmental
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Entity shall have been filed, occurred or been obtained, except in each case
where the failure of which to obtain would not have a Material Adverse Effect on
UroQuest, Sub or BMT.
7.03 Consummation of Offering. The Initial Public Offering
shall have been consummated.
7.04 No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall have been issued,
nor shall any proceeding brought by any domestic administrative agency or
commission or other domestic Governmental Entity, seeking any of the foregoing
be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted entered, enforced or deemed applicable to the Merger
which makes the consummation of the Merger illegal.
7.05 Stockholder Representation Letters. UroQuest shall have
received from each of the stockholders of BMT a letter in the form attached
hereto as Exhibit B (the "BMT Stockholder Letters"), containing representations
that such stockholder will acquire the shares of UroQuest Common Stock to be
issued to such stockholder in the Merger without a view to distribution thereof
in violation of the registration provisions of the Securities Act or any
applicable state securities laws and such other representations (including, if
necessary, representations from such stockholder's stockholder representative)
as UroQuest deems reasonably necessary to establish that the shares of UroQuest
Common Stock to be issued in the Merger will be issued have been issued in a
transaction that is exempt from registration under Regulation D under the
Securities Act or otherwise under Section 4(2) of the Securities Act and exempt
from registration under applicable state securities laws.
7.06 Tax Opinion. The parties shall have received tax opinions
(the "Tax Opinions") from Holland & Hart LLP and Baker & Daniels that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code.
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ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BMT
Notwithstanding any other provision of this Agreement, the obligation
of BMT to consummate the transactions contemplated hereby shall be subject to
the fulfillment, prior to or at the Effective Time of the Merger, of each of the
following conditions precedent, any of which may be waived by BMT:
8.01 Accuracy of Representations and Warranties. The
representations and warranties of UroQuest and Sub set forth in Article III
shall be true and correct in all material respects as of the date of this
Agreement and as of the Subsequent Closing with the same effect as though such
representations and warranties had been made at and as of the Subsequent Closing
except for such changes with respect thereto (i) which are contemplated by this
Agreement or the passage of time, or (ii) are attributable to the Merger
contemplated by this Agreement.
8.02 Performance of Covenants, Agreements and Conditions.
UroQuest and Sub shall have duly performed, complied with and satisfied in all
material respects all covenants, agreements and conditions required by this
Agreement to be performed, complied with or satisfied by it at or prior to the
Subsequent Closing.
8.03 Officers' Certificate, Etc. BMT shall have received a
certificate (the "UroQuest Certificate"), dated the date of the Subsequent
Closing and signed by the President and the Chief Financial Officer of UroQuest
and Sub, to the effect set forth in Sections 8.01 and 8.02.
8.04 Opinion of UroQuest Counsel. BMT shall have received an
opinion or opinions (the "UroQuest Opinion"), dated the date of the Subsequent
Closing, of Holland & Hart, LLP, counsel for UroQuest and Sub, in form and
substance satisfactory to BMT, to the effect that:
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(a) Sub is, and following reincorporation in Delaware UroQuest
shall be, corporations duly organized, validly existing and in good standing
under Delaware Law and each has all requisite corporate power and authority to
own, operate and lease its properties and assets and to carry on its business as
now being conducted;
(b) UroQuest and Sub have the requisite corporate power and
authority to enter into and perform its obligations under this Agreement; the
execution and delivery of this Agreement by UroQuest and the consummation by
UroQuest of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of UroQuest and Sub; and this
Agreement has been duly executed and delivered by UroQuest and Sub and
constitutes the legal, valid and binding obligation of UroQuest and Sub,
enforceable against UroQuest and Sub in accordance with its terms except as
enforceability may be subject to (i) any applicable bankruptcy, insolvency,
reorganization or other law relating to or affecting creditors' rights and (ii)
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law);
(c) Neither the execution and delivery of this Agreement by
UroQuest and Sub, nor the consummation of the transactions contemplated hereby
to be performed by UroQuest, will (i) violate or conflict with any provision of
the Articles of Incorporation, as amended, or By-laws, as currently in effect,
of UroQuest or Sub or (ii) violate or conflict with any provision of any
applicable law, rule or regulation, or of any order, permit, certificate, writ,
judgment, injunction, decree, determination, award or other decision known to us
of any Governmental Entity specifically naming UroQuest or Sub;
(d) No consent, approval, order, certificate or authorization
of, or registration, declaring or filing with, any Governmental Entity is
required by or with respect to UroQuest or Sub in connection with the execution
and delivery of this Agreement by UroQuest or the consummation by UroQuest or
Sub of the transactions contemplated hereby, other than the filing of
Certificates of Merger with the Delaware Secretary of State and
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the Indiana Secretary of State or in connection or compliance with applicable
state and federal securities laws; and
(e) The authorized capital stock of UroQuest after
reincorporation into Delaware consists of 31,000,000 shares of UroQuest Common
Stock and 5,000,000 shares of Preferred Stock; there are no options to purchase
any shares of capital stock of UroQuest outstanding other than as set forth in
Section 3.04 of the UroQuest Disclosure Schedule; and all shares of capital
stock of UroQuest to be issued in the Merger shall be duly authorized, validly
issued, fully paid and nonassessable, and are not subject to or issued in
violation of, any preemptive rights.
Holland & Hart LLP's opinion shall be limited in application to the
laws of the State of Utah, Delaware Law and the law of the United States.
Holland & Hart LLP may rely on an opinion of Florida counsel that all steps
required under Florida law to effectuate the reincorporation in Delaware have
been satisfied, that the execution and delivery of this Agreement is duly
authorized in accordance with Florida law, and such other matters are as
governed by Florida law.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF UROQUEST AND SUB
Notwithstanding any other provision of this Agreement, the obligations
of UroQuest and Sub to consummate the transactions contemplated hereunder shall
be subject to the fulfillment, prior to or at the Effective Time of the Merger,
of each of the following conditions precedent, any one of which may be waived by
UroQuest and Sub.
9.01 Accuracy of Representations and Warranties. The
representations and warranties set forth in Article IV shall be true and correct
in all material respects as of the date of this Agreement and as of the
Subsequent Closing with the same effect as though such representations and
warranties have been made at and as of the Subsequent Closing except for such
changes with respect thereto (i) which are contemplated by this Agreement
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or the passage of time, or (ii) are attributable to the Merger contemplated by
this Agreement.
9.02 Performance of Covenants, Agreements and Conditions. BMT
shall have duly performed, complied with and satisfied all covenants, agreements
and conditions required by this Agreement to be performed, complied with or
satisfied by it, at or prior to the Subsequent Closing.
9.03 Officers' Certificates, Etc. UroQuest and Sub shall have
received a certificate (the "BMT Certificate") dated the date of the Subsequent
Closing and signed by the President and Chief Financial Officer of BMT, to the
effect set forth in Sections 9.01 and 9.02.
9.04 Opinion of Counsel for BMT. UroQuest shall have received
an opinion (the "BMT Opinion"), dated the date of the Subsequent Closing, of
Baker & Daniels, counsel for BMT, in form and substance satisfactory to
UroQuest, to the effect that:
(a) Each of BMT and Bivona is a corporation duly organized and
validly existing under the laws of the state of Indiana and each of BMT and
Bivona has all requisite corporate power and authority to own, operate and lease
its respective properties and assets and to carry on its respective businesses
as now being conducted;
(b) BMT has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement; the execution and
delivery of this Agreement by BMT and the consummation by BMT of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of BMT; this Agreement has been duly executed and
delivered by BMT and constitutes the legal, valid and binding obligation of BMT,
enforceable against BMT in accordance with its terms except as enforceability
may be subject to (i) any applicable bankruptcy, insolvency, reorganization or
other law relating to or affecting creditors' rights and (ii) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law);
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(c) Neither the execution and delivery of this Agreement by
BMT nor the consummation of the transactions contemplated hereby to be performed
by BMT, will (i) violate or conflict with any provision of the Articles of
Incorporation, as amended, or By-laws, as currently in effect, of BMT or (ii)
violate or conflict with any provision of any law, rule, regulation, order,
permit, certificate, writ, judgment, injunction, decree, determination, award or
other decision known to us of any Governmental Entity specifically naming BMT;
(d) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to BMT or any of its subsidiaries in connection with the
execution and delivery of this Agreement by BMT or the consummation by BMT of
the transactions contemplated hereby, other than the filing of the Certificate
of Merger with the Indiana Secretary of State or in connection or compliance
with applicable state and Federal securities laws;
(e) The authorized capital stock of BMT consists of 1,000,000
shares of BMT Common Stock and all outstanding shares of capital stock of BMT
are duly authorized, validly issued, fully paid and nonassessable, and are not
subject to or issued in violation of, any preemptive rights; there are no
options to purchase any shares of capital stock of BMT outstanding other than as
set forth in Section 4.04 of the BMT Disclosure Schedule; and
9.05 Employment Agreements. Tom Brandt shall have entered into
an Employment Agreement with UroQuest and John M. Sandie, Harry M. Kaufman,
Stuart J. Marcadis and Joe H. Flake shall have entered into Employment
Agreements to be effective at the time of the Final Closing with Bivona, which
employment agreements shall include, among other things, non-competition and
confidentiality agreements and other terms and conditions satisfactory to the
parties. Such Employment Agreements are referred to herein as the "Employment
Agreements."
9.06 Stock Escrow. Tom Brandt shall have delivered an
Indemnification and Stock Pledge Agreement (the "Stock Pledge Agreement") which
shall include, among other things
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(a) Brandt's indemnification of UroQuest from and against any liabilities
arising out of or related to any of the representations and warranties of BMT
contained in this Agreement as being untrue, inaccurate or incomplete in any
material respect and (b) a pledge of part of Brandt's UroQuest Common Stock to
be received in this transaction for a period of two years. The Stock Pledge
Agreement shall be in form and substance satisfactory to the parties and shall
provide, among other things, for (i) a pledge of fifty percent of Brandt's stock
for the first year and a pledge of thirty percent of Brandt's stock during the
second year and (ii) a "basket" covering the initial $500,000 of claims for
which Brandt shall not be liable.
ARTICLE X
TERMINATION, AMENDMENTS AND WAIVER
10.01 Termination. This Agreement may be terminated at any
time prior to the Effective Time of the Merger (or such other time as
designated), whether before or after approval by the stockholders of BMT and
Sub:
(a) at any time prior to the Subsequent Closing, by mutual
consent of the Board of Directors of BMT and the Board of Directors of UroQuest
and the Board of Directors of Sub;
(b) by either the Board of Directors of BMT, the Board of
Directors of UroQuest or the Board of Directors of Sub if the Merger shall not
have been consummated on or before October 31, 1996 (provided that the right to
terminate this Agreement under this Section 10.01(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of the Merger to occur on or before such
date);
(c) by the Board of Directors of BMT or the Board of Directors
of UroQuest or the Board of Directors of Sub if there shall have been entered or
rendered against any of BMT, UroQuest or Sub or any of their respective
directors or officers in any action or proceeding referred to in Section 7.05,
an injunction
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or a judgment having one of the effects specified in such Section;
(d) by UroQuest, if, at the meeting of the holders of BMT
Common Stock (including any adjournment or postponement), the requisite vote of
the holders of BMT Common Stock in favor of the Merger Agreement and the Merger
shall not have been obtained;
(e) by BMT, if the requisite vote of the holders of Sub Common
Stock in favor of the Merger Agreement and the Merger shall not have been
obtained; or
(f) at any time prior to the Subsequent Closing, by BMT,
UroQuest or Sub, if there has been a breach of any representation, warranty,
covenant or agreement on the part of the other party set forth in this
Agreement, which breach (i) causes the conditions set forth in Sections 8.01 or
8.02 (in the case of termination by BMT) or Sections 9.01 or 9.02 (in the case
of termination by UroQuest or Sub) not to be satisfied and (ii) shall not have
been cured within ten (10) business days following receipt by the breaching
party written notice of such breach from the other party.
10.02 Effect of Termination. If BMT, UroQuest or Sub
terminates this Agreement as provided in the foregoing Section, this Agreement
will forthwith become void, and there will be no liability or obligation on the
part of BMT, UroQuest or Sub or their officers or directors except as set forth
in Section 12.02 (relating to expenses), 3.13 and 4.07 (relating to brokers or
finders), and 11.01 (relating to confidentiality), and except to the extent that
such termination results from the willful breach by a party of any of its
representations, warranties or agreements in this Agreement.
10.03 Amendment. This Agreement may be amended by the parties
hereto, by action taken (in the case of UroQuest, Sub or BMT) by their
respective Boards of Directors at any time before or after approval hereof by
the stockholders of BMT and Sub, but after any such approval by stockholders, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may
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not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
10.04 Waiver. Any term or provision of this Agreement may be
waived in writing at any time by BMT, if it is entitled to the benefits thereof,
or by UroQuest, if it is entitled to the benefits thereof.
ARTICLE XI
OTHER AGREEMENTS; NONSURVIVAL
OF REPRESENTATIONS AND WARRANTIES
11.01 Confidentiality. Except as may be required to comply
with applicable law and regulations or to obtain required regulatory approvals
to consummate this transaction (including the filing of the Registration
Statement), whether state, federal or foreign, the parties hereto will each use
its best efforts to keep confidential any and all information relating to this
transaction and to one another and will instruct its officers, employees and
other representatives having access to such information of such obligation or
confidentiality. In the event the transactions contemplated herein are not
consummated, each of the parties hereto shall return all documents, including
any copies thereof, to the party which provided the same.
11.02 Public Announcements. Any press release relating to this
Agreement shall be a joint press release and thereafter, so long as this
Agreement is in effect BMT and UroQuest agree that they will consult with each
other and give each other the opportunity to review and comment upon any press
release or any other written communication regarding the transactions
contemplated by this Agreement (including any written communication to
employees) and that they will use their best efforts to consult with one another
before otherwise making any public statement or responding to any press inquiry
with respect to this Agreement or the transactions contemplated hereby.
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11.03 Indemnification; Directors' and Officers' Insurance.
(a) UroQuest shall cause the Surviving Corporation, subject to
the terms set forth herein, to indemnify and hold harmless each present and
former director, officer, employee and agent of BMT and Bivona (the "Indemnified
Parties") and to advance costs and expenses (including reasonable attorneys'
fees) as incurred, in each case to the fullest extent permitted under applicable
law (provided the person to whom expenses are advanced provides an undertaking
to repay such advances if it is ultimately determined that such person is not
entitled to indemnification), in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to the transactions contemplated by
this Agreement for a period of five years after the Effective Time of the
Merger; provided that, in the event any claim or claims are asserted or made
within such five-year period, all rights to such indemnification and advancement
of expenses in respect of the defense of any such claim or claims shall continue
until final disposition of any and all such claims. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) the Surviving Corporation shall have the right to
assume the defense thereof and the Surviving Corporation shall not be liable to
the Indemnified Parties for any advancement of legal expenses of other counsel
or any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if the Surviving Corporation
elects not to assume such defense or if counsel for the Indemnified Parties
advises that there are issues which raise conflicts of interest between the
Surviving Corporation and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and the Surviving Corporation shall advance
all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that the
Surviving Corporation shall be obligated pursuant to this paragraph (b) to
advance expenses for only one firm of counsel for all Indemnified Parties in any
jurisdiction unless the use of one counsel for such Indemnified Parties would
present such counsel with a conflict of interest, and (ii) the Indemnified
Parties will cooperate in the defense of
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any such matter. Notwithstanding any provision set forth above, the Indemnified
Parties shall not be entitled to any indemnification rights which are greater
than those enjoyed by such persons immediately prior to the Merger pursuant to
the Articles of Incorporation and Bylaws of BMT and Bivona.
(b) The provisions of this Section 11.03 shall survive the
consummation of the Merger and shall be binding on all successors and assigns of
the Surviving Corporation. All of the Indemnified Parties (and their estates,
heirs and personal representatives) shall be entitled to enforce this Section
11.03 against the Surviving Corporation and its successors and assigns.
11.04 Additional Agreements. Subject to this Agreement, each
of the parties agrees to use its reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement. If at any time after
the Effective Time of the Merger any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each corporation that is a party to this Agreement will take all such necessary
action.
11.05 Available Remedies. Each party expressly agrees that,
consistent with its intention and agreement to be bound by the terms of this
Agreement and to consummate the transactions contemplated hereby, subject only
to the performance or satisfaction of conditions precedent, the remedy of
specific performance shall be available to a non-breaching and non-defaulting
party to enforce performance of this Agreement by a breaching or defaulting
party, including, without limitation, to require the consummation of the Closing
pursuant to Section 2.01.
11.06 Election of Director. Effective at the Effective Time of
the Merger, Tom Brandt shall be elected to the Board of Directors of UroQuest
and shall be recommended by the Board of Directors of UroQuest to its
shareholders to continue as a director for a period of 5 years, provided his
employment with UroQuest does not terminate.
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11.07 Nonsurvival of Representations and Warranties. The
representations and warranties of the parties hereby contained in Articles III
and IV shall expire at the Closing and be of no further force or effect.
ARTICLE XII
MISCELLANEOUS
12.01 Expenses. Except as otherwise provided herein, each of
BMT and UroQuest will pay its own costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby, including the fees and
expenses of its counsel, irrespective of when incurred and regardless of whether
the Merger is consummated.
12.02 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given if delivered
personally or sent by telex, facsimile transaction, a nationally recognized
overnight delivery service or registered or certified mail (return receipt
requested), postage prepaid, to the parties to this Agreement at the following
addresses or at such other address for a party as shall be specified by like
notice:
If to BMT:
BMT, Inc.
5700 West 23rd Avenue
Gary, IN 46406
Attn: President
With a copy to:
Baker & Daniels
300 North Meridian Street
Suite 2700
Indianapolis, IN 46204
Attn: Jeffrey M. Stautz, Esq.
If to UroQuest:
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UroQuest Medical Corporation
265 East 100 South
Suite 220
Salt Lake City, UT 84111-1616
Attn: President
With a copy to:
Holland & Hart LLP
215 South State Street
Suite 500
Salt Lake City, UT 84111
Attn: David R. Rudd, Esq.
If to Sub:
c/o UroQuest Medical Corporation
265 East 100 South
Suite 220
Salt Lake City, UT 84111-1616
Attn: President
All such notices and communications shall be deemed to have been received on the
date of delivery or on the third business day after the mailing thereof.
12.03 Entire Agreement. This Agreement (including the
documents and instruments referred to herein) constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements and undertakings, written and oral.
12.04 Binding Effect; Benefits. This Agreement shall be
binding upon and inure to the benefit of the parties to this Agreement and their
respective successors and permitted assigns. Except for (i) Indemnified Parties
to the extent provided in Section 11.03 and (ii) affiliates of UroQuest to the
extent provided in Sections 11.04(b), (c) and (d), nothing expressed or implied
in this Agreement is intended to or shall be construed to give any person other
than the parties to this Agreement or their respective successors or permitted
assigns any
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<PAGE> 69
legal or equitable right, remedy or claim under or in respect of this Agreement,
it being the intention of the parties to this Agreement that this Agreement
shall be for the sole and exclusive benefit of such parties or such successors
or assigns and for the benefit of no other person.
12.05 Assignment. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by any party to this Agreement without the prior written consent of
the other parties.
12.06 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah applicable to
contracts made and to be performed within that State.
12.07 Article and Section Headings. The article, section and
other headings contained in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.
12.09 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be a single agreement.
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<PAGE> 70
IN WITNESS WHEREOF, the parties to this Agreement have caused
this Agreement to be duly executed as of the date first written above.
UROQUEST CORPORATION
By: /s/ Eric Hale
---------------------------------
Eric Hale, President
BMT ACQUISITION CO.
By: /s/ Eric Hale
---------------------------------
Eric Hale, President
BMT, INC.
By: /s/ Tom Brandt
---------------------------------
Tom Brandt, President
65
<PAGE> 71
ANNEX A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Merger Agreement") is made as of June,
1996, by and among BMT, Inc., an Indiana corporation ("BMT"), and BMT
Acquisition Co., a Delaware corporation ("Acquisition").
Recitals
The parties hereto and UroQuest Corporation, a Florida corporation
("UroQuest"), have entered into an Agreement and Plan of Merger dated as of June
____, 1996 (the "Agreement") containing various representations, warranties,
covenants, and conditions relating to, among other things, the merger of BMT
with and into Acquisition (the "Merger"). Capitalized terms used but not defined
herein shall have the meanings set forth in the Agreement.
Agreement
In consideration of the foregoing and mutual covenants and agreements
contained herein, the parties hereby agree as follows:
ARTICLE I
1.01 Constituent Corporations and Surviving Corporation. Acquisition
and BMT shall be the constituent corporations to the Merger (the "Constituent
Corporations"). At the Effective Time of the Merger (as hereinafter defined),
BMT shall be merged with and into Acquisition, which shall be the surviving
corporation of the Merger (the "Surviving Corporation"). The identity,
existence, rights, privileges and powers of Acquisition shall continue
unaffected and unimpaired by the Merger. At the Effective Time of the Merger,
the identity and separate existence of BMT shall cease and all of the rights,
privileges, powers, franchises, properties and assets of BMT
<PAGE> 72
shall be vested in Acquisition in accordance with the provisions of the Indiana
Business Corporation Law and Delaware General Corporation Law. The name of the
Surviving Corporation shall continue to be BMT Acquisition Co.
1.02 Effective Time. The date and time when the Merger becomes
effective are herein referred to as the "Effective Time of the Merger." The
Effective Time of the Merger shall be immediately upon the filing, in accordance
with the provisions of Indiana Law and Delaware Law, of an appropriate
Certificate of Merger with the offices of the Secretaries of State of Indiana
and Delaware.
ARTICLE II
2.01 Certificate of Incorporation. The Certificate of Incorporation of
Acquisition as in effect immediately prior to the Effective Time of the Merger,
shall thereafter continue in full force and effect as of the Certificate of
Incorporation of the Surviving Corporation.
2.02 Bylaws. The Bylaws of Acquisition, as in effect immediately prior
to the Effective Time of the Merger, shall be the Bylaws of the Surviving
Corporation, until amended or repealed.
2.03 Officers and Directors. The officers of Acquisition at the
Effective Time of the Merger shall be the officers of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation. The directors of Acquisition at the
Effective Time of the Merger shall be the directors of the Surviving
Corporation, until their successors have been duly elected and qualified in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation; provided, however, that at the Effective Time of the Merger,
Acquisition shall elect Tom Brandt to its Board of Directors.
ARTICLE III
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<PAGE> 73
3.01 Merger Consideration and Conversion of Shares.
(a) At the Effective Time of the Merger, each share of BMT Common
Stock, by virtue of the Merger and without any action on the part of the holder
thereof, automatically shall be converted into and become the right to receive,
without interest, the following:
(i) cash in the amount equal to the Cash Consideration divided
by the number of shares of BMT Common Stock issued and
outstanding as of the Effective Time of the Merger; and
(ii) the number of shares of UroQuest Common Stock which, when
multiplied by the initial public offering price per share
for UroQuest Common Stock, equals the Share Consideration
divided by the number of shares of BMT Common Stock issued
and outstanding as of the Effective Time of the Merger.
(b) Notwithstanding anything herein to the contrary, no certificate or
scrip evidencing fractional shares of UroQuest Common Stock shall be issued in
the Merger, and such fractional share interests will not entitle the owner
thereof to vote or to any rights as a stockholder of UroQuest. In lieu of any
such fractional shares, each holder of BMT Common Stock shall be paid an amount
in cash (without interest), rounded to the nearest cent, determined by
multiplying (i) the initial public offering price per share of UroQuest Common
Stock by (ii) the fractional interest of UroQuest Common Stock to which such
holder would otherwise be entitled (after taking into account all shares of BMT
Common Stock held of record by such holder at the Effective Time of the Merger).
3.02 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of BMT Common Stock outstanding immediately prior to the
Effective Time of the Merger held by any holder who is entitled to demand, and
who properly demands, appraisal for such shares in accordance with the
provisions of Indiana Business Corporation Law shall not be
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<PAGE> 74
converted into the right to receive the Merger Consideration unless such holder
fails to perfect or otherwise loses such holder's right to appraisal, if any.
If, after the Effective Time of the Merger, such holder fails to perfect or
loses any such right to appraisal, such shares shall be treated as if they had
been converted as of the Effective Time of the Merger into the right to receive
the Merger Consideration pursuant to Section 3.01.
ARTICLE IV
4.01 Counterparts. This Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.
4.02 Governing Law. This Merger Agreement shall be governed in all
respects, including, but not limited to, validity, interpretation, effect and
performance, by the internal laws of the State of Delaware without regard to the
principles of conflicts of law thereof.
4.03 Section Headings. The section headings contained in this Merger
Agreement have been inserted for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the undersigned parties have executed this Merger
Agreement, as of the date first herein written.
BMT, INC.
By:_______________________________
ATTEST: Title:____________________________
________________________
Secretary
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<PAGE> 75
BMT ACQUISITION CO.
By:_______________________________
ATTEST: Title:____________________________
________________________
Secretary
5
<PAGE> 76
ANNEX B
STOCKHOLDER REPRESENTATION LETTER
UroQuest Medical Corporation
Suite 220
265 East 100 South
Salt Lake City, Utah 84111-1616
Attention: President
Gentlemen:
The undersigned (hereinafter "Stockholder") is the record and
beneficial owner of _____ shares of the outstanding Common Stock, without par
value, of BMT, Inc., an Indiana corporation ("BMT"). Stockholder acknowledges
receipt of a Notice of Special Meeting of Shareholders, Description of the
Merger Transaction (the "Description"), and "Supplemental Information"), all
relating to a special meeting of the Shareholders of BMT, called for June 28,
1996, at 8:00 a.m., local time, at the Radisson Hotel at Star Plaza, 800 East
81st Ave., Merrillville, Indiana (the "Meeting"). At the Meeting, the
Shareholders of BMT will be asked to consider and vote upon an Agreement and
Plan of Merger (the "Plan") among UroQuest Medical Corporation ("UroQuest"),
BMT, and Bivona Holding Co., Inc., a Delaware corporation and a wholly-owned
subsidiary of UroQuest ("Sub"), pursuant to which BMT will be merged into Sub
(the "Merger"). The Plan is being submitted to the shareholders of BMT pursuant
to an Agreement and Plan of Merger between UroQuest Corporation, BMT Acquisition
Co. and BMT (the "Agreement"). In the Merger, shareholders of BMT will receive
cash and shares of the Common Stock of UroQuest as more fully provided in the
Agreement. Stockholder also acknowledges receipt of the Agreement and a draft
Registration Statement on Form S-1 (the "Registration Statement") relating to a
proposed public offering of shares of the Common Stock of UroQuest, which
UroQuest plans to file with the United States Securities and Exchange Commission
in the near future. In order to induce UroQuest to proceed with the consummation
of the Merger, Stockholder represents and warrants to UroQuest as follows:
(a) Stockholder has had an opportunity to ask questions of and receive
answers from duly-designated representatives of UroQuest concerning the terms
and conditions of the Merger. Stockholder also has been afforded an opportunity
to examine such documents and other information which Stockholder has requested
for the purpose of verifying the information set forth in the Description, and
for the purpose of answering any questions Stockholder may have concerning the
business and affairs of UroQuest.
<PAGE> 77
(b) Stockholder understands that an investment in the shares of
UroQuest Common Stock to be received by Stockholder in the Merger (the "Stock")
involves a high degree of risk, which Stockholder has discussed with
representatives of UroQuest.
(c) Stockholder understands that no person has been authorized to give
information or to make any representations which were not contained in the
Description, the Supplemental Information or in the Registration Statement
furnished in connection with the Meeting and Stockholder has not relied on any
other representations or information. STOCKHOLDER HAS SOLELY RELIED UPON THE
INFORMATION CONTAINED IN THE DESCRIPTION, THE SUPPLEMENTAL INFORMATION AND THE
REGISTRATION STATEMENT. STOCKHOLDER UNDERSTANDS THAT AN INVESTMENT IN THE STOCK
INVOLVES CERTAIN RISKS, INCLUDING THOSE SET FORTH IN THE CAPTION "RISK FACTORS"
IN THE REGISTRATION STATEMENT.
(d) Stockholder acknowledges and understands that the Stock has not
been registered under the Securities Act of 1933, as amended (the "Act"), and if
and when issued pursuant to the Merger, must be held indefinitely unless the
Stock is subsequently registered under the Act and/or applicable state
securities laws or exemptions from such registration are available. UroQuest has
not agreed to register any of the Stock under the Act or applicable state
securities laws and has not made any representations, warranties, or covenants
regarding compliance with Regulation RA or some other exemption under the Act.
(e) Stockholder is aware that the Stock is, and will be, when issued
pursuant to the Merger, "restricted securities" as that term is defined in Rule
144 ("Rule 144") of the General Rules and Regulations Under the Act.
(f) Stockholder is fully aware of the applicable limitations on the
resale of the Stock. Rule 144 currently permits sales of "restricted securities"
held for not less than two years and upon compliance with the terms and
conditions of Rule 144. If Rule 144 is available to Stockholder, Stockholder may
make only routine sales of the Stock in limited amounts, in accordance with the
terms and conditions of Rule 144.
(g) Stockholder understands that any and all certificates representing
the Stock and any and all securities issued in replacement thereof or in
exchange therefor, shall bear the following legend, or one substantially similar
thereto, which Stockholder has read and understands:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Act") or any applicable state
securities laws ("State Acts") and are restricted securities as that term
is defined in Rule 144 under the Act. The securities may not be offered for
sale, sold or otherwise
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<PAGE> 78
transferred except pursuant to an effective registration statement or
qualification under the Act and applicable State Acts or pursuant to an
exemption from registration under the Act and applicable State Acts, the
availability of which is to be established to the satisfaction of
UroQuest."
In addition, the certificates representing the Stock and any and all securities
issued in replacement thereof or in exchange therefor, shall bear such legend as
may be required by the securities laws of the state in which Stockholder
resides.
(i) Because of the restrictions imposed on resale, Stockholder
understands that UroQuest shall have the right to note stop transfer
instructions in its stop transfer records, and Stockholder has been informed of
UroQuest's intention to do so. Any sales, transfers or other dispositions of the
Stock by Stockholder, if any, will be in compliance with the Act and applicable
State Acts.
(j) Stockholder acknowledges that either directly or indirectly or with
the assistance of his or her Stockholder Representative, if any, Stockholder has
such knowledge and experience in financial and business matters so as to make an
informed investment decision about an investment in the Stock, based upon the
information set forth in the Description, the Supplemental Information and the
Registration Statement and such additional information as Stockholder may have
requested and received from UroQuest.
(k) Stockholder further represents that Stockholder can bear the
economic risk of his or her entire investment in the Stock and has no need of
liquidity in such investment; that the address set forth below is his or her
principal residence (or, if the Stockholder is a corporation, partnership or
other entity, the address of its principal place of business); that Stockholder
intends to acquire the Stock for Stockholder's own account, and not, in whole or
in part, for the benefit of any other person; that Stockholder is acquiring the
Stock for investment and not with a view to public resale or distribution; and
that Stockholder has not formed any entity for the purpose of acquiring the
Stock.
(l) Stockholder acknowledges that no agency, governmental authority,
regulatory body, stock exchange or other entity (including, without limitation,
the United States Securities and Exchange Commission or any state securities
commission) has made any finding or determination as to the merit for investment
of, nor have any such agencies or governmental authorities made any
recommendation or endorsement with respect to, the Stock.
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<PAGE> 79
(m) Stockholder acknowledges that no information furnished by
UroQuest constitutes investment, accounting, legal or tax advice, and that
Stockholder is relying solely upon Stockholder and Stockholder's professional
advisors, if any, for such advice.
Very truly yours,
[Individual] ____________________________________
[Print or type name]
Address:____________________________
____________________________
Social Security No._________________
Date:_________________________
____________________________________
Name:_______________________________
Title:______________________________
[Partnerships, corporations
or other entities] ___________________________
[Print or type name]
Title:______________________________
Address:____________________________
____________________________
Taxpayer I.D. No.___________________
Date:_________________________
____________________________________
Name:_______________________________
Title:______________________________
4
<PAGE> 80
INDEMNIFICATION AND STOCK PLEDGE
THIS INDEMNIFICATION AND STOCK PLEDGE (this "Agreement"), dated as of
June 27, 1996, is between TOM E. BRANDT ("Grantor") and UROQUEST CORPORATION, a
Florida corporation ("Grantee").
Recitals
A. Grantee, BMT Acquisition Co., a Delaware corporation and wholly
owned subsidiary of Grantee ("Acquisition") and BMT, Inc., an Indiana
corporation ("BMT") have entered into an Agreement and Plan of Merger (the
"Merger Agreement") dated June 27, 1996 whereby BMT will merge with and into
Acquisition. The merger (the "Merger") will become effective concurrently with
the consummation of the initial public offering of UroQuest.
B. Pursuant to the terms of the Merger Agreement, the shareholders of
BMT will receive, among other consideration, shares of the common stock of
Grantee (the "UroQuest Shares").
C. Grantor, as majority shareholder of BMT, will receive UroQuest
Shares pursuant to the Merger Agreement and will otherwise benefit from the
transactions contemplated thereunder.
D. In order to satisfy a condition of the Merger Agreement, Grantor
desires to enter into this Agreement to, among other things, indemnify Grantee
and to grant to Grantee a security interest in certain of his UroQuest Shares,
subject to the terms and conditions set forth herein.
Agreement
In exchange for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
hereby agree as follows:
1. Indemnity. Grantor agrees, subject to the conditions set forth
herein, to indemnify, defend and hold harmless Grantee and Acquisition, together
with their directors and officers (as
<PAGE> 81
used herein, an Indemnified Party), from and against all losses, liabilities,
claims, damages, deficiencies, costs, expenses, (including without limitation
reasonable attorneys' fees and disbursements) and other obligations of any
nature whatsoever (hereinafter individually a "Loss" and collectively "Losses")
based upon, arising out of or otherwise related to any inaccuracy in or any
breach of any representation, warranty, covenant or agreement of BMT contained
in the Merger Agreement. The obligations of Grantor pursuant to this Section 1
are referred to in this Agreement as the "Obligations." The Obligations are
independent of the obligations of BMT under the Merger Agreement and shall not
be modified or affected by the termination or expiration of any representation,
warranty, covenant or agreement of BMT thereunder.
2. Indemnification Based on Net Damage.
(a) Losses shall be computed net of payments received by an
Indemnified Party under any insurance policy with respect to such Losses.
(b) Losses shall be adjusted to take into account any actual tax
benefit or detriment to an Indemnified Party attributable to or resulting from
the items being indemnified against, including without limitation (i) any
interest included in the amount indemnified against, (ii) the effect of timing
differences with respect to any item giving rise to an indemnity, such effect to
be computed using present value concepts based on a 7% discount rate, (iii) the
reduction or increase of asset basis or cost adjustments, (iv) the lengthening
of any amortization or depreciation periods, (v) the denial of amortization or
depreciation deductions, and (vi) the reduction of loss or credit carryforwards.
All Losses paid by Grantor pursuant hereto shall be treated by the parties as an
adjustment to the purchase price of Grantor's UroQuest Shares. If, contrary to
the intent of the parties as expressed in the preceding sentence, any such
payment is treated as taxable income of an Indemnified Party, then Grantor shall
indemnify and hold harmless the Grantee from any liability for taxes
attributable the receipt of such payment. At the time that an Indemnified party
delivers to Grantor a Claim Notice (as defined in Section 3(a) below) with
respect to a Loss, such Indemnified Party shall make a good faith
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<PAGE> 82
estimate of the net tax benefit or detriment to it that results from the Loss,
and the Claim Notice shall set forth in reasonable detail a reasonable
computation of such tax benefit or detriment. If such estimated tax benefit or
detriment and the Indemnified Party's actual tax benefit or detriment with
respect to the Loss differ, prompt adjustment shall be made for the amount of
the difference at the time the actual tax benefit is determined.
3. Notice and Opportunity to Defend. All claims by any Indemnified
Party under this Agreement shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which Grantor would be
liable to an Indemnified Party hereunder is asserted against or sought to be
collected from such Indemnified Party by a third party, said Indemnified Party
shall with reasonable promptness notify in writing Grantor of such claim or
demand, specifying the basis for such claim or demand, and the amount or the
estimated amount thereof to the extent then feasible (which estimate shall not
be conclusive of the final amount of such claim and demand) (the "Claim
Notice"); provided, however, that any failure to give such Claim Notice will not
be deemed a waiver of any rights of the Indemnified Party except to the extent
the rights of Grantor are actually prejudiced by such failure. Grantor may elect
to defend, at his own expense and with counsel reasonably acceptable to the
Indemnified Party, the asserted claim or demand. If Grantor so elects, he shall
within ten (10) days after the Claim Notice is given, notify in writing the
Indemnified Party of his intent to do so, and the Indemnified Party shall, if
requested by Grantor, cooperate with Grantor in defending the claim or demand. A
claim or demand may not be settled by Grantor without the prior written consent
of the Indemnified Party unless, as part of such settlement, the Indemnified
Party shall receive a full and unconditional release reasonably satisfactory to
the Indemnified Party. If Grantor elects not to defend a claim or demand or
fails to notify the Indemnified Party of his election as provided herein, the
Indemnified Party may defend and/or settle the demand or claim and recover the
Loss associated therewith by recourse to the Collateral as set forth below.
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<PAGE> 83
(b) In the event any Indemnified Party shall have a claim against
Grantor hereunder which does not involve a claim or demand being asserted
against or sought to be collected from it by a third party, the Indemnified
Party shall send a Claim Notice with respect to such claim to Grantor. Grantor
may elect to pay the claim within ten (10) days after the Claim Notice is given.
If Grantor does not pay the claim within ten (10) days after the Claim Notice is
given, the Indemnified Party may recover the amount through recourse to the
Collateral as set forth below.
4. Limitations on Obligations. Notwithstanding anything to the contrary
contained in this Agreement, Grantor shall not be liable for the Obligations
unless and until the aggregate amount of all Losses (excluding any Losses
covered by any insurance policy and taking into account any tax benefit or
detriment) in respect of such Obligations exceeds Five Hundred Thousand Dollars
($500,000.00).
5. Pledged Stock. As security for the full performance of the
Obligations, Grantor hereby pledges to Grantee and delivers to Grantee in escrow
the following property, rights and interests (collectively, the "Collateral"):
(a) One-half of all of the UroQuest Shares issued by Grantee to
Grantor pursuant to the Merger Agreement (the "Pledged Stock");
(b) All share or stock certificates, options or rights of any nature
whatsoever that have been or may hereafter be issued or granted by Grantor with
respect to the Pledged Stock; and
(c) All additions to and replacements and proceeds of any of the
property described in subparagraphs (a) and (b) above.
On the date which is one (1) year after the effective date of the
Merger, provided there exists no Obligation which has not been fully performed
by Grantor and there exists no other default of Grantor hereunder, Grantee shall
release to Grantor forty percent (40%) of the Pledged Stock and such Pledged
Stock shall no longer constitute Collateral hereunder. For purposes hereof, the
Obligations shall not be deemed to be performed until
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<PAGE> 84
all claims and demands (including, but not limited to all claims or demands
which are or may be associated with or arise out of any tax audit for which an
Indemnified Party has received oral or written notice) arising prior to the end
of the one (1) year period have been fully performed.
6. Stock Power. Grantor shall deliver to Grantee a stock certificate
representing the Pledged Stock, together with an undated stock power covering
such certificate (the "Stock Power") duly executed in blank by Grantor
concurrently with the consummation of the Merger or as soon thereafter as
possible. Should Grantee determine that any additional actions are necessary or
desirable in order for Grantee or other Indemnified Parties to perfect or
exercise their rights hereunder, Grantor agrees to promptly take such additional
action and to execute such additional documents as may be reasonably requested
by Grantee.
7. Representation and Warranty of Grantor. Grantor hereby represents
and warrants to Grantee that the pledge, assignment and delivery of the Pledged
Stock pursuant to this Agreement creates a valid first lien on and first
perfected security interest in the Pledged Stock and the proceeds thereof,
subject to no prior lien or to any agreement purporting to grant to any third
party security interest in the Pledged Stock.
8. Covenants of Grantor. Unless Grantee consents in writing to another
course of action:
(a) If Grantor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
distribution in connection with any reclassification, increase or reduction of
capital or reorganization), option or right in substitution or as a conversion
of or in exchange for any of the Pledged Stock, Grantor shall accept the same as
the agent of Grantee, hold the same in trust for Grantee and deliver the same
forthwith to Grantee in the exact form received, duly endorsed by Grantor to
Grantee, if required, together with an undated stock power covering each such
certificate duly executed in blank by Grantor, to be held by Grantee, subject to
the terms hereof, as additional
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<PAGE> 85
collateral security for the Obligations. Any sums paid upon or in respect of the
Pledged Stock upon the liquidation or dissolution of Grantor shall be paid over
to Grantee to be held by it hereunder as additional collateral for the
Obligations. In the event any distribution shall be made on or in respect of the
Pledged Stock or any property shall be distributed upon or with respect to the
Pledged Stock pursuant to the recapitalization or reclassification of the
capital of Grantor or pursuant to the reorganization thereof, the property so
distributed shall be promptly delivered to Grantee to be held by it hereunder as
additional collateral for the Obligations. If any sums of money or property so
paid or distributed in respect of the Pledged Stock shall be received by
Grantor, Grantor shall, until such money or property is paid or delivered to
Grantee, hold such money or property in trust for Grantee, segregated from other
funds of Grantor, as additional collateral for the Obligations.
(b) Grantor, shall not sell, assign, transfer, exchange or otherwise
dispose of, or grant any option with respect to, the Collateral, or create,
incur or permit to exist any lien, security interest or encumbrance of any kind
in favor of, or any claim of, any person with respect to any of the Collateral,
or any interest therein, except for the security interest created by this
Agreement.
(c) Grantor shall defend the right, title and interest of Grantee in
and to the Collateral against the claims and demands of all persons whomsoever.
9. Voting Rights. Unless Grantor defaults on the performance of his
obligation as set forth herein, Grantor shall be entitled to exercise all
voting, corporate, dividend and other rights with respect to the Pledged Stock;
provided, however, that no vote shall be cast or corporate right exercised by
Grantor which would impair the Collateral or which would be inconsistent with or
result in any violation of any provision of this Agreement. Upon default by
Grantor in the performance of his obligations hereunder, the right of Grantor to
exercise such voting and corporate rights shall terminate.
10. Remedies.
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(a) In the event that Grantor does not, in accordance with Section
3, pay in full when due the amount of any Loss of any Indemnified Party, that
portion of the Pledged Stock necessary to cover the Losses shall be
automatically transferred to Grantee or such other party as is designated by
Grantee and Grantor may memorialize such automatic transfer by causing to be
executed and delivered to Grantee or its designee a certificate or certificates
representing such shares of Pledged Stock. From and after the date of such
automatic transfer, Grantor shall have no rights in or to the transferred
Pledged Stock.
(b) The number of shares of the Pledged Stock to be transferred
under Section 10(a) shall be determined by using the average closing bid price
of UroQuest Shares as reported by NASDAQ or other established quotation system
for the twenty (20) trading days immediately prior to the date on which the
shares of Pledged Stock are automatically transferred under Section 10(a). If
such number of shares includes a fractional share, the number of shares shall be
rounded to the nearest share.
(c) If, within twenty-one (21) days after the shares of the Pledged
Stock are automatically transferred under Section 10(a) to Grantee or its
designee, Grantor objects in writing to such transfer, then Grantor agrees that
Grantee may sell such shares of Pledged Stock at a public or private sale, in
accordance with applicable law. In such case, the actual proceeds of such sale
shall be applied against the applicable Loss, without regard to the closing bid
prices reported by NASDAQ or other quotation system.
(d) In addition to the rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to any of the Obligations, Grantee shall have all the rights and
remedies available under applicable law, including, but not limited to, the
rights and remedies of a secured party under the Uniform Commercial Code of
Utah.
(e) Except as provided in this Section 10, Grantee shall not be
personally liable to any Indemnified Party for the amount of any Loss.
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11. Duties Regarding Collateral. Grantee's duties with respect to the
custody, safekeeping and physical preservation of the Collateral in its
possession shall include the duty to deal with it in the same manner as Grantee
deals with similar securities and properties for its own account.
12. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
13. Termination. This Agreement shall expire on the date which is two
(2) years after the effective date of the Merger; provided no uncured default of
Grantor exists on the applicable expiration date and all Obligations have been
performed or otherwise satisfied. If, on the expiration date, all such
Obligations have been performed and all defaults hereunder have been resolved,
the Pledged Stock shall be released and this Agreement shall terminate.
Otherwise, this Agreement shall continue beyond the applicable expiration date
until all such defaults have been resolved and all such Obligations have been
performed or otherwise satisfied. For purposes hereof, the Obligations shall not
be deemed to be performed or satisfied until all claims and demands (including,
but not limited to all claims or demands which are or may be associated with or
arise out of any tax audit for which an Indemnified Party has received oral or
written notice) arising prior to the end of the two (2) year period have been
fully performed and satisfied.
14. Miscellaneous.
(a) Each right, power and remedy herein specifically given to
Grantee or otherwise existing shall be cumulative and shall be in addition to
every other right, power and remedy herein specifically given or now or
hereafter existing at law, in equity, or otherwise; and each right, power and
remedy, whether specifically herein given or otherwise existing, may be
exercised from time to time and as often and in such order as may be deemed
expedient by Grantee and the exercise of any right, power or remedy shall not be
construed to be a waiver of the right to exercise at the same time or thereafter
any other right, power or remedy. No delay or omission by Grantee in the
exercise of any right or power, or in the pursuance of any remedy, shall impair
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<PAGE> 88
any such right, power or remedy or be construed to be a waiver of any default on
the part of Grantor or to be an acquiescence therein. No waiver by Grantee of
any breach or default by Grantor under this Agreement shall be deemed a waiver
of any other previous breach or default or any thereafter occurring.
(b) This Agreement is not assignable by either party without the
written consent of the other party. Notwithstanding the foregoing, Grantor
agrees that all of Grantee's rights hereunder shall be fully applicable to and
accrue to the benefit of any entity constituting a reincorporation of Grantee.
(c) Any consent, notice or other communication required or
contemplated by this Agreement shall be in writing and shall be delivered
personally or mailed by certified or registered mail, return receipt requested,
postage prepaid, addressed (a) if to Grantee: UroQuest, Medical Corporation, 265
East 100 South, Suite 220, Salt Lake City, Utah, 847111-1616 (b) if to Grantor:
Tom E. Brandt, c/o Bivona Inc., 5700 West 23rd Avenue, Gary, IN 46406-2617, or
in each case to such other address as such party shall have furnished to the
other party to this Agreement in writing. Notices shall be deemed to have been
given when delivered, if delivered personally, or three days after deposited for
mailing, if mailed by certified or registered mail.
(d) No Event of Default shall be waived by Grantee except in
writing, and the waiver of any one right under this Agreement shall not operate
as a waiver of any other right.
(e) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(f) The parties acknowledge that they have each been represented by
legal counsel in connection with the negotiation, drafting, execution and
delivery of this Agreement. The terms and conditions set forth have been
negotiated and drafted by the
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parties and their respective counsel and no ambiguity or provision herein shall
be construed or interpreted in favor of or against either party.
(g) This Agreement shall be governed by and construed pursuant to
the laws of the State of Utah.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GRANTOR:
_____________________________
Tom E. Brandt
GRANTEE:
UROQUEST CORPORATION
By:_________________________
Eric B. Hale
Its: President
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<PAGE> 1
EXHIBIT 4.2
SECOND AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
This Second Amended and Restated Stockholders Agreement dated May 31,
1995, but to be effective as provided herein, (this "Agreement") is by and among
UroQuest Corporation, a Florida corporation (the "Company"), and the
Stockholders, as defined below.
WITNESSETH:
WHEREAS, the Company and the holders of shares of Series A Convertible
Preferred Stock, par value $.001 per share (the "Series A Preferred"), Series B
Convertible Preferred Stock, par value $.001 per share (the "Series B
Preferred") and Series C Convertible Preferred Stock, par value $.001 per share
(the "Series C Preferred") are parties to that certain Amended and Restated
Stockholders Agreement dated December 1, 1993, as amended by that certain First
Amendment and that certain Second Amendment (together the "Prior Agreement");
WHEREAS, the Company is desirous of selling shares of its Series D
Convertible Preferred Stock, par value $.001 per share (the "Series D
Preferred") to Warburg, Pincus Investors, L.P. ("Warburg") pursuant to a
Securities Purchase Agreement dated as of the date this Agreement becomes
effective between the Company, Richard C. Davis, Jr. and Warburg, (the "Purchase
Agreement"), which Purchase Agreement requires, among other things, that the
Company provide certain demand registration rights to Warburg which are superior
to the registration rights of the Shareholders to the Prior Agreement and that
the Company terminate the provisions of the Prior Agreement which provide each
Shareholder and the Company with an option to acquire the shares of Common Stock
and/or Preferred Stock owned by any Shareholder in the event of a proposed sale
or transfer by such Shareholder;
WHEREAS, the Corporation and the Stockholders desire to hereby amend
and restate in its entirety the Prior Agreement to reflect the addition of
Warburg as a party thereto, to delete the terms providing each Shareholder with
an option to purchase other Shareholders Restricted Shares (as defined therein),
and to amend the terms of the registration rights provided therein, among other
things;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, and for other good and valuable consideration,
the parties hereby agree as follows:
Section 1. Definitions. As used in this Agreement:
<PAGE> 2
(a) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
(b) "Common Stock" means the Voting and/or Non-Voting Common Stock,
par value $.001, of the Company.
(c) "Conversion Stock" means the Common Stock of the Company issuable
or issued in respect of the Preferred Stock.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
(e) "Holders" shall mean any person or entity holding Registrable
Securities pursuant to this Agreement.
(f) "Majority in Interest" shall mean, in any given situation,
Stockholders holding at least fifty-one percent (51%) of the outstanding
voting stock included in and entitled to vote in such situation.
(g) "Person" shall include an individual, a corporation, a
partnership, a trust or any other organization or entity.
(h) "Preferred Stock" shall mean the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, and any other series of
Preferred Stock, the holders of which are provided registration rights
pursuant to this Agreement.
(i) "Registrable Securities" means (i) the Common Stock and the
Conversion Stock; and (ii) any Common Stock of the Company or other
securities issued or issuable in respect of the above upon any stock split,
stock dividend, recapitalization, or similar event; excluding in all cases,
however, any Common Stock or other security transferred pursuant to a
registration statement, or Rule 144 under the Securities Act.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(j) "Registration Expenses" shall mean all expenses, other than
Selling Expenses (as defined below), incurred by the Company in complying
with the terms of this Agreement, including, without limitation, all
registration, qualification and filing fees, exchange listing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees
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<PAGE> 3
of the Company which shall be paid in any event by the Company) and the
reasonable fees and disbursements of one counsel for all Holders.
(k) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
(l) "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities
registered by the Holders and, except as set forth above, all fees and
disbursements of counsel for any Holder.
(m) "Stockholders" shall mean , any holder of shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Common Stock, and any other persons or entities who become parties to this
Agreement pursuant to the terms of this Agreement, and their respective
heirs, legal representatives, administrators and successors.
Section 2. Requested Registration.
(a) Request for Registration. If the Company shall receive from Warburg
a written request that the Company effect any registration with respect to all
or a part of the Registrable Securities owned or held by Warburg or its
transferees (hereinafter the "Warburg Securities"), the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification
under applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act) as
may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Warburg Securities as are
specified in such request, together with all or such portion of the Warburg
Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within 10 business
days after written notice from the Company is given under Section 2(a)(i)
above; provided that the Company shall not be obligated to effect, or take
any action to effect, any such registration pursuant to this Section 2:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act or applicable rules or
regulations thereunder;
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<PAGE> 4
(B) After the Company has effected four (4) such registrations
pursuant to this Section 2 and such registrations have been declared
or ordered effective and the sales of such Warburg Securities shall
have closed; or
(C) If the Warburg Securities requested by all Holders to be
registered pursuant to such request do not have an anticipated
aggregate public offering price (before any underwriting discounts and
commissions) of not less than $10,000,000 (or $15,000,000 if such
requested registration is the initial public offering).
(b) Underwriting. If Warburg intends to distribute the Warburg
Securities covered by its request by means of an underwriting, it shall so
advise the Company as a part of its request made pursuant to this Section 2.
If any Holders other than Warburg request inclusion in such
registration, such inclusion shall be conditioned on the acceptance by such
other Holders of the further applicable provisions of this Section 2. The
Holders whose shares are to be included in such registration and the Company
shall enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for such underwriting
by Warburg and reasonably acceptable to the Company. Notwithstanding any other
provision of this Section 2, if the representative advises the Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the securities of the Company held by Holders other than
Warburg shall be excluded from such registration on a pro rata basis (based on
the number of shares held by such Holder) to the extent so required by such
limitation. If, after the exclusion of such shares, further reductions are still
required, the number of shares included in the registration by Warburg shall be
reduced by such minimum number of shares as is necessary to comply with such
request. No Warburg Securities or any other securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any of the Holders who has requested inclusion
in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and Warburg. The securities so withdrawn shall also
be withdrawn from registration. If the underwriter has not limited the number of
Warburg Securities to be underwritten, the Company may include its securities
for its own account in such registration if the representative so agrees and if
the number of Warburg Securities which would otherwise have been included in
such registration and underwriting will not thereby be limited.
Section 3. Incidental Registration .
(a) Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
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<PAGE> 5
(i) promptly give to each Holder written notice thereof; and
(ii) use its best lawful efforts to include in such registration (and
any related qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities specified
in a written request or requests, made within twenty (20) days after
receipt of such written notice from the Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3(a)(i). In such event the right of any Holder to
registration pursuant to Section 3 shall be conditioned upon such Holder's
participation in such underwriting, and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company.
Notwithstanding anything herein to the contrary, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit some or all of
the Registrable Securities that may be included in the registration and
underwriting as follows (unless the registration is filed pursuant to Section 2
of this Agreement, in which event the provisions of Section 2(b) shall control):
the securities held by holders of Company securities whose rights to distribute
their securities through such underwriter are junior to the Holders shall be cut
back first in proportion to their respective holdings to the extent required by
such limitation; thereafter, if a limitation is still required after eliminating
the securities held by holders of Company securities whose rights to distribute
their securities through such underwriter are junior to the Holders in their
entirety from such registration, the number of Registrable Securities that may
be included in the registration and underwriting by the Holders shall be
allocated among the Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by each Holder, at the time of
filing the Registration Statement. To facilitate the allocation of shares in
accordance with the above provisions, the Company may round the number of shares
allocable to any Holder to the nearest one hundred (100) shares.
If any Holder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter, delivered not less than seven days before the effective date. Any
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration, and shall be withdrawn from the market for a period of one
hundred twenty (120) days after the effective date of the registration statement
relating thereto, or such other shorter period of time as the underwriters may
require.
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<PAGE> 6
(c) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 3
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
Section 4. Expenses of Registration. All Registration Expenses shall be
borne by the Company. Unless otherwise stated, all Selling Expenses relating to
securities registered on behalf of the Holders shall be borne by the Holders pro
rata on the basis of the number of shares so registered.
Section 5. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense, the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best lawful efforts to cause such
registration statement to become and remain effective for at least one
hundred twenty (120) days or until the distribution described in the
Registration Statement has been completed;
(b) Furnish to each underwriter such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as such underwriter may
reasonably request in order to facilitate the public sale of the shares by
such underwriter, and promptly furnish to each underwriter and Holder
notice of any stop-order or similar notice issued by the Commission or any
state agency charged with the regulation of securities, and notice of any
Nasdaq listing; and
(c) Use its best efforts to cause all Registrable Securities to be
listed on each securities exchange on which similar securities issued by
the Company are then listed; and if not so listed, use its best efforts to
be listed on the Nasdaq Stock Market.
Section 6. Indemnification.
(a) To the extent permitted by law, the Company will indemnify each
Holder participating in a registration pursuant to this Agreement, each of its
officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, to the extent such expenses,
6
<PAGE> 7
claims, losses, damages or liabilities arise out of or are based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act or any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers and
directors, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided, however,
that the indemnity contained herein shall not apply to amounts paid in
settlement of any claim, loss, damage, liability or expense if settlement is
effected without the consent of the Company (which consent shall not
unreasonably be withheld), provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by such Holder, controlling person or
underwriter specifically for use therein. Notwithstanding the foregoing, insofar
as the foregoing indemnity relates to any such untrue statement (or alleged
untrue statement) or omission (or alleged omission) made in the preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
Commission at the time the registration statement becomes effective or in the
final prospectus filed with the Commission pursuant to Rule 424(b) of the
Commission, the indemnity agreement herein shall not inure to the benefit of any
underwriter or (if there is no underwriter) any Holder if a copy of the final
prospectus filed pursuant to Rule 424(b) was not furnished to the person or
entity asserting the loss, liability, claim or damage at or prior to the time
such furnishing is required by the Securities Act.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement by such
Holder (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission by such Holder (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by such Holder of any rule or regulation
promulgated under the Securities Act applicable to such Holder and relating to
action or inaction required of such Holder in connection with any such
registration, qualification or
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<PAGE> 8
compliance, and will reimburse the Company, such Holders, such directors,
officers, persons, underwriters or control persons for any legal or other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder
specifically for use therein; provided, however, that the indemnity contained
herein shall not apply to amounts paid in settlement of any claim, loss, damage,
liability or expense if settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld). Notwithstanding the
foregoing, the liability of each Holder under this subsection (b) shall be
limited in an amount equal to the net proceeds from the sale of the shares sold
by such Holder, unless such liability arises out of or is based on willful
conduct by such Holder. In addition, insofar as the foregoing indemnity relates
to any such untrue statement (or alleged untrue statement) or omission (or
alleged omission) made in the preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the final prospectus filed
pursuant to Rule 424(b) of the Commission, the indemnity agreement herein shall
not inure to the benefit of the Company, any underwriter or (if there is no
underwriter) any Holder if a copy of the final prospectus filed pursuant to Rule
424(b) was not furnished to the person or entity asserting the loss, liability,
claim or damage at or prior to the time such furnishing is required by the
Securities Act.
(c) Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate or different
defenses. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or enter
into any settlement without the consent of each Indemnifying Party.
(d) If the indemnification provided for in this Section 6 is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the
8
<PAGE> 9
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and the Stockholders offering
securities in the offering (the "Selling Stockholders") on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and the
Selling Shareholders on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of material fact or
the omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Selling Shareholders and the parties' relevant
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Selling Shareholders agree that
it would not be just and equitable if contribution pursuant to this Section 6(d)
were based solely upon the number of entities from whom contribution was
requested or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 6(d). The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages and liabilities referred to above in this Section 6(d) shall be deemed
to include any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim,
subject to the provisions of Section 6(c) hereof. Notwithstanding the provisions
of this Section 6(d), no Selling Shareholder shall be required to contribute any
amount or make any other payments under this Agreement which in the aggregate
exceed the proceeds received by such Selling Shareholder. No person guilty of
fraudulent misrepresentation (within the meaning of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Notwithstanding the foregoing provisions of this Section 6, if
pursuant to an underwritten public offering of capital stock of the Company, the
Company, the selling shareholders and the underwriters enter into an
underwriting or purchase agreement relating to such offering which contains
provisions covering indemnification among the parties thereto in connection with
such offering, the indemnification provisions of this Section 6, to the extent
they are in conflict therewith, shall be deemed inoperative for the purpose of
such offering, except as to any parties to this Agreement who are not parties to
such subsequent underwriting or purchase agreement.
Section 7. Certain Information.
(a) As a condition to exercising the registration rights provided for
herein, each Holder, with respect to any Registrable Securities included in any
registration, shall furnish the Company such information regarding such Holder,
the Registrable Securities and the distribution proposed by such Holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
9
<PAGE> 10
(b) The failure of any Holder to furnish the information requested
pursuant to Section 7(a) shall not affect the obligation of the Company under
this Agreement to the remaining Holder(s) who furnish such information unless,
in the reasonable opinion of counsel to the Company or the underwriters, such
failure impairs or may impair the legality of the Registration Statement or the
underlying offering.
(c) Each Holder, with respect to any Registrable Securities included
in any registration, shall cooperate in good faith with the Company and its
underwriters, if any, in connection with such registration, including placing
such shares in escrow or custody to facilitate the sale and distribution
thereof.
(d) Each Holder, with respect to any Registrable Securities included
in any registration, shall make no further sales or other dispositions, or
offers therefor, of such shares under such registration statement if, during the
effectiveness of such registration statement, an intervening event should occur
which, in the opinion of counsel to the Company, makes the prospectus included
in such registration statement no longer comply with the Securities Act until
such time as such holder has received from the Company copies of a new, amended
or supplemented prospectus complying with the Securities Act.
Section 8. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best lawful efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish to
such Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as
a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing such Holder to sell any such
securities without registration. In
10
<PAGE> 11
addition, if at any time following the effective date of the first
registration of any of the Company's securities under the Act the Company
shall cease to be subject to the requirements of Section 15(d) of the
Exchange Act, the Company will make available to any of the Holders the
information required by Rule 15c2-11(a)(4) of the Exchange Act (or any
corresponding rule hereafter in effect).
Section 9. Transfer of Registration Rights. The rights granted to a
Holder hereunder may be assigned to a transferee or assignee in connection with
any transfer or assignment of Registrable Securities by a Holder provided that:
(i) such transfer may otherwise be effected in accordance with applicable
securities laws, (ii) the Holder notifies the Company in writing prior to the
transfer or assignment and the assignee or transferee agrees in writing to be
bound by the provisions of this Agreement, and (iii) such transfer is not
pursuant to a registration statement under the Securities Act or Rule 144
promulgated under the Securities Act.
Section 10. Standoff Agreement. Each Holder agrees, so long as such
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities and upon request of the underwriters managing each of the
first three underwritten public offerings of the Company's securities, not to
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any equity securities of the Company (other than those
included in the registration) without the prior written consent of such
underwriters, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of a registration statement relating to such
underwritten public offerings as may be requested by the underwriters; provided,
that the officers and directors of the Company who own stock of the Company also
agree to such restrictions.
Section 11. Notices. All notices, offers, requests, consents and
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been duly given or made when
sent by mail, postage prepaid,
(a) if to the Company, to 14280 Carlson Circle, Tampa, Florida 33626,
and,
(b) if to any Stockholder, to the address as last shown on the stock
record books of the Company, or, in each case, at such other address as may
hereafter have been designated most recently in writing, with specific
reference to this Section, by the addressee to the addressor.
Section 12. Amendment; Severability. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
Company, Warburg and the holders of a Majority in Interest of the Stockholders
other than Warburg. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this
11
<PAGE> 12
Agreement shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
Section 13. Effectiveness; Prior Agreement Superseded. This Agreement
shall become effective at such time as it is executed by the Company, a Majority
in Interest of the Stockholders who are parties to the Prior Agreement, holders
of two thirds of the Registrable Securities who are parties to the Prior
Agreement, and Warburg. Upon its effectiveness as provided herein, this
Agreement shall constitute the full and entire understanding and agreement
between the parties with regard to the subject hereof, and shall supersede and
replace in its entirety the Prior Agreement, which shall be terminated and of no
further force and effect.
Section 15. Miscellaneous. This Agreement (a) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, (b) may
be executed in several counterparts, each of which shall be deemed an original,
and all of which shall constitute one and the same instrument, (c) shall inure
to the benefit of, and be binding upon, the successors, assigns, legatees,
distributees, legal representatives and heirs of each party and is not intended
to confer upon any person, other than the parties and their permitted successors
and assigns, any rights or remedies hereunder, and (d) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Florida, without respect to the conflict of laws rules. The captions in
this Agreement are for convenience of reference only and shall not affect its
interpretation in any respect.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the day and year first above written.
UROQUEST CORPORATION
By: /s/ Eric B. Hale
--------------------------
Eric B. Hale, President
and Chief Executive Officer
STOCKHOLDER:
Print Name:_________________________
By_
(signed by stockholders)
12
<PAGE> 13
Name:________
Title:_
13
<PAGE> 1
EXHIBIT 10.2
UROQUEST CORPORATION
1994 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under this Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonqualified stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions
shall apply:
(a) "Administrator" means the Board or any of its Committees,
as applicable, that is administering the Plan pursuant to Section 4 of
the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Company" means UroQuest Corporation, a Florida
corporation.
(f) "Consultant" means any consultant or advisor to the
Company or any Parent or Subsidiary and any director of the Company
whether compensated for such services or not, provided that if and in
the event the Company registers any class of any equity security
pursuant to the Exchange Act, the term Consultant shall thereafter not
include directors who are not compensated for their services or are
paid only a director's fee by the Company.
(g) "Continuous Status as an Employee" means the absence of
any interruption or termination of the employment relationship by the
Company or any Subsidiary. Continuous Status as an Employee shall not
be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive
Stock Options, such leave is for a period of not more than ninety (90)
days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided
<PAGE> 2
otherwise pursuant to Company policy adopted from time to time; or (ii)
in the case of transfers between locations of the Company or between
the Company, its Subsidiaries or its successor.
(h) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
(i) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(j) "Fair Market Value" means, as of any date, the value of
Stock determined as follows:
(i) If the Stock is listed on any established stock
exchange or a national market system including without
limitation the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") System, its Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales
were reported, as quoted on such system or exchange or the
exchange with the greatest volume of trading in Stock for the
last market trading day prior to the time of determination) as
reported in the Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or regularly quoted
by a recognized securities dealer but selling prices are not
reported, its Fair Market Value shall be the mean between the
high and low asked prices for the Stock; or
(iii) In the absence of an established market for the
Stock, the Fair Market Value thereof shall be determined in
good faith by the Administrator.
(k) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422
of the Code.
(l) "Nonqualified Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(m) "Option" means a stock option granted pursuant to the
Plan.
(n) "Optioned Stock" means the Stock subject to an Option.
<PAGE> 3
(o) "Optionee" means an Employee or Consultant who receives an
Option.
(p) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(q) "Plan" means this 1994 Stock Option Plan.
(r) "Share" means a share of the Stock, as adjusted in
accordance with Section 12 of the Plan.
(s) "Stock" means the Common Stock, par value $.001 per share,
of the Company;
(t) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 12 of the Plan, the maximum number of shares of Stock which may be
optioned and sold under the Plan is 5,000,000 shares. The shares may be
authorized, but unissued, or reacquired Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.
4. Administration of the Plan.
(a) PROCEDURE.
(i) Administration With Respect to Directors and Officers.
With respect to grants of Options to Employees who are also officers or
directors of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board to administer the Plan, which Committee
shall be constituted in such a manner as to permit the Plan to comply with Rule
16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3")
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan. Notwithstanding the foregoing, the Plan shall not be
<PAGE> 4
administered by the Board if (a) the Company and its officers and directors are
then subject to the requirements of Section 16 of the Exchange Act and (b) the
Board's administration of the Plan would prevent the Plan from complying with
Rule 16b-3.
(ii) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who are
neither directors nor officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the legal requirements relating to
the administration of incentive stock option plans, if any, of corporate and
securities laws applicable to the Company and of the Code (the "Applicable
Laws"). Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Stock, in
accordance with Section 2(j) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Stock to be covered
by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, the per share exercise price for the Shares to be
issued pursuant to the exercise of an Option and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture
restrictions regarding any Option or other
<PAGE> 5
award and/or the shares of Stock relating thereto, based in each case
on such factors as the Administrator shall determine, in its sole
discretion);
(vii) to determine whether and under what circumstances an
Option may be bought-out for cash under subsection 9(f);
(viii) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining
the amount, if any, of any deemed earnings on any deferred amount
during any deferral period); and
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Stock covered
by such Option shall have declined since the date the Option was
granted.
(c) EFFECT OF COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options. Neither the
Board, the Committee nor any member thereof shall be liable for any act,
omission, interpretation, construction or determination made in connection with
the Plan in good faith, and the members of the Board and of the Committee shall
be entitled to indemnification and reimbursement by the Company in respect of
any claim, loss, damage or expense (including counsel fees) arising therefrom to
the full extent permitted by law.
5. Eligibility.
(a) Nonqualified Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonqualified Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonqualified Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
<PAGE> 6
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause, unless otherwise agreed in writing by the Company and such
Optionee.
6. Term of Plan. The Plan shall become effective upon its
adoption by the Board of Directors. It shall continue in effect until March 31,
2004 unless extended by the Board or sooner terminated under Section 14 of the
Plan. No grants of Options will be made pursuant to the Plan after March 31,
2004.
7. Term of Option. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that in the case of an
Incentive Stock Option, the term shall be no more than ten (10) years from the
date of grant thereof or such shorter term as may be provided in the Option
Agreement. However, in the case of an Option granted to an Optionee who, at the
time the Option is granted, owns Stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
In the case of an Incentive Stock Option:
(i) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing
more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(ii) granted to any Employee not included in clause
(i) above, the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other shares of the Company's capital stock
which (x) in the case of shares of the
<PAGE> 7
Company's capital stock acquired upon exercise of an Option either have been
owned by the Optionee for more than six months on the date of surrender or were
not acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (5) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (6) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(7) any combination of the foregoing methods of payment, or (8) such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable laws.
9. Exercise of Option.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised, and the Optionee
deemed to be a stockholder of the Shares being purchased upon exercise, when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Board, consist
of any consideration and method of payment allowable under Section 8(b) of the
Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF EMPLOYMENT. In the event of termination of
an Optionee's relationship as a Consultant (unless such termination is for
purposes of becoming an Employee of the Company) or Continuous Status as an
Employee with the Company (as the case may be), such Optionee may, but only
within ninety (90) days (or such other period of time as is determined by the
Board, with such determination in the case of an Incentive Stock Option being
made at the time of grant of the Option and not exceeding ninety (90) days)
after the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
his Option to the extent that Optionee was entitled to exercise it at the date
of such termination. To the extent that Optionee was not entitled to exercise
<PAGE> 8
the Option at the date of such termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's relationship as
a Consultant or Continuous Status as an Employee as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may,
but only within twelve (12) months from the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an
Optionee, the Option may be exercised, at any time within twelve (12) months
following the date of death (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if the Optionee's estate (or
such other person who acquired the right to exercise the Option) does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(e) RULE 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. The Option may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
11. Stock Withholding to Satisfy Withholding Tax Obligations.
At the discretion of the Administrator, Optionees may satisfy withholding
obligations as provided in this paragraph. When an Optionee incurs tax liability
in connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld
<PAGE> 9
under applicable tax laws, the Optionee may satisfy the withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
upon exercise of the Option, that number of Shares having a Fair Market Value
equal to the amount required to be withheld. The Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this
purpose shall be made in writing in a form acceptable to the Administrator and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Right as to which the election is
made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator; and
(d) if the Optionee is subject to Rule 16b-3, the election
must comply with the applicable provisions of Rule 16b-3 and shall be
subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section
16 of the Exchange Act with respect to Plan transactions.
In the event the election to have Shares withheld is made by
an Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization or Merger.
Subject to any required action by the stockholders of the Company, the number of
Shares covered by each outstanding Option, and the number of Shares which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Stock (or Common Stock into which the
Common Stock may be convertible) resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Stock, or any
other increase or decrease in the number of issued shares of Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration."
<PAGE> 10
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger or consolidation of the Company with or into
another entity or another transaction pursuant to which all or substantially all
of the assets of the Company are conveyed to another entity, the Option shall be
assumed or an equivalent option shall be substituted by such successor entity or
a parent or subsidiary of such successor entity. In the event that such
successor entity does not agree to assume the Option or to substitute an
equivalent option, the Administrator shall, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the Option
as to all of the Optioned Stock, including Shares as to which the Option would
not otherwise be exercisable. If the Administrator makes an Option fully
exercisable in lieu of assumption or substitution in the event of a merger,
consolidation or other transaction covered by this paragraph, the Administrator
shall notify the Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
13. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Administrator makes the
determination granting such Option, or such other date as is determined by the
Administrator. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
14. Amendment and Termination of the Plan.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the applicable requirements of the NASD or an established
stock exchange), the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated,
<PAGE> 11
unless mutually agreed otherwise between the Optionee and the Board, which
agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
16. Reservation of Shares. The Company, during the term of
this Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
17. Agreements. Options shall be evidenced by written
agreements in such form as the applicable Administrator shall approve from time
to time.
18. Information to Optionees. The Company shall provide to
each Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
generally provided to all stockholders of the Company. The Company shall not be
required to provide such information to persons whose duties in connection with
the Company assure their access to equivalent information.
19. Governing Law; Construction. All rights and obligations
under the Plan shall be governed by, and the Plan shall be construed in
accordance with, the laws of the State of Texas without regard to the principles
of conflicts of laws. Titles and headings to Sections herein are for purposes of
reference only, and shall in no way limit, define or otherwise affect the
meaning or interpretation of any provisions of the Plan.
<PAGE> 1
EXHIBIT 10.4
[B/BRAUN LETTERHEAD]
LETTER OF INTENT
Between: UROQUEST MEDICAL CORPORATION
265 East 100 South, Suite 220
Salt Lake City, UTAH 84111
Represented by Mr. Eric B. Hale, President and CEO
And: B. BRAUN BIOTROL
69, Rue de la Grange aux Belles - 75010 PARIS, FRANCE
Represented by Mr. Jean-Pierre OZENNE, President
UROQUEST is developing a unique proprietary urology catheter, designed as
On-Command(R) for the use of managing urinary retention and/or urinary
incontinence for male and female.
B. BRAUN is interested to market the product on an exclusive basis in Europe
and has agreed with Uroquest to initiate clinical trials of the product in
Europe, B. Braun will support the cost of the clinical trials in Europe and
UroQuest agrees to provide all necessary technical assistance as well as the
necessary products to conduct the trials.
1 - B. Braun and UroQuest will confirm within a limited period of six (6)
months after the beginning of the trials its desire to market in Europe the
"On-Command" catheter,
2 - B. Braun will be committed to prepare marketing launch plans for major
european countries,
3 - B. Braun is interested in and UroQuest is willing to grant exclusive
marketing rights in the territory (enclosure #1) defined for a period of
five years based on a mutually agreeable licensing arrangement which may
include an up front licensing fee, and/or equity investment. The terms of
this agreement will include exclusive distribution in Europe and an agreed
upon transfer pricing structure based on the outcome of the clinical trials
and further market analysis and other terms and conditions reasonably
acceptable to the parties. The On-Command(R) Catheter will be marketed
exclusively under the B. Braun label using the On-Command(R) trade mark
as the product name.
<PAGE> 2
4 - UroQuest will grant to B. Braun a right of first negotiation during the
six (6) month period defined in paragraph #1 and will not actively seek
other distribution or marketing alternatives in Europe. If UroQuest is
approached and an offer is extended by another company prior to Braun
reaching a decision on intention to market, UroQuest will notify Braun and
extend a "first right" to Braun to negotiate and conclude an agreement
with UroQuest on terms no less favorable than terms extended by the other
company.
5 - UroQuest will provide the necessary technical assistance requested by B.
Braun to conduct the clinical trial and help launch the product. B.
Braun will reimburse UroQuest directly for the costs of this support, on
the basis of mutually agreed level of expenses discussed previous to any
action taken by UroQuest.
6 - B. Braun will provide all the product registration support in the
territory necessary to market the product. Product registrations will be
owned jointly by UroQuest and B. Braun.
7 - Transfer prices will be discussed between B. Braun and Uroquest according
to marketing feasability proposed by B. Braun.
8 - B. Braun and Uroquest will sign an exclusive agreement for the
distribution of the product in territories described in enclosure 1.
9 - The results of the European clinical trials will be made available to
UroQuest upon the request.
10 - B. Braun will be ready to study carefully any possibility to develop a
long-term strategic alliance with UroQuest based on the propietary
technology.
11 - B. Braun would like to keep open for consideration the Asia/Pacific
territories as well as North and South American markets.
B. Braun is interested in making a further proposal regarding arrangements
for North and South America and A/P, based on the results of the trials in
Europe. UroQuest is willing to discuss a broader relationship that
includes ongoing product development, manufacturing and expanded
territories such as North and South America and Asia-Pacific.
ENCLOSURE 1: Territories Germany Spain Norway Switzerland
France Portugal Sweden Austria
Italy Belgium Denmark Hungaria
UK Holland Finland former Czech Republic
Ireland Poland
UROQUEST MEDICAL CORPORATION B. BRAUN BIOTROL
/S/ ERIC B. HALE /S/ JEAN-PIERRE OZENNE
- ----------------------------- -----------------------------
Mr Eric B. HALE Mr Jean-Pierre OZENNE
President President
Date: Feb. 20th 1996 Date: February 5th 1996
<PAGE> 1
EXHIBIT 10.5
UCSPN-_____
UROQUEST CORPORATION
12% SECURED PROMISSORY NOTE
DUE DECEMBER 31, 1996
$__________ _____________,1994
FOR VALUE RECEIVED, the undersigned, UROQUEST CORPORATION, a
Florida corporation (the "Company"), hereby promises to pay to the order of
____________________ (together with any and all other holders of this Note, the
"Holder"), at Tampa, Florida or such other place as the Holder may designate in
writing, on or before December 31, 1996, the principal sum of
_________________________ ($__________), together with interest hereon, in cash
or currency of the United States of America which at the time of payment is
legal tender for the payment of public and private debts, all as is hereinafter
provided.
1. Interest and Principal Payments. The unpaid principal
amount of this Note shall bear interest from the date hereof until maturity at a
fixed rate per annum equal to the lesser of (x) the highest rate permitted by
applicable law, or (y) twelve percent (12%) per annum. Interest on the principal
balance of this Note from time to time outstanding (i) from the date of this
Note through December 31, 1994 shall be due and payable on such date, and (ii)
thereafter shall be due and payable quarterly on or before the last date of each
March, June, September and December in each year in which this Note is
outstanding, commencing on March 31, 1995 through and including the Due Date (as
defined below).
The entire principal amount of this Note shall be due and
payable on or before December 31, 1996 (the "Due Date"), unless prepaid prior
thereto, without penalty or premium, pursuant to the terms of Section 3 hereof.
All past due principal and interest on this Note shall bear
interest from and after maturity until paid at eighteen percent (18%) per annum.
Regardless of any other provisions of this Note or in any
documents guaranteeing or securing payment hereof or otherwise relating hereto,
the Holder of this Note shall not be entitled to receive, collect or apply as
interest on the principal of this Note any amount in excess of the maximum rate
of interest allowable under applicable law, and if the Holder of this Note ever
receives, collects or applies as interest hereon any such excess, such amount
that would be excessive interest shall be deemed a partial prepayment of
principal and shall be treated as such, and if the principal is paid in full,
any remaining excess shall forthwith be paid to the Company. In determining
whether or not the interest paid or payable, under any specific contingency,
exceeds the maximum rate of interest allowable under applicable law, the Company
and the Holder shall, to the maximum extent permitted under
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<PAGE> 2
applicable law, (a) characterize any nonprincipal payment as an expense, fee, or
premium rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, and (c) spread the total amount of interest throughout the
entire contemplated term hereof, provided that if the indebtedness evidenced
hereby is paid and performed in full prior to the end of the full contemplated
term thereof, and if the interest received for the actual period of existence
thereof exceeds the maximum rate of interest allowable under applicable law, the
Holder shall either apply or refund to the Company the amount of such excess as
herein provided, and in such event, the Holder shall not be subject to any
penalties provided by any laws for contracting for, charging, or receiving
interest in excess of the maximum rate of interest allowable under applicable
law.
2. Security. This Note has been issued pursuant to, and is
entitled to all of the benefits of, a Subscription Agreement dated
_____________, 1994 (the "Subscription Agreement") between the Company and the
Holder and reference is hereby made to the Subscription Agreement for all
pertinent purposes. As described in the Subscription Agreement, this Note is to
be secured by a lien and security interest in the U.S. patents, to be acquired
by the Company, known by Patent Nos. 4,932,938, 5,114,398, 5,030,199, 5,041,092
and 5,234,409, and Patent Nos. 4,350,161, 4,432,757, and 4,946,449 (the
"Patents") under a Commercial Security Agreement (the "Security Agreement") of
even date herewith executed by UroCath Corporation, a wholly-owned subsidiary of
the Company, in favor of the Holders, reference to which is made herein for all
pertinent purposes.
3. Prepayments.
(a) Subject to any restrictions contained in the Subscription
Agreement, part or all of the principal and accrued interest on this Note may be
prepaid by the Company at any time after the date hereof upon 10 days' prior
written notice to the Holder, without premium or penalty.
(b) Deleted.
(c) In addition, all outstanding principal and interest owing
on this Note shall be paid in full upon the completion of the Company's initial
public offering of equity securities pursuant to an effective registration
statement filed with the Securities and Exchange Commission.
4. Event of Default. The occurrence or existence of any Event
of Default within the meaning of the Security Agreement shall constitute an
"Event of Default" under this Note.
5. Remedies. In case of the occurrence and continuance of an
Event of Default, the Holder of this Note may declare the entire unpaid
principal of this Note, and all accrued unpaid interest thereon, to be due and
payable immediately, and upon any such declaration the principal of this Note
and such accrued unpaid interest shall become immediately due and payable, and
the Holder of this Note may, on the terms and conditions
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<PAGE> 3
contained in the Security Agreement, thereupon proceed to protect and enforce
its rights either by suit in equity or by action at law or by other appropriate
proceedings, whether for specific performance (to the extent permitted by law)
of any covenant or agreement contained herein or in aid of the exercise of any
power granted herein, or proceed to enforce the payment of this Note or to
enforce any other legal or equitable right of the Holder.
If an Event of Default shall exist and this Note is placed in
the hands of an attorney for collection, or suit is filed herein, or proceedings
are had in bankruptcy, probate, receivership, reorganization or other judicial
proceedings for the establishment or collection of any amount called for
hereunder or any amount payable or to be payable hereunder is collected through
any such proceedings, the Company agrees to pay to the Holder hereof a
reasonable amount as costs, including attorney's or collection fees.
6. Notices, Miscellaneous. All notices, requests, consents and
other communications required or permitted under this Note shall be in writing
and shall be delivered in the manner and to the addresses set forth in the
Subscription Agreement.
The Company and all sureties, endorsers and guarantors of this
Note waive demand, presentment for payment, notice of nonpayment, protest,
notice of protest, notice of acceleration, notice of intent to accelerate, all
other notices, filing of suit and diligence in collecting this Note or enforcing
any security given therefor, and agree to any substitution, exchange, or release
of any security, with or without consideration, now or hereafter given for this
Note or the release of any party primarily or secondarily liable hereon. The
Company and all sureties, endorsers or guarantors of this Note further agree
that it will not be necessary for the Holder hereof, in order to enforce payment
of this Note, to first institute or exhaust its remedies against any maker or
any other party liable therefor or to enforce its rights against any security
for this Note.
7. Deleted.
8. Royalty. The Company shall pay the Holder a proportionate
share of five percent (5%) of the Net Sales Income received, if any, from the
sale of products covered by the Patents during the period from January 1, 1995
through December 31, 1996. Within thirty (30) days of the end of each calendar
quarter, the Company shall calculate the "Net Sales Income" received by the
Company or UroCath Corporation, during the previous calendar quarter from sales
of products covered by the Patents. "Net Sales Income" shall mean all payments
received for sales of products by UroQuest covered by any of the Patents less
packaging, shipping, insurance, returns, commissions and discounts. The Company
shall then send Holder a payment equal to five percent (5%) of the Net Sales
Income multiplied by a fraction, the denominator of which is the total principal
amount outstanding under all the Notes secured by the Patents and the numerator
of which is the principal balance outstanding under this Note. If the Net Sales
Income for any quarter is less than $100.00, the Company may defer that
quarter's payment until the end of the next quarter in which the cumulative Net
Sales Income, on which payments are owed, equals at least $100.00.
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<PAGE> 4
This Note shall be governed by, and construed and interpreted
in accordance with, the laws of the State of Florida and applicable Federal law.
IN WITNESS WHEREOF, the Company has authorized this Note to be
executed in its corporate name by a duly authorized officer this _____ day of
_____________, 1994.
UROQUEST CORPORATION
By: /s/
--------------------------------
Name:______________________________
Title:_____________________________
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<PAGE> 1
EXHIBIT 10.6
COMMERCIAL SECURITY AGREEMENT
(Patents)
This COMMERCIAL SECURITY AGREEMENT (Patents) (the "Agreement")
is entered into this 7th day of December, 1994, by UROCATH CORPORATION, a
Florida corporation, 14280 Carlson Circle, Tampa, Florida 33626 ("Debtor") for
the benefit of the individuals listed on the signature pages hereof as Secured
Party (hereinafter individually or collectively referred to as "Secured Party")
and Mr. James H. Martin as collateral agent for Secured Party (in such capacity,
"Collateral Agent").
FOR VALUE RECEIVED, the receipt and sufficiency of which is
hereby acknowledged, Debtor grants to Secured Party the security interest (and
the pledges and assignments as applicable) hereinafter set forth and agrees with
Secured Party as follows:
A. OBLIGATIONS SECURED. The security interests, pledges and
assignments granted hereby are to secure punctual payment and performance of all
obligations of Debtor now or hereafter existing under the Subscription Agreement
(the "Subscription Agreement") of even date herewith between Debtor and each
Secured Party, under the "Notes", as defined and described in the Subscription
Agreement and this Agreement, whether for principal, interest, fees, expenses or
otherwise (all such obligations being hereafter referred to as the
"Obligations"). Capitalized terms used but not defined herein which are defined
in the Subscription Agreement shall have the meaning assigned to such terms in
the Subscription Agreement.
B. DEFINITION OF TERMS USED HEREIN. As used herein, the
following terms shall have the following meanings:
Collateral. The patents (the "Patents") to be acquired by
Debtor known as United States Patents Nos. 4,932,938, 5,114,398, 5,030,199,
5,041,092, and 5,234,409, when hereafter acquired, and United States Patents
Nos. 4,350,161, 4,432,757, and 4,946,449, including (i) all reissues,
continuations, divisions, continuations-in-part or extensions thereof, (ii) all
inventions and processes disclosed therein, including the right to make, use or
sell the inventions and processes disclosed therein, and (iii) the right to sue
for past, present and future infringement of the foregoing.
Patent License. Any written agreement executed or to be
executed by Debtor granting to any third party any right to practice any
invention which is covered by any claim in any of the Patents which are part of
the Collateral.
Proceeds. Any consideration received by Debtor from the sale,
exchange, lease or other disposition of any asset or property which constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft or other involuntary conversion (of
whatever nature) of any asset or property which constitutes Collateral, any
claim of Debtor which constitutes Collateral, any claim of Debtor against third
parties for past, present or future
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<PAGE> 2
infringement of any patent or Patent License, and any and all other amounts from
time to time paid or payable under or in connection with any of the Collateral.
C. SECURITY INTEREST. As security for the obligations, Debtor
hereby sells, assigns, conveys, mortgages, hypothecates and transfers to Secured
Party and hereby grants to Secured Party a security interest in and agrees that
Secured Party shall continue to have a security interest in (and a pledge and
assignment as applicable), the Collateral.
D. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor
represents and warrants as follows:
1. Ownership: No Encumbrances. Except for the security
interest (and pledges and assignments as applicable) granted hereby, Debtor is
the exclusive licensee of all the Collateral free and clear from all charges,
liens, security interests, adverse claims and encumbrances of any and every
nature whatsoever pursuant to a License Agreement dated February 2, 1993 between
Surgitek, Inc. and Excalibur Engineering Corporation (and subsequently assigned
to the Debtor) ("License Agreement"). Upon exercise of the option provided to
the Debtor in the Option Agreement dated June 8, 1994 between Surgitek, Inc.,
Cabot Technology Corporation, and Cabot Medical Corporation and the Debtor,
payment of the Option Fee provided for therein from the proceeds of the Notes,
and execution of the appropriate assignment of the patents to Debtor, Debtor
shall be the owner of all the Collateral free and clear from all charges, liens,
security interests, adverse claims and encumbrances of any and every nature
whatsoever. The foregoing shall not be construed as a warranty that the
Collateral does not infringe upon any third party proprietary rights, although
Debtor is unaware of any such infringement and to Debtor's knowledge no
assertion of any such infringement has been made by any party.
2. No Financing Statements. There is no financing statement or
similar filing now on file in any public office covering any part of the
Collateral, nor is there any filing with the United States Patent and Trademark
Office for the purpose of perfection, confirming, continuing, enforcing or
protecting any security interest granted by Debtor in the Collateral, and Debtor
will not execute and there will not be on file in any public office any
financing statement or similar filing regarding the Collateral, except the
financing statements filed or to be filed in favor of Secured Party and the
filing of this Agreement with the United States Patent and Trademark Office.
3. Accuracy of Information. All information furnished to
Secured Party concerning Debtor and the Collateral, or otherwise for the purpose
of obtaining or maintaining credit, is or will be at the time the same is
furnished, accurate and complete in all material respects.
4. Authority. Debtor has full right and authority to execute
and perform this Agreement and to create the security interest (and pledges and
assignment as applicable) created by this Agreement. The making and performance
by Debtor of this Agreement will not violate any certificate of incorporation,
bylaws or similar document respecting Debtor, any provision of
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<PAGE> 3
law, any order of court or governmental agency, or any indenture or other
agreement to which Debtor is a party, or by which Debtor or any of Debtor's
property is bound, or be in conflict with, result in a breach of or constitute
(with due notice and/or lapse of time) a default under any such indenture or
other agreement, or result in the creation or imposition of any charge, lien,
security interest, claim or encumbrance of any and every nature whatsoever upon
the Collateral, except as contemplated by this Agreement.
5. Addresses. The address of Debtor designated at the
beginning of this Agreement is Debtor's place of business if Debtor has only one
place of business; Debtor's chief executive office if Debtor has more than one
place of business. Debtor agrees not to change such address without advance
written notice to Secured Party.
6. Use of Collateral. The Collateral will be used by Debtor
primarily in the conduct of Debtor's business.
E. COVENANTS REGARDING PATENT COLLATERAL.
1. Acquire Patents. Upon the successful closing of the
offering under which the Notes are purchased, the Debtor will exercise its
option to acquire the Patents under the Option Agreement, obtain an assignment
of the Patents and record that assignment and this Agreement with the U.S.
Patent and Trademark Office.
2. Patents. Debtor (either itself or through licensees) will,
for each Patent, not do any act, or omit to do any act, whereby any Patent which
is material to the conduct of Debtor's business may become invalidated or
dedicated, and shall continue to mark any products covered by a Patent with the
relevant patent number as required by the patent laws.
3. Notification. Debtor shall notify Secured Party immediately
if it knows or has reason to know that any Patent may become abandoned or
dedicated, or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office, United States
Copyright Office or any court) regarding such ownership of any patent, its right
to register the same, or to keep and maintain the same.
4. Maintenance. Debtor will take all necessary steps that are
consistent with the practice in any proceeding before the United States Patent
and Trademark Office or any similar office or agency in any other country or any
political subdivision thereof, to maintain each patent, including, without
limitation, filing of application for renewal, affidavits of use, affidavits of
incontestability and maintenance fees, and, where appropriate, to initial
opposition, interference and cancellation proceedings against third parties.
5. Infringement. If Debtor believes or knows that any
Collateral consisting of a Patent material to the conduct of Debtor's business,
is being infringed upon by a third party, Debtor shall notify Secured Party
within fifteen (15) days after it learns thereof and shall, if consistent with
good business practice, promptly sue for infringement and to recover any and all
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<PAGE> 4
damages for such infringement and take such other actions as are appropriate
under the circumstances to protect such Collateral.
6. Grant of License to Use Patent Collateral in Event of
Default. For the purpose of enabling Secured Party to exercise rights and
remedies under this Agreement, Debtor hereby grants to Secured Party an
irrevocable, nonexclusive license (exercisable without payment or royalty or
other compensation to Debtor following the occurrence of an "Event of Default",
as defined below) to use, license or sublicense any Patent.
7. Litigation. Debtor has no actual knowledge of any suits
pending, or litigation threatened which relate in any way to the Patents that
are material to the Debtor's business or operations.
F. EVENTS OF DEFAULT. Debtor shall be in default hereunder
upon the happening of any of the following events or conditions (each such
event, an "Event of Default"): (i) nonpayment when due (whether by acceleration
of maturity or otherwise) of any payment of principal, interest or any other
amount due on any Obligation; (ii) any representation or warranty made by Debtor
to Secured Party in connection with this Agreement, the Collateral or the
Obligations, or if any statements or certificates, proves incorrect in any
material respect as of the date of the making or the issuance thereof; (iii)
default occurs in the observance or performance of, or if Debtor fails to
furnish adequate evidence of performance of, any provision of this Agreement,
and such default continues uncured for 30 days after notice thereof delivered to
Debtor; (iv) dissolution, liquidation, termination of existence, insolvency,
business failure or winding-up of Debtor or any maker, endorser, guarantor,
surety or other party liable in any capacity for any of the Obligations; (v) the
application for appointment of a receiver or any other legal custodian for any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceedings under any bankruptcy, arrangement,
reorganization, insolvency or similar laws for the relief of debtors by or
against, Debtor or any maker, endorser, guarantor, security or other party
primarily or secondarily liable for any of the Obligations; or (vi) the filing
of any levy, attachment, execution, garnishment or other process against Debtor
or any of the Collateral or any maker, endorser, guarantor, surety, or other
party liable in any capacity for any of the Obligations.
Upon the occurrence of an Event of Default, Secured Party, at
its option, may declare the obligations or any part thereof immediately due and
payable, without demand, notice of intention to accelerate, notice of
acceleration, notice of nonpayment, presentment, protest, notice of dishonor, or
any other notice whatsoever, all of which are hereby waived by Debtor and any
maker, endorser, guarantor, surety or other party liable in any capacity for any
of the Obligations and thereafter shall be entitled to exercise any remedy
available to it.
G. REMEDIES. (a) Secured Party shall have all of the rights
and remedies provided for in this Agreement and in any other agreements executed
by Debtor, the rights and remedies in the Uniform Commercial Code of any
applicable jurisdiction, and any and all of the rights and remedies at law and
equity, all of which shall be deemed cumulative. Without limiting the foregoing,
Debtor agrees that Secured Party shall have the right to (a) require Debtor to
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<PAGE> 5
assemble the Collateral and make it available to Secured Party at a place
designated by Secured Party that is reasonably convenient to both parties, which
Debtor agrees to do; (b) take possession of the Collateral, with or without
process of law, and, in this connection, enter any premises where the Collateral
is located to remove same, to render it unusable, or to dispose of same on such
premises; (c) sell, lease or otherwise dispose of the Collateral, by public or
private proceedings, for cash or credit, without assumption of credit risk;
and/or (d) whether before or after default, collect and receipt for, compound,
compromise, and settle and give releases, discharges and acquittances with
respect to, any and all amounts owned by any person or entity with respect to
the Collateral. Secured Party will send Debtor reasonable notice of the time and
place of any public sale or of the time after which any private sale or other
disposition will be made. Any requirement of reasonable notice to Debtor shall
be met if such notice is mailed, postage prepaid, to Debtor at the address of
Debtor designated at the beginning of this Agreement, at lease five (5) days
before the day of public sale or at least five (5) days before the time after
which any private sale or other disposition will be made.
(b) The rights and remedies of Secured Party are cumulative
and the exercise of any one or more of the rights or remedies shall not be
deemed an election of rights or remedies or a waiver of any other right or
remedy. Secured Party may remedy any default and may waive any default without
waiving the default remedied or without waiving any other prior or subsequent
default.
H. COLLATERAL AGENT. (a) Each Secured Party hereby designates
and appoints Mr. James H. Martin to act as such Secured Party's agent (herein in
such capacity, "Collateral Agent") and to take such action as agent of such
Secured Party on his behalf and to exercise such rights and remedies under this
Agreement as are specifically delegated to or required by Collateral Agent under
the terms and provisions of this Agreement. Collateral Agent shall have no
independent duty to enforce any provisions of this Agreement absent direction.
Collateral Agent is hereby expressly authorized as agent and trustee on behalf
of each Secured Party, and Collateral Agent hereby agrees, to do the following:
(i) upon the occurrence and continuance of an Event of Default
and upon Collateral Agent's obtaining the written consent from the
holders of at least fifty-one percent (51%) of the outstanding
principal balance of the Notes, to exercise on behalf of Secured Party
all of the rights and remedies a secured party available under this
Agreement and under the Uniform Commercial Code in effect in any
applicable jurisdiction or otherwise available to it under applicable
law; and
(ii) release the Collateral within five (5) days of the
earlier of (1) the Collateral Agent's receipt of the written consent
from all of the holders of the Notes or (2) the Collateral Agent's
receipt of a certificate executed by Company's President stating that
all Notes have been paid and a copy of all outstanding Notes marked
"cancelled" by the Company.
(b) Collateral Agent shall not be required to take any action
which exposes him to personal liability or which is contrary to this Agreement
or applicable law; however, Collateral
-5-
<PAGE> 6
Agent shall be required to act or to refrain from acting upon the instruction of
the holders as provided in subsection (a) above, and such instruction shall be
binding on all Secured Parties. THE DUTIES OF COLLATERAL AGENT SHALL BE
MECHANICAL AND ADMINISTRATIVE IN NATURE, AND COLLATERAL AGENT SHALL NOT HAVE BY
REASON OF THIS AGREEMENT A FIDUCIARY RELATIONSHIP WITH DEBTOR OR ANY SECURED
PARTY. NOTHING IN THIS AGREEMENT, EXPRESSED OR IMPLIED, IS INTENDED TO, OR SHALL
BE CONSTRUED AS TO, IMPOSE UPON COLLATERAL AGENT ANY FIDUCIARY DUTY OR
OBLIGATION IN RESPECT OF THIS AGREEMENT.
I. APPOINTMENT OF SECURED PARTY AS ATTORNEY-IN-FACT. Debtor
irrevocably appoints Secured Party and any officer or agent thereof, with a full
power of substitution, as its true and lawful attorney-in-fact to take any and
all appropriate action in Secured Party's discretion and to execute any and all
documents and instruments which Secured party may deem necessary and desirable
to accomplish the purpose of this Agreement, including without limitation, to
bring suit to enforce or defend any of the Patents; to demand, collect, recover
and give receipts with respect to any sums due under any of the Collateral and
to receive, endorse and collect any drafts, instruments or documents of title
with respect to any Collateral, to remove any Collateral from the property venue
owner, encumbrancer or other person having any interest in the property where
any Collateral is located, and in connection therewith, Secured Party is
authorized to show a copy of this Agreement to such person as evidence of
Debtor's appointment of Secured Party as Debtor's agent and lawful
attorney-in-fact and of Debtor's authorization to allow Secured Party to remove
any collateral from said property; provided however, that Secured Party will not
exercise its rights, except upon the occurrence and during the continuation of
any Event of Default. This power of attorney is a power coupled with an interest
and shall be irrevocable.
J. EXPENSES. Debtor shall be liable for and agrees to pay the
reasonable expenses incurred by Secured Party in enforcing its rights and
remedies, in retaking, holding, testing, repairing, improving, selling, leasing
or disposing of the Collateral, or like expenses, including without limitation,
attorneys' fees and legal expenses incurred by Secured Party. These expenses,
together with interest thereon from the date incurred until paid by Debtor at
the maximum contract rate allowed under applicable laws, which Debtor agrees to
pay, shall constitute additional Obligations, and shall be secured by and
entitled to the benefits of this Agreement.
K. PROCEEDS; SURPLUS; DEFICIENCIES. Proceeds received by
Secured Party from disposition of the Collateral shall be applied toward Secured
Party's expenses and other Obligations in such order or manner as Secured Party
may elect. Debtor shall be entitled to any surplus if one results after lawful
application of the proceeds. Debtor shall remain liable for any deficiency.
-6-
<PAGE> 7
L. MISCELLANEOUS.
1. Savings Clause. Notwithstanding any provision to the
contrary herein, or in any of the documents evidencing the Obligations or
otherwise relating thereto, no such provision shall require the payment or
permit the collection of interest in excess of the maximum permitted by
applicable usury laws. If any such excessive interest is so provided for, then
in such event (i) the provision of this paragraph shall govern and control, (ii)
neither Debtor nor its legal representatives, successors or assigns or any other
party liable for the payment thereof, shall be obligated to pay the amount of
such interest to the extent that is in excess of the maximum amount permitted by
law, (iii) any such excess interest that may have been collected shall be, at
the option of the holder of the instrument evidencing the Obligations, either
applied as a credit against the then unpaid principal amount thereof or refunded
to the maker thereof, and (iv) the effective rate of interest shall be
automatically reduced to the maximum lawful rate under applicable usury laws as
now or hereafter construed by the courts having jurisdiction.
2. Waivers. Debtor and any maker, endorser, guarantor, surety
or other party liable in any capacity respecting the Obligations hereby waive
demand, notice of intention to accelerate, notice of acceleration, notice of
nonpayment, presentment, protest, notice of dishonor and any other similar
notice whatsoever.
3. Severability. Any provision hereof found to be invalid by
courts having jurisdiction shall be invalid only with respect to such provision
(and then only to the extent necessary to avoid such invalidity). The offending
provision shall be modified to the maximum extent possible to confer upon
Secured Party the benefits intended thereby. Such provision as modified and the
remaining provisions hereof shall be construed and enforced to the same effect
as if such offending provision (or portion thereof) had not been contained
herein, to the maximum extent possible.
4. Use of Copies. Any carbon, photographic or other
reproduction of this Agreement or any financing statement signed by Debtor
insufficient as a financing statement for all purposes, including without
limitation, filing any state as may be permitted by the provision of the Uniform
Commercial Code of such jurisdiction.
5. Relationship to Other Agreements. This Agreement and the
security interests (and pledges and assignments as applicable) herein granted
are in addition to (and not in substitution, novation or discharge of) any and
all prior or contemporaneous security agreements, security interests, pledges,
assignments, liens, rights, titles or other interests in favor of Secured Party
or assigned to Secured Party by others in connection with the Obligations. All
rights and remedies of Secured Party in all such agreements are cumulative, but
in the event of actual conflict in terms and conditions, the terms and
conditions of the latest security agreement shall govern and control.
6. Notices. Any notice, consent or demand given by any party
hereto in connection with this Agreement, the Collateral or the Obligations
shall be deemed given and
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<PAGE> 8
effective upon deposit in the United States mail, postage prepaid, and if
addressed to Debtor, at the address of Debtor designated at the beginning of
this Agreement, if to Collateral Agent, at R. F. D. W10681, Hwy. 127, Portage,
WI 53901. Actual notice to Debtor shall always be effective no matter how given
or received.
7. Headings and Gender. Paragraph headings in this Agreement
are for convenience only and shall be given no meaning or significance in
interpreting this Agreement. All words used herein shall be construed to be of
such gender or number as the circumstances require.
8. Amendments. Neither this Agreement nor any of its
provisions may be changed, amended, modified, waived or discharged orally, but
only by an instrument in writing signed by the party against whom enforcement of
the change, amendment, modification, waiver or discharge is sought.
9. Continuing Agreement. The security interest (and pledges
and assignments as applicable) hereby granted and all of the terms and provision
in this Agreement shall be deemed a continuing agreement. All of the covenants
and agreements of Debtor herein shall survive the execution and delivery of this
Agreement and shall continue in force until the Obligations are paid in full and
a written release hereof is executed by Secured Party. No release of this
Agreement or the security interest thereof shall be valid unless executed by
Secured Party or its successors or assigns.
10. Binding Effect. The provision of this Agreement shall be
binding upon the heirs, personal representatives, successors and assigns of
Debtor and the rights, powers and remedies of Secured Party hereunder shall
inure to the benefit of the successors and assigns of Secured Party.
11. Acceptance by Secured Party. Debtor waives acceptance and
notice of acceptance of this Agreement by Secured Party.
12. Governing Law. This Agreement shall be governed by the
laws of the State of Florida and applicable Federal law.
-8-
<PAGE> 9
EXECUTED this 7th day of December, 1994.
DEBTOR:
UROCATH CORPORATION
By: /s/
---------------------------
Name: Gregory S. Ayers
Title: Vice President, Finance
SECURED PARTY:
Name: Address:
- --------------------- --------------------------------
--------------------------------
--------------------------------
Name: Address:
- --------------------- --------------------------------
--------------------------------
--------------------------------
Name: Address:
- --------------------- --------------------------------
--------------------------------
--------------------------------
Name: Address:
- --------------------- --------------------------------
--------------------------------
--------------------------------
-9-
<PAGE> 10
COLLATERAL AGENT:
By:
-----------------------------
Name: James H. Martin
---------------------------
-10-
<PAGE> 11
SCHEDULE I
PATENTS
<TABLE>
<CAPTION>
Patent No. Title
- ---------- -----
<S> <C>
4,932,938 Urethral Indwelling Catheter with Incontinence
Control
5,114,398 Female Incontinence Control Device with Mechanically
Operable Valve
5,030,199 Female Incontinence Control Device with Mechanically
Operable Valve and Method
5,041,092 Urethral Indwelling Catheter with Magnetically
Controlled Drainage Valve and Method
5,234,409 Female Incontinence Control Device and Method
4,350,161 Indwelling Urethral Catheter and Method
4,432,757 Indwelling Urethral Catheter
4,946,449 Indwelling Urethral Catheter System and Method
</TABLE>
-11-
<PAGE> 1
EXHIBIT 10.23
LEASE AGREEMENT
( 265 East 100 South Office Building)
THIS LEASE AGREEMENT (the "Lease") is made and entered into as of this
6th day of July , 1995 , by and between 265 East Associates ("Landlord"), and
UroQuest Corporation ("Tenant").
For and in consideration of the rental to be paid by Tenant and of the
covenants and agreements herein set forth to be kept and performed by Tenant,
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, the
Leased Premises (as hereinafter defined) and certain other areas, rights and
privileges for the term, at the rental and subject to and upon all of the terms,
covenants and agreements hereinafter set forth.
I. PREMISES
1.1 Description of Premises. Landlord does hereby demise, lease and
let unto Tenant, and Tenant does hereby take and receive from Landlord the
following:
(a) That certain floor area containing approximately 2,331 square
feet (the "Leased Premises") on the 2nd floor(s) of the office
building (the "Building"), located at 265 East 100 South #220 in Salt
Lake City, Salt Lake County Utah, on the real property (the
"Property") described on Exhibit "A" attached hereto and by this
reference incorporated herein. The Leased Premises consist of that
certain area crosshatched on Exhibit "B" which is attached hereto and
by this reference incorporated herein.
(b) The non-exclusive right to Tenant's Proportionate Share of
the Common Areas (as defined in Section 20.1 below) which area is 411
square feet.
(c) Such non-exclusive rights-of-way, easements and similar
rights with respect to the Building and the Property as may be
reasonably necessary for access to and egress from, the Leased
Premises and Tenant's pro-rata portion of the Common Areas.
(d) The non-exclusive right to use those areas designated and
suitable for vehicular parking, including the non-exclusive right to
the use of four ( 4 ) parking stalls.
<PAGE> 2
1.2 Work of Improvement. The obligations of Landlord and Tenant to
perform the work and supply the necessary materials and labor to prepare the
Leased Premises for occupancy are described in detail on Exhibit "C". Landlord
and Tenant shall expend all funds and do all acts required of them as described
on Exhibit "C" and shall perform or have the work performed promptly and
diligently in a first class and workmanlike manner.
1.3 Changes to Building. Landlord hereby reserves the right at any
time and from time to time to make changes, alterations or additions to the
Building, the Improvements (as hereinafter defined) or to the Property. Landlord
agrees that any such changes shall be made in a manner calculated to avoid
unreasonably interfering with Tenant's use of the Leased Premises as provided in
Part VI entitled USE.
II. TERM
2.1 Length of Term. The term of this Lease shall be for a period of
Sixty ( 60 ) months plus the partial calendar month, if any, occurring after the
Commencement Date (as hereinafter defined) if the Commencement Date occurs other
than on the first day of a calendar month.
2.2 Commencement Date; Obligation to Pay Rent. The term of this Lease
and Tenant's obligation to pay rent hereunder (as modified hereinbelow) shall
commence on the last to occur of the following dates (the "Commencement Date"):
(a) September 1, ,1995.
(b) The date N/A ( ) days after Landlord, or Landlord's
supervising contractor, notified Tenant in writing that Landlord's
construction obligations respecting the Leased Premises have been
completed or that the Leased Premises are ready for occupancy and/or
the performance of Tenant's work.
2.3 Acknowledgment of Commencement Date. In the event the Commencement
Date occurs other than on the date set forth in Section 2.2 (a) above, Landlord
and Tenant shall execute a written acknowledgment of the Commencement Date in
the form attached hereto as Exhibit "D".
2.4 Renewal Term. Tenant shall have the right to extend this Lease for
One ( 1 ) additional term(s) of Five ( 5 ) years each upon giving Landlord
written notice not less than six (6) months prior to the expiration of the
current term hereof.
2
<PAGE> 3
III. BASIC RENTAL PAYMENTS
3.1 Basic Annual Rent. Tenant agrees to pay to Landlord as basic
annual rent (the "Basic Annual Rent") at such place as Landlord may designate,
without prior demand therefore and without any deduction or offset whatsoever,
the sum of **Thirty-seven Thousand Seventeen and no/100** Dollars ($37,017.00).
Said Basic Annual Rent shall be due and payable in twelve (12) equal monthly
installments to be paid in advance on the first day of each calendar month
during the term of this Lease. Simultaneously with the execution hereof Tenant
has paid to Landlord the first month's rent, receipt whereof is hereby
acknowledged, subject to collection however if made by check. In the event the
Commencement Date occurs on a day other than the first day of a calendar month,
then the rent to be paid on the Commencement Date shall also include the rent
for the initial fractional calendar month prorated on a per-diem basis (based
upon a thirty (30) day month), and paid on the Commencement Date.
3.2 Additional Monetary Obligations. Tenant shall also pay as base
rental (in additional to the Basic Annual Rent) all other sums of money as shall
become due and payable by Tenant to Landlord under the terms of this Lease.
Landlord shall have the same remedies in the case of a default in the payment of
said other sums of money as are available to Landlord in the case of a default
in the payment of one or more installments of Basic Annual Rent.
3.3 Rental Adjustment. The Basic Annual Rent shall be adjusted at the
end of every three (3) years of the term of this Lease. The amount to be
adjusted on each adjustment date is **Thirteen and 50/100 dollars** ($13.50 )
per square foot. The rental adjustment at the end of each three year period
shall be the percent increase in the Consumer Price Index (All Products for the
nation as a whole) as determined by the United States Department of Labor for
the most recently available previous three (3) year period when calculated two
(2) months prior to the end of the then current thirty-six month period. In the
event the Consumer Price Index is no longer available the rental adjustment
shall be calculated using the index that most closely approximates or replaces
the Consumer Price Index. In no event shall the rental adjustment be a negative
number.
IV. ADDITIONAL RENT
4.1 Definitions. For purposes of this Part IV and the Lease in
general, the following words and phrases shall have the meaning set forth below:
(a) "Basic Costs" shall mean all actual costs and expenses
incurred by Landlord in connection with the ownership, operation,
management and maintenance of the
3
<PAGE> 4
Building and the Property (including all Common Areas) and related
improvements located thereon (the "Improvements"), including, but not
limited to, all expenses incurred by Landlord as a result of Landlord's
compliance with any and all of its obligations under this Lease (or
under similar leases with other tenants) other than the performance by
Landlord of its work under Section 1.3 of this Lease or similar
provisions of leases with other tenants. In explanation of the
foregoing, and not in limitation thereof, Basic Costs shall include:
all real and personal property taxes and assessments (whether general
or special, known or unknown, foreseen or unforeseen) and any tax or
assessment levied or charged in lieu thereof, whether assessed against
Landlord and/or Tenant and whether collected from Landlord and/or
Tenant; snow removal, trash removal, utilities, supplies, insurance,
license permit and inspection fees, cost of services of independent
contractors, property management fees, cost of compensation (including
employment taxes and fringe benefits) of all persons who perform
regular and recurring duties connected with the day-to-day operation,
maintenance, repair and replacement to the Building, its equipment and
the adjacent walk, and landscaped areas and including janitorial
services for common areas, scavenger, gardening, security, parking,
elevator, painting, plumbing, electrical, carpentry, heating,
ventilation, air conditioning, window washing, signing and advertising,
but excluding persons performing services not uniformly available to or
performed for substantially all Building tenants; and rental expense or
a reasonable allowance for depreciation of personal property used in
the maintenance, operation and repair of the Building. The foregoing
notwithstanding, Basic Costs shall not include depreciation on the
Building and the Improvements or amounts of principal or interest paid
on the loans of Landlord or the cost of maintenance of the structural
systems of the Building. Tenant shall pay its Proportionate Share of
Basic Costs of the Building which Proportionate Share shall be
determined by multiplying the expenses in question by a fraction, the
numerator of which shall be the rentable square footage of the Leased
Premises and the denominator of which shall be the average rentable
square footage in the Building during the year in which the Basic Costs
are then being calculated.
(b) "Direct Costs" shall mean all actual costs and expense
incurred by Landlord in connection with the operation, management,
maintenance, replacement, and repair of the Leased Premises, including
but not limited to janitorial services, maintenance, repairs, supplies,
utilities, heating, ventilation, air conditioning, and property
management fees (provided said fees are in line
4
<PAGE> 5
with percentage fees charged for similar buildings). Tenant shall pay
to Landlord the Direct Costs Landlord incurs in the manner described
hereinbelow.
(c) "Estimated Basic Costs" shall mean the projected amount of
Tenant's Proportionate Share of Basic Costs and all Direct Costs. The
Estimated Basic Costs for the calendar year in which this Lease
commences are Eleven Thousand Six Hundred Eighty and 92/100 dollars ($
11,680.92 ), and are included in the Basic Annual Rent. If the
Estimated Basic Costs as of the date Tenant takes occupancy are greater
than Tenant's Estimated Basic Costs at the time this Lease is executed,
the Estimated Basic Costs shall be increased to equal the Estimated
Basic Costs as of the date of Tenant's occupancy.
(d) "Tenant's Proportionate Share of Basic Costs" shall mean
the percentage determined by the fraction the numerator of which is the
rentable square footage of the Leased Premises and the denominator of
which is the rentable square footage of the Building. For the purposes
of this Lease Tenant's Proportionate Share of Basic Costs is initially
3.8 %.
4.2 Report of Basic Costs, Direct Costs and Statement of Estimated
Basic Costs. After the expiration of each calendar year occurring during the
term of this Lease, Landlord shall furnish Tenant a written statement of the
actual Basic Costs occurring during such year and shall specify Tenant's
Proportionate Share of Basic Costs and Tenant's Direct Costs for such year. The
written statement shall also specify the amount by which Tenant's Proportionate
Share of Basic Costs and Tenant's Direct Costs exceeds or is less than the
Estimated Basic Costs paid by Tenant as part of its Basic Annual Rent. Landlord
shall also furnish Tenant a written statement of the projected Estimated Basic
Costs for the then current calendar year. In the event the projected Estimated
Basic Costs for the current year exceeds the amount set forth in Section 4.1(c)
above, Tenant shall pay as part of the Basic Annual Rent one-twelfth of such
excess during such year of the Lease, including a retroactive adjustment, if
necessary, in the month the written statement is received.
4.3 Payment of Additional Rent. Tenant shall pay as additional rent
(the "Additional Rent") the amount of any excess of Tenant's Proportionate Share
of Basic Costs and Tenant's Direct Costs over the Estimated Basic Costs. The
Additional Rent shall be paid as follows:
(a) Within thirty (30) days after delivery of the written
statement referred to in Section 4.2 above, Tenant shall pay to
Landlord the amount by which Tenant's Proportionate Share of Basic
Costs and Tenant's Direct Costs, as specified in such written
statements,
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<PAGE> 6
exceeds the aggregate of Estimated Basic Costs actually paid by Tenant
for the year at issue. Payments by Tenant shall be made pursuant to
this Section 4.3(a) notwithstanding that a statement pursuant to
Section 4.2 is furnished to Tenant after the expiration of the term of
this Lease.
(b) If the annual statement of Estimated Basic Costs indicates
that the amount actually paid by Tenant pursuant to this Part 4 for any
year exceeded Tenant's actual Direct Costs and Proportionate Share of
Basic Costs for the same year, Landlord, at its election, may either
(i) promptly pay the amount of such excess to Tenant, or (ii) apply
such excess against any subsequent installment of Basic Annual Rental
or Additional Rent due hereunder.
4.4 Resolution of Disagreement. Every statement given by Landlord
pursuant to Section 4.2 shall be conclusive and binding upon Tenant unless (i)
within thirty (30) days after the receipt of such statement Tenant shall notify
Landlord that it disputes the correctness thereof, specifying the particular
respects in which the statement is claimed to be incorrect. If such dispute
shall not have been settled by agreement, the parties hereto shall submit the
dispute to arbitration within sixty (60) days after receipt of the statement.
Pending the determination of such dispute by agreement or arbitration as
aforesaid, Tenant shall within thirty (30) days after receipt of such statement,
pay Additional Rent in accordance with Landlord's statement, and such payment
shall be without prejudice to Tenant's position. If the dispute shall be
determined in Tenant's favor, Landlord shall forthwith pay Tenant the amount of
Tenant's overpayment of rents resulting from compliance with Landlord's
statement. Landlord agrees to grant Tenant reasonable access to Landlord's books
and records for the purpose of verifying Estimated Basic Costs incurred by
Landlord.
4.5 Limitations. Nothing contained in this Part IV shall be construed
at any time so as to reduce the monthly installments of Basic Annual Rent
payable hereunder below the initial amount set forth in Section 3.1 of this
Lease.
V. SECURITY DEPOSIT
5.1 Deposit. Tenant has deposited with Landlord the sum of **Ten
Thousand and no/100 dollars** ($ 10,000.00 ) as security for the performance by
Tenant of all of the terms, covenants, and conditions required to be performed
by it hereunder. Such sum shall be returned to Tenant after the expiration of
the term of this Lease and delivery of possession of the Leased Premises to
Landlord if, at such time, Tenant has performed all such terms, covenants, and
conditions of this Lease. Prior to the time when Tenant is entitled to any
return of the
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<PAGE> 7
security deposit, Landlord may intermingle such deposit with its own funds and
use such sum for sure purposes as Landlord may determine. Tenant shall not be
entitled to any interest on the security deposit.
5.2 Default. In the event of default by Tenant in respect to any of
its obligations under this Lease, including, but not limited to, the payment of
rent or additional rent, Landlord may use, apply, or retain all or any part of
the security deposit for the payment of any unpaid Basic Annual Rent or
Additional Rent, or for any other amount which Landlord may be required to
expend by reason of the default of Tenant, including any damages or deficiency
in the reletting of the Leased Premises, regardless of whether the accrual of
such damages or deficiency occurs before or after an eviction or a portion of
the security deposit is so used or applied, Tenant shall, upon five (5) days
written demand, deposit cash with Landlord in an amount sufficient to restore
the security deposit to its original amount.
VI. USE
6.1 Use of Leased Premises. The Leased Premises are to be used for
general office purposes only and for no other purpose whatsoever without the
prior written consent of Landlord.
6.2 Prohibition of Certain Activities or Uses. Tenant shall not do or
permit anything to be done in or about or bring or keep anything in the Leased
Premises which is prohibited by this Lease or will, in any way or to any extent:
(a) Adversely affect any fire, liability or other insurance
policy carried with respect to the Building and the Improvements or any
of the contents of the Building of which Tenant has knowledge (except
with Landlord's express written permission which will not be
unreasonably withheld, but which may be contingent upon Tenant's
agreement to bear any additional costs, expenses or liability for the
risk that may be involved).
(b) Obstruct or interfere with any right of any other tenant
or occupant of the Building or injure or annoy such persons;
(c) Conflict with or violate any law, statute, ordinance,
rule, regulation or requirement of any governmental unit, agency or
authority (whether existing or enacted as promulgated, in the future,
known or unknown, foreseen or unforeseen).
(d) Adversely overload the floors or otherwise damage the
structural soundness of the Leased Premises or the Building, or any
part thereof (except with
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<PAGE> 8
Landlord's express written permission, which will not be unreasonably
withheld, but which may be contingent upon Tenant's agreement to bear
any additional costs, expenses or liability for the risk that may be
involved).
(e) Adversely use the Leased Premises in a manner that
severely affects the services provided by Landlord (such as utilities
or trash removal etc.). In the event such adverse use occurs which
requires Landlord to provide services on a more frequent basis than
normally required (such as removing trash more often than once per week
or using the power supplied by Landlord in amounts not disclosed at or
prior to the signing of this Lease) Tenant shall be responsible for
providing and paying for any such service that may be necessary to
meets its extraordinary needs.
6.3 Affirmative Obligations With Respect to Use. Tenant shall, at its
sole cost and expense, comply with all governmental laws, ordinances,
regulations, and requirements, now in force or which hereafter may be in force,
of any lawful governmental body or authorities having jurisdiction over the
Leased Premises, will keep the Leased Premises and every part thereof in a
clean, neat, and orderly condition, free of objectionable noise, odors or
nuisances, and which in all respects and at all times fully comply with all
health and policy regulations, and shall not suffer, permit, or commit any waste
thereon.
6.4 Suitability. Tenant acknowledges that except as expressly set
forth in this Lease, neither Landlord nor any other person has made any
representation or warranty with respect to the Leased Premises or any other
portion of the Building, the Improvements or the Property. Specifically, but not
in limitation of the foregoing, no representation has been made or relied on
with respect to the suitability of the Leased Premises or any other portion of
the Building, the Improvements or the Property for the conduct of Tenant's
business. The Leased Premises, the Building, the Improvements and the Property
(and each and every part thereof) shall be deemed to be in satisfactory
condition unless, within fifteen (15) days after the Commencement Date, Tenant
shall give Landlord written notice specifying, in reasonable detail, the
respects in which the Leased Premises, the Building, the Improvements or the
Property are not in satisfactory condition.
6.5 Taxes. Tenant shall pay all taxes, assessments, charges, and fees
which during the term hereof may be imposed, assessed or levied by any
governmental or public authority against or upon Tenant's use of the Leased
Premises or any personal property or fixture kept or installed therein by Tenant
and on the value of leasehold improvements to the extent that the same exceed
Building allowances.
8
<PAGE> 9
VII. UTILITIES AND SERVICE
7.1 Obligation of Landlord. During the term of this Lease Landlord
agrees to cause to be furnished to the Leased Premises during customary business
hours and during generally recognized business days (mutually agreed hereby to
be Monday thru Friday from 7:30 a.m. to 6:00 p.m. excepting all Federal and Utah
state holidays) the following utilities and services:
(a) Electricity, water, gas and sewer service.
(b) Telephone connection, but not including telephone stations
and equipment (it being expressly understood and agreed that Tenant
shall be responsible for the ordering and installation of telephone
lines and equipment which pertain to the Leased Premises).
(c) Heat and air-conditioning to such extent and to such levels
as, in Landlord's judgment, is reasonably required for the comfortable
use and occupancy of the Leased Premises subject however to any
limitations imposed by any government agency. The parties agree and
understand that the above heat and air-conditioning will be provided
Monday through Friday from 7:30 a.m. to 6:00 p.m. In the event Tenant
uses the Leased Premises on an after-hours basis all said use will be
charged to Tenant at the rate of $6.00 per hour for any and all periods
of after-hours usage.
(d) Window washing of the exterior surface of all windows.
(e) Security (including the lighting of common halls, stairways,
entries and restrooms) to such extent as is usual and customary in
similar buildings in Salt Lake County, Utah.
(f) Snow removal service.
(g) Landscaping and groundskeeping service.
(h) Elevator service.
(i) Trash removal service.
(j) Janitorial service for all of Tenant's space. Said service
will be provided in accordance with similar services normally provided
to tenants of first class office buildings and shall be intended to
keep the office portions of the Leased Premises in a reasonably clean
condition.
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<PAGE> 10
7.2 Tenant's Obligations. Tenant shall arrange for and shall pay the
entire cost and expense of all telephone stations, equipment and use charges,
and all other materials and services not expressly required to be provided and
paid for pursuant to the provisions of Section 7.1 above.
7.3 Additional Limitations.
(a) Tenant shall not, without the written consent of Landlord,
which consent shall not be unreasonably withheld use any apparatus or
device on the Leased Premises (including but without limitation
thereto, electronic data processing machines, punch card machines using
current in excess of 110 volts) which will in any way or to any extent
increase the amount of electricity or water usually furnished or
supplied for use of the Leased Premises for the use designated in
Section 6.1 above, nor connect with electrical current, except through
existing electrical panels or outlets in the Leased Premises, or water
pipes, any apparatus or device, for the purposes of using electric
current or water.
(b) If Tenant shall require water or electric current in
excess of that usually furnished or supplied for use of the Leased
Premises for purposes other than those designated in Section 6.1 above,
Tenant shall first procure the consent of Landlord for the use thereof,
which consent shall not be unreasonably withheld. Landlord may cause a
water meter or electric current meter to be installed in the Leased
Premises, so as to measure the amount of water and electric current
consumed for any such other use, The cost of such meters and the
installation, maintenance, and repair thereof shall be paid for by
Tenant and Tenant agrees to pay Landlord within thirty (30) days of
demand therefore by Landlord for all such water and electric current
consumed as shown by said meters, at the rates charged for such
services by the service provider or local public utility furnishing the
same, plus any additional expense directly incurred in keeping account
of the water and electric current so consumed.
(c) If and where heat generating machines or devices are used
in the Leased Premises, which affect the temperature otherwise
maintained by the air conditioning system, Landlord reserves the right
to install additional or supplementary air conditioning units for the
Leased Premises, and the entire cost of installing, operating,
maintaining and repairing the same shall be paid by Tenant to Landlord
promptly after demand by Landlord.
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(d) Tenant shall have the right to install and maintain in the
Leased Premises at its sole cost and expense, a unit or units necessary
or desirable to supply heat, ventilation, and air conditioning to any
portion of the Leased Premises, subject to compliance with all
applicable ordinances and regulations. The electrical power utilized in
the operation of such unit or units shall be paid for by Tenant.
7.4 Limitation on Landlord's Liability. Landlord shall not be liable
for and Tenant shall not be entitled to terminate this Lease or to effectuate
any abatement or reduction of rent by reason of Landlord's failure to provide or
furnish any of the foregoing utilities or services if such failure was
reasonably beyond the control of Landlord. In no event shall Landlord be liable
for loss or injury to persons or property, however arising, occurring in
connection with or attributable to any failure to furnish such utilities or
services except where such loss or injury arises wholly or in part from an act
or omission, negligence, or willful misconduct of Landlord, its employees or
agents. In no event shall Landlord be liable for any indirect, incidental,
special or consequential damages, including loss of profit or revenue(s), even
if advised of the possibility thereof.
VIII. MAINTENANCE AND REPAIRS; ALTERATIONS; ACCESS
8.1 Maintenance and Repairs by Landlord. Landlord shall maintain in
good order, condition and repair the Building, the Improvements and the
Property, as a first class office building including the Leased Premises and
those other portions of the Building leased, rented or otherwise occupied by
persons not affiliated with Landlord. Landlord agrees to exercise its rights as
Landlord to require such other nonaffiliated persons to maintain and repair
their respective premises where their failure to do so adversely affects
Tenant's use of the Leased Premises as described in Part VI of this Lease.
Landlord shall supply and pay for normal janitorial and cleaning services
reasonably required to keep the Building, the Improvements and the Property in a
clean, sanitary and orderly condition, the cost and expense of which shall be
included in Basic Costs. Landlord shall pay for major maintenance and repairs of
the Leased Premises as originally leased (but not including Tenant's additions
and fixtures) so long as the need for the same does not result from any wrongful
or negligent act of Tenant or its employees, invitees, or licensees, in which
event Tenant shall bear all costs and expenses incurred to restore the Leased
Premises to their original condition.
8.2 Maintenance and Repairs by Tenant. Tenant, at Tenant's sole cost
and expense and without prior demand being made, shall, subject to Section 8.1
above, maintain the Leased Premises in good order, condition and repair,
reasonable wear and tear excepted, including all equipment and fixtures
installed by Tenant. Tenant expressly and irrevocably waives the benefit or
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applicability of any statute now or hereafter in effect which would otherwise
afford Tenant the right to make repairs at Landlord's expense or to terminate
this Lease because of Landlord's failure to keep the Leased Premises in good
order, condition, and repair.
8.3 Alterations. Except as set forth on Exhibit "C' attached hereto,
and as provided in Section 8.4 below, Tenant shall not make or cause to be made
any alterations, additions or improvements or install or cause to be installed
any fixtures, signs, floor coverings, interior or exterior lighting, plumbing
fixtures, or shades or awnings, or make any other changes to the Leased Premises
without first obtaining Landlord's written approval, which shall not be
unreasonably withheld. Tenant shall present to Landlord plans and specifications
for such work at the time approval is sought. In the event Landlord consents to
the making of any alterations, additions, or improvements to the Leased Premises
by Tenant, the same shall be made by Tenant at Tenant's sole cost and expense.
All such work with respect to any alterations, additions, and changes shall be
done in a good and workmanlike manner and diligently prosecuted to completion.
Any such alterations, additions, or changes shall be performed and done strictly
in accordance with all laws and ordinances relating thereto. In performing the
work of any such alterations, additions, or changes, Tenant shall have the same
performed in such a manner as not to obstruct access to any portion of the
Building. Any alterations, additions, or improvements to or of the Leased
Premises, including, but not limited to, wallcovering, paneling, and built-in
cabinet work, but excepting movable furniture and equipment, shall at once
become a part of the realty and shall be surrendered with the Leased Premises
unless Landlord otherwise elects at the end of the term hereof.
8.4 Tenant Installed Equipment. Tenant's computer equipment,
mechanical equipment, power supply equipment and all related easily removable
electronic, mechanical, and cooling equipment shall be deemed trade fixtures,
shall not become a part of the Building regardless of how affixed, and shall be
removed by Tenant, at its sole cost and expense prior to the scheduled
termination date hereof; provided however that in the event this Lease
terminates or expires prior to the scheduled termination date, Tenant shall have
sixty (60) days during which to complete such removal and associated repairs;
further provided however that Tenant may remove all or any of such things at any
time during the term hereof, or except where Landlord has conditioned approval
on removal of alterations or additions, Tenant may at its option abandon the
same in whole or in part, to Landlord at the expiration or earlier termination
of the term of this Lease by vacating the Leased Premises without removing the
same. In the event of removal of such things or any of them, Tenant shall also
be required to remove pipes, wires and the like from the walls, ceilings, floors
and roof of the Building.
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8.5 Additional Security. Tenant shall have the right to implement
additional security measures upon the Leased Premises, including but not limited
to the installation of special locks, etc. provided that Landlord shall be given
the means to obtain access to and through Tenant's locks, etc.
8.6 Landlord's Access to Leased Premises. Landlord shall have the
right to place, maintain, and repair all utility equipment of any kind in, upon,
and under the Leased Premises as may be necessary for the servicing of the
Leased Premises and other portions of the Building. Landlord shall also have the
right to enter the Leased Premises at all reasonable times, upon notice and on a
noninterference basis, to inspect or to exhibit the same to prospective
purchasers, mortgagees, and within six (6) months of the expiration of the term
of the Lease to prospective tenants and lessees, and to make such repairs,
additions, alterations, or improvements as Landlord may deem desirable Landlord
agrees to give Tenant at least twenty-four (24) hours notice of entry, except in
the case of an emergency. Landlord shall assist Tenant in maintaining the
security of the Leased Premises by strictly controlling any keys to Tenant's
Leased Premises, and by limiting access to the Leased Premises only to
responsible and required individuals specifically authorized and approved by
Landlord. Landlord shall be allowed to take all material upon said Leased
Premises that may be required therefore without the same constituting an actual
or constructive eviction of Tenant in whole or in part and the rents reserved
herein shall in no wise abate while said work is in progress by reason of loss
or interruption of Tenant's business or otherwise, and Tenant shall have no
claim for damages; provided, however, that during the six (6) month period prior
to the expiration of this Lease or of any renewal term, Landlord may place upon
the Leased Premises "To Let" or "For Sale" signs which Tenant shall permit to
remain thereon.
IX. ASSIGNMENT
9.1 Assignment Prohibited. Tenant shall not transfer, assign,
mortgage, or hypothecate this Lease, in whole or in part, or permit the use of
the Leased Premises by any person or persons other than Tenant, or sublet the
Leased Premises, or any part thereof, without the prior written consent of
Landlord in each instance, which consent shall not be unreasonably withheld;
provided, however, that occupancy of all or part of the Leased Premises by
Partner(s), parent, subsidiary, or affiliated companies or successor
organizations to the interest of Tenant shall not be deemed an assignment or
subletting within the meaning of this Section. Such prohibition against
assigning or subletting shall include any assignment or subletting by operation
of law.
9.2 Consent Required. Any assignment or subletting without Landlord's
consent shall be void, and shall constitute a
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default hereunder which, at the option of Landlord, shall result in the
termination of this Lease or exercise of Landlord's other remedies hereunder.
Consent to any assignment or subletting shall not operate as a waiver of the
necessity for consent to any subsequent assignment or subletting, and the terms
of such consent shall be binding upon any person holding by, under, or through
Tenant.
9.3 Landlord's Right in Event of Assignment. If this Lease is assigned
or if the Leased Premises or any portion thereof are sublet or occupied by any
person other than Tenant, Landlord may collect rent and other charges from such
assignee or other party, and apply the amount collected to the rent and other
charges reserved hereunder, but such collection shall not constitute consent or
waiver of the necessity of consent to such assignment, subleasing, or other
transfer, nor shall such collection constitute the recognition of such assignee,
sublessee, or other party as Tenant hereunder or a release of Tenant from the
further performance of all of the covenants and obligations of Tenant herein
contained. Where such rent and other charges exceed the rent and other charges
reserved hereunder, Landlord shall promptly remit such excess to Tenant or
credit such excess amount against Tenant's next succeeding monthly rental
obligation. In the event that Landlord shall consent to a sublease or assignment
hereunder, Tenant shall pay to Landlord reasonable fees, not to exceed $100.00,
incurred in connection with processing of documents necessary to the giving of
such consent.
X. INDEMNITY
10.1 Indemnification By Tenant. Tenant and Landlord shall indemnify
each other and save each other harmless from and against any and all suits,
actions, damages, claims, liability, and expense in connection with loss of
life, bodily or personal injury, or property damage arising from or out of any
occurrence in, upon, at or from the occupancy or use by Tenant of the Leased
Premises, the Building, the Improvements, and the Property or any part thereof,
or occasioned wholly or in part by any act or omission, negligence or willful
misconduct of Tenant or Landlord, their agents, contractors, employees,
servants, invitees, licensees, or concessionaires. In no event shall Tenant be
liable for any indirect, special, or consequential damages related to last
profits or lost opportunities, including loss of revenue or profit even if
advised of the possibility thereof. Furthermore all insurance policies carried
by Tenant and/or Landlord shall include a waiver of subrogation endorsement
which specifies that the insurance carrier(s) will waive any right of
subrogation against Tenant and/or Landlord arising out of any insurance claim.
10.2 Release of Landlord. Landlord shall not be responsible or liable
at any time for any loss or damage to Tenant's personal property or to Tenant's
business, including any loss or damage to either the person or property of
Tenant that
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may be occasioned by or through the acts or omissions of persons occupying
adjacent, connecting, or adjoining space. Tenant shall store its property in and
shall use and enjoy the Leased Premises and all other portions of the Building,
the Improvements and the Property at its own risk, and hereby releases Landlord,
to the full extent permitted by law, from all claims of every kind resulting in
loss of life, personal or bodily injury, or property damage except those claims
arising from or out of Landlord's acts or omissions, negligence or willful
misconduct for which Landlord hereby agrees to indemnify and hold Tenant
harmless.
10.3 Notice. Tenant shall give prompt notice to Landlord in case of
fire or accidents in the Leased Premises or in the Building of which the Leased
Premises are a part, or of defects therein or defects in any fixtures or
equipment.
10.4 Litigation. In the event Landlord, without fault on its part,
shall be made a party to any litigation commenced by or against Tenant, then
Tenant shall protect and hold Landlord harmless and shall pay all damages,
costs, expenses, and reasonable attorneys' fees finally awarded and arising out
of such litigation.
XI. INSURANCE
11.1 Fire and Extended Coverage Insurance on Tenant's Personal Property
and Fixtures. At all times during the term of this Lease, Tenant shall keep in
force at its sole cost and expense, fire insurance and extended coverage
(including vandalism and malicious mischief) in companies acceptable to
Landlord, equal to the replacement cost of Tenant's fixtures, furnishings,
equipment, and contents upon the Leased Premises and all improvements or
additions made by Tenant to the Leased Premises. Landlord shall be named as an
additional insured on all such policies.
11.2 Liability Insurance. During the entire term of this Lease Tenant
shall keep in full force and effect a policy of public liability and property
damage insurance with respect to the Leased Premises and the business operated
by Tenant in the Leased Premises, with personal or bodily injury and property
damage of not less than $1,000,000.00. The policy shall name Landlord and all
persons, firms, or corporations connected with Landlord who also have an
economic or titled interest in the Building, the Improvements, and the Property
and Tenant as insureds, and shall contain a clause that the insurer will not
cancel or change the insurance or the amount of the coverage thereunder without
first giving Landlord ten (10) days written notice. The insurance shall be
provided by an insurance company approved by Landlord and a certificate of
insurance shall be delivered to Landlord. All public liability, property damage,
and other liability policies shall be written as primary policies, not
contributing with and not in excess of coverage which Landlord may carry. All
such
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policies shall contain a provision that Landlord, although named as an insured,
shall nevertheless be entitled to recover under said policies for any loss
occasioned to it, its servants, agents, and employees by reason of the
negligence of Tenant. All such insurance shall specifically insure the
performance by Tenant of the indemnity agreement as to liability for injury to
or death of persons or injury or damage to property contained in Part X hereof.
11.3 Subrogation. Landlord and Tenant mutually waive their respective
right of subrogation against each other, and any insurance policies herein
required to be procured by any party hereto shall contain an express waiver of
any right of subrogation by the insurer against the other party.
11.4 Lender. Any mortgage lender interested in any part of the
Building, the Improvements, or the Property, may, at Landlord's option, be
afforded coverage under any policy required to be secured by Tenant hereunder,
by use of a mortgagee's endorsement to the policy concerned.
XII. DESTRUCTION
If the Leased Premises shall be partially damaged by any casualty
insured against under any insurance policy maintained by Landlord, and so long
as the remaining undamaged area of the Leased Premises is reasonably usable by
Tenant for the purposes permitted in accordance with Part VI hereof, Landlord
shall, upon receipt of the insurance proceeds, repair the Leased Premises and
until repair is complete the Basic Annual Rent and Additional Rent shall be
abated proportionately as to that portion of the Leased Premises rendered
untenable. Notwithstanding the foregoing, if: (a) the Leased Premises, by reason
of such occurrence, are rendered wholly untenable, or (b) the Leased Premises
should be damaged as a result of a risk which is not covered by insurance, or
(c) the Leased Premises should be damaged in whole or in part during the last
six (6) months of the term or of any renewal hereof, or (d) the Leased Premises
or the Building (whether the Leased Premises are damaged or not) should be
damaged to the extent of fifty percent (50%) or more of the then-monetary value
thereof, or (e) the damaged portion cannot be repaired within one hundred twenty
(120) days from the date of the casualty or loss; then and in any such events,
Landlord may either elect to repair the damage during which time Tenant's rent
shall be abated in proportion to the unusable area of the Leased Premises so
damaged or either party may cancel this Lease by notice of cancellation within
one hundred eighty (180) days after such event and thereupon this Lease shall
expire, and Tenant shall vacate and surrender the Leased Premises to Landlord.
Tenant's liability for rent upon the termination of this Lease shall cease as of
the day following either party's giving notice of cancellation. In the event
Landlord elects to repair any damage, any abatement of rent shall end five (5)
days after notice by Landlord to Tenant that
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the Leased Premises have been repaired. If the damage is caused by the
negligence of Tenant or its employees, agents, invitees, or concessionaires,
there shall be no abatement of rent and no right of Tenant to terminate, and
unless this Lease is terminated by Landlord, Tenant shall repair and re-fixture
the interior of the Leased Premises in a manner, and in at least a condition
equal to that existing prior to the destruction or casualty, and the proceeds of
all insurance carried by Tenant on its property and fixtures shall be held in
trust by Tenant for the purpose of said repair and replacement.
XIII. CONDEMNATION
13.1 Total Condemnation. If the whole of the Leased Premises shall be
acquired or taken by condemnation proceeding, then this Lease shall cease and
terminate as of the date of title vesting in such proceeding.
13.2 Partial Condemnation. If any part of the Leased Premises shall be
taken as aforesaid, and such partial taking shall render that portion not so
taken unsuitable for the business of Tenant, then this Lease shall cease and
terminate as aforesaid. If such partial taking is not extensive enough to render
the Leased Premises unsuitable for the business of Tenant, then this Lease shall
continue in effect, except that the Basic Annual Rent and Additional Rent shall
be reduced in the same proportion that the portion of the Leased Premises
(including basement, if any) taken bears to the total area initially demised,
and Landlord shall, upon receipt of the award in condemnation, make all
necessary repairs or alterations to the Building in which the Leased Premises
are located, provided that Landlord shall not be required to expend for such
work an amount in excess of the amount received by Landlord as damages for the
part of the Leased Premises so taken. "Amount received by Landlord" shall mean
that part of the award in condemnation which is free and clear to Landlord of
any collection by mortgage lenders for the value of the diminished fee.
13.3 Landlord's Option to Terminate. If more than twenty percent (20%)
of the Building shall be taken as aforesaid, Landlord may, by written notice to
Tenant, terminate this Lease. If this Lease is terminated as provided in this
Section, rent shall be paid up to the day that possession is so taken by public
authority, and Landlord shall make an equitable refund of any rent paid by
Tenant in advance.
13.4 Award. Tenant shall not be entitled to and expressly waives all
claim to any condemnation award for any taking, whether whole or partial, and
whether for diminution in value of the leasehold or to the fee, although Tenant
shall have the right, to the extent that the same shall not reduce Landlord's
award, to claim from the condemner, but not from Landlord, such compensation as
may be recoverable by Tenant in its
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own right for damages to Tenant's business and fixtures, including any losses
for Tenant's moving expenses, business interruption or taking of Tenant's
personal property not including Tenant's leasehold interest.
13.5 Definition. As used in this Part XIII the term "condemnation
proceeding" means any action or proceeding in which any interest in the Leased
Premises is taken for any public or quasi-public purpose by any lawful authority
through exercise of the power of eminent domain, or right of condemnation, or by
purchase or otherwise in lieu thereof.
XIV. LANDLORD'S RIGHT TO CURE
14.1 General Right. In the event of breach, default, or noncompliance
hereunder by Landlord, Tenant shall, before exercising any right or remedy
available to it, give Landlord written notice of the claimed breach, default, or
noncompliance. If prior to its giving such notice Tenant has been notified in
writing (by way of Notice of Assignment of Rents and Leases, or otherwise) of
the address of a lender which has furnished any of the financing referred to in
Part XV hereof, concurrently with giving the aforesaid notice to Landlord,
Tenant shall, by registered mail, transmit a copy thereof to such lender. For
the thirty (30) days following the giving of the notice(s) required by the
foregoing portion of this Section (or such longer period of time as may be
reasonably required to cure a matter which, due to its nature, cannot reasonably
be rectified within thirty (30) days), Landlord shall have the right to cure the
breach, default, or noncompliance involved. If Landlord has failed to cure a
default within said period, any such lender shall have an additional period
within which to cure the same or, provided that the total time available to
lender to cure said default shall not exceed forty-five (45) days from the date
Tenant first gives notice to Landlord unless such default cannot be cured within
that period, such additional time as may be necessary if within any such period
said lender has commenced and is diligently pursuing the actions or remedies
necessary to cure the breach, default, or noncompliance involved (including, but
not limited to, commencement and prosecution of proceedings to foreclose or
otherwise exercise its rights under its mortgage or other security instrument,
if necessary to effect such cure), in which event this Lease shall not be
terminated by Tenant so long as such actions or remedies are being diligently
pursued by said lender.
14.2 Mechanic's Lien. Should any mechanic's or other lien be filed
against the Leased Premises, the Building, the Improvements or the Property or
any part thereof, by reason of Tenant's acts or omissions, or because of a claim
against Tenant, Tenant shall cause the same to be canceled and discharged of
record by bond or otherwise within thirty (30) days after receiving written
notice by Landlord.
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XV. FINANCING; SUBORDINATION
15.1 Subordination. Tenant acknowledges that it might be necessary for
Landlord or its successors or assigns to secure mortgage loan financing or
refinancing affecting the Leased Premises. Tenant also acknowledges that the
lender interested in any given loan may desire that Tenant's interests under
this Lease be either superior or subordinate to the mortgage then held or to be
taken by said Lender. Accordingly, Tenant agrees that at the request of
Landlord, at any time and from time to time, Tenant shall execute and deliver to
Landlord an instrument, in form reasonably acceptable to Landlord, whereby
Tenant subordinates its interests under this Lease and in the Leased Premises to
such of the following encumbrances as may be specified by Landlord: Any mortgage
or trust deed and customary related instruments are herein collectively referred
to merely as a "Mortgage" and securing a loan obtained by Landlord or its
successors or assigns for the purpose of enabling acquisition of the Building
and/or construction of additional improvements to provide standing or permanent
financing for the Building, or for the purpose of refinancing any such
construction, acquisition, standing or permanent loan. Provided, however, that
any such instrument or subordination executed by Tenant shall provide that so
long as Tenant continues to perform all of its obligations under this Lease, its
tenancy shall remain in full force and effect, notwithstanding Landlord's
default in connection with the Mortgage concerned, or any resulting foreclosure
or sale or transfer in lieu of such proceedings. Tenant shall not subordinate
its interest hereunder or in the Leased Premises to any lien or encumbrance
other than the Mortgages described in and specified pursuant to this Section
15.1 without the prior written consent of Landlord and of the lender interested
under each mortgage then affecting the Leased Premises, which consent shall not
be unreasonably withheld. Any such unauthorized subordination by Tenant shall be
void and of no force or effect whatsoever. Tenant hereby appoints Landlord as
its attorney-in-fact to execute and deliver any required subordination
documents.
15.2 Amendment. Tenant recognizes that Landlord's ability from time to
time to obtain construction, acquisition, standing, and/or permanent mortgage
loan financing for the Building and/or the Leased Premises may in part be
dependent upon the acceptability of the terms of this Lease to the lender
concerned. Accordingly, Tenant agrees that from time to time it shall, if so
requested by Landlord, and if doing so will not substantially and adversely
affect Tenant's economic interests or Tenant's use of the Leased Premises as
permitted under Part VI of this Lease, join with Landlord in amending this Lease
so as to meet the needs or requirements of any lender which is considering
making or which has made a loan secured by a mortgage affecting the Leased
Premises.
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15.3 Attornment. Any sale, assignment, or transfer of Landlord's
interest under this Lease or in the Leased Premises, including any such
disposition resulting from Landlord's default under a mortgage, shall be subject
to this Lease. Tenant shall attorn to Landlord's successor and assigns and shall
recognize such successor or assigns as Landlord under this Lease, regardless of
any rule of law to the contrary or absence of privity of contract.
XVI. EVENTS OF DEFAULT; REMEDIES OF LANDLORD
16.1 Default by Tenant. Upon the occurrence of any of the following
events, Landlord shall have the remedies set forth in Section 16.2:
(a) Tenant fails to pay any installment of Basic Annual Rent
or Additional Rent or any other sum due hereunder within ten (10) days
after receipt of notice that the same is due.
(b) Tenant fails to perform any other material terms,
condition, or covenant to be performed by it pursuant to this Lease
within thirty (30) days after written notice of such default shall have
been given to Tenant by Landlord, or if cure would reasonably require
more than thirty (30) days to complete, if Tenant fails to commence
performance within the thirty (30) days period or fails diligently to
pursue such cure to completion.
(c) Tenant or any guarantor of this Lease shall become
bankrupt or insolvent or file any debtor proceedings or have taken
against such party in any court pursuant to state or federal statute, a
petition in bankruptcy or insolvency, reorganization, or appointment of
a receiver or trustee, and such proceedings are not dismissed within
ninety (90) days; or Tenant petitions for or enters into an
arrangement; or suffers this Lease to be taken under a writ of
execution.
16.2 Remedies. Upon the occurrence of the events set forth in Section
16.1, Landlord shall have the option to take any or all of the following actions
with notice to Tenant:
(a) Immediately reenter and remove all persons and property
from the Leased Premises, storing said property in a warehouse, or
other secure facility at the cost of, and for the account of, Tenant,
all without resort to legal process and without being deemed guilty of
or liable in trespass. No such reentry or taking possession of the
Leased Premises by Landlord shall be construed as an election on its
part to terminate this
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Lease unless a written notice of such intention is given by Landlord to
Tenant. No such action by Landlord shall be considered to be a forcible
entry.
(b) Collect by suit or otherwise each installment of rent or
other sum as it becomes due hereunder, or enforce, by suit or
otherwise, any other term of provision hereof on the part of Tenant
required to be kept or performed.
(c) Terminate this Lease by written notice to Tenant. In the
event of such termination, Tenant agrees to promptly surrender
possession of the Leased Premises. Should Landlord terminate this
Lease, it may recover from Tenant all damages it may incur by reason of
Tenant's breach, including the cost of recovering the Leased Premises,
reasonable attorney's fees, and the worth at the time of such
termination of the excess, if any, of the amount of rent and charges
equivalent to rent reserved in this Lease for the remainder of the
stated term over the then reasonable rental value of the Leased
Premises for the remainder of the stated term, all of which amounts
shall be immediately due and payable from Tenant to Landlord. In
determining the rent which would be payable by Tenant hereunder
subsequent to default, the rent for each year of the unexpired term
shall be equal to the Basic Annual Rent and Additional Rent that would
otherwise be payable under the full term of this Lease.
(d) Should Landlord reenter, as provided above, or should it
take possession pursuant to legal proceedings or pursuant to any notice
provided for by law, and whether or not it terminates this Lease, it
may be necessary in order to relet the Leased Premises. Landlord agrees
to use its best efforts to relet the Leased Premises for Tenant's
account. Landlord may relet the same or any part thereof for such term
or terms (which may be for a term extending beyond the term of this
Lease), and at such rental or rentals and upon such other terms and
conditions as Landlord, in its sole reasonable discretion, may deem
advisable. Upon each such reletting all rentals received by Landlord
from such reletting shall be applied, first, to the payment of any
indebtedness other than rent due hereunder from Tenant to Landlord;
second, to the payment of any costs and expenses of such reletting,
including brokerage fees and attorney's fees and costs of any
alterations and repairs; third, to the payment of rent due and unpaid
hereunder, and the residue, if any, shall be held by Landlord and
applied in payment of future rent as the same may become due and
payable hereunder. If such rentals received from such reletting during
any month shall be less than that to be paid during such month by
Tenant hereunder, Tenant shall pay any such deficiency
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to Landlord. Such deficiency shall be calculated and paid monthly. No
such reentry and reletting of the Leased Premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a
written notice of such intention be given to Tenant pursuant to
subsection (c) above, or unless the termination thereof be decreed by a
court of competent jurisdiction. Notwithstanding any such reletting
without termination, Landlord may, at any time thereafter, elect to
terminate this Lease for such previous breach.
The remedies given to Landlord in this Section 16.2 shall be in
addition and supplemental to all other rights or remedies which Landlord may
have under laws then in force.
16.3 Past Due Sums. If Tenant fails to pay when the same is due and
payable, any Basic Annual Rent, Additional Rent, or other sums required to be
paid by it hereunder, such unpaid amounts shall bear interest, beginning five
(5) days after the due date thereof to the date of payment, at a fluctuating
rate equal to six percent (6%) per annum above the prime rate of interest
charged by First Security Bank of Utah, Salt Lake City, Utah. In addition
thereto, Landlord may charge a sum of five percent (5%) of such unpaid amounts
as a service fee. The parties agree that such late charges represent a fair and
reasonable estimate of the cost that Landlord will incur by reason of Tenant's
late payment, and shall constitute the only damages to which Landlord is
entitled for the period of such nonpayment for Tenant's delay in making payments
required under this Lease. Notwithstanding the foregoing, however, Landlord's
right concerning such interest and service fee shall be limited by the maximum
amount which may properly be charged by Landlord for such purposes under
applicable law.
XVII. PROVISIONS APPLICABLE AT TERMINATION OF LEASE
17.1 Surrender of Premises. At the expiration of this Lease, Tenant
shall surrender the Leased Premises in the same condition, reasonable use and
wear and tear and unavoidable accident excepted, as they were in upon delivery
of possession thereto under this Lease, and shall deliver all keys to Landlord.
Before surrendering the Leased Premises; Tenant shall remove its personal
property and trade fixtures in accordance with the rights and obligations of
Tenant stated in Section 8.4 entitled Tenant Installed Equipment, and such
property or the removal thereof shall in no way damage the Leased Premises, and
Tenant shall be responsible for all costs, expenses and damages incurred in the
removal thereof. If Tenant fails to remove its personal property and fixtures
upon the expiration of this Lease, the same shall be deemed abandoned and shall
become the property of Landlord.
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17.2 Holding Over. Any holding over after the expiration of any term
hereof shall be construed to be a tenancy from month-to-month at the rents
herein specified (pro rated on a monthly basis) and shall otherwise be on the
terms herein specified so far as possible. Such month-to-month tenancy may be
terminated by either party giving written notice to the other party of its
intent to terminate the leasehold interest. Such month-to-month tenancy shall
terminate no less than thirty (30) days after the receipt of written notice by
the party so notified.
XVIII. ATTORNEYS' FEES
In the event that at any time during the term of this Lease either
Landlord or Tenant institutes any action or proceeding against the other
relating to the provisions of this Lease or any default hereunder, the
unsuccessful party in such action or proceeding agrees to reimburse the
successful party for the reasonable expenses of such action, including
reasonable attorneys' fees, incurred therein by the successful party, such fees
not to exceed $2,500.00.
XIX. ESTOPPEL CERTIFICATE
19.1 Landlord's Right to Estoppel Certificate. Tenant shall, within
thirty (30) days after Landlord's request, execute and deliver to Landlord a
written declaration in recordable form which shall contain language: (1)
ratifying this Lease; (2) expressing the Commencement Date and termination date
hereof; (3) certifying that this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended (except by such writing as
shall be stated); (4) that all conditions under this Lease to be performed by
Landlord have been satisfied; (5) that there are no defenses or offsets against
the enforcement of this Lease by Landlord, or stating those claimed by Tenant;
(6) the amount of advance rental, if any, (or none if such is the case) paid by
Tenant; (7) the date to which rental has been paid; (8) the amount of security
deposited with Landlord; and (9) such other information as Landlord may
reasonably request. Landlord's mortgage lenders and/or purchasers shall be
entitled to rely upon such declaration.
19.2 Effect of Failure to Provide Estoppel Certificate. Tenant's
failure to furnish any Estoppel Certificate within thirty (30) days after
request therefore shall be deemed a default hereunder and, moreover, it shall be
conclusively presumed that: (a) this Lease is in full force and effect without
modification in accordance with the terms set forth in the request; (b) that
there are no unusual breaches or defaults on the part of Landlord; and (c) no
more than one (1) month's rent has been paid in advance.
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XX. COMMON AREAS
20.1 Definition of Common Areas. "Common Areas" shall mean all areas,
space, equipment and special services provided for the joint or common use and
benefit of the tenants or occupants of the Building and Property or portions
thereof, and their employees, agents, servants, patients, customers and other
invitees (collectively referred to herein as "Occupants"), including without
limitation, parking areas, access roads, driveways, retaining walls, landscaped
areas, serviceways, loading docks, pedestrian walks, courts, stairs, ramps,
sidewalks, common corridors, rooms, restrooms, air-conditioning, fan,
janitorial, electrical and telephone rooms or closets; and all other areas
within the Building which are not specified for exclusive use or occupancy by
Landlord or any tenant (whether or not same are leased or occupied).
20.2 License to Use Common Areas. The Common Areas shall be available
for the common use of all Occupants and shall be used and occupied under a
revocable license. If any such license shall be revoked, or if the amount of
such areas shall be changed or diminished, Landlord shall not be subject to any
liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall revocation or diminution of such areas be deemed
constructive or actual eviction. All Common Areas shall be subject to the
exclusive control and management of Landlord, Landlord shall have the right to
construct, maintain, and operate lighting and other facilities on all said areas
and improvements; to police the same; to change the area, level, location, and
arrangement of parking areas and other facilities to restrict parking by
tenants, their officers, agents, and employees; to close all or any portion of
said areas or facilities to such extent as may be legally sufficient to prevent
a dedication thereof or the accrual of any right to any person or the public
therein. Landlord shall operate and maintain the Common Areas in such manner as
Landlord, in its discretion, shall determine, shall have full right and
authority to employ and discharge all personnel with respect thereto, and shall
have the right, through reasonable rules, regulations, and/or restrictive
covenants promulgated by it from time to time, to control the use and operation
of the Common Areas so that the same may occur in a proper and orderly fashion.
20.3 Parking. Automobiles of Tenant and all Occupants associated with
Tenant shall be parked only within parking areas not otherwise reserved by
Landlord and specifically designated for use by any other tenant and/or
Occupants associated with said other tenant or tenants. Landlord or its agents
shall, without any liability to Tenant or its Occupants, have the right to cause
to be removed any automobile that may be wrongfully parked in a prohibited or
reserved parking area, and Tenant agrees to indemnify, defend and hold Landlord
harmless from and against any and all claims or losses, to or in connection with
any such
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removal of Tenant's or its day-to-day Occupant's automobiles, provided, however,
that such indemnity shall not apply to any claims, losses, demands, damages or
liabilities arising out of Landlord's negligence or willful misconduct, for
which Landlord agrees to indemnify Tenant or Tenant's Occupants and hold them
harmless. Tenant shall, from time to time upon request, supply Landlord with a
list of license plate numbers of all automobiles owned by Tenant or its
day-to-day Occupants.
XXI. SIGNS, AWNINGS, AND CANOPIES
Tenant shall not place, or suffer to be placed or maintained an any
exterior door, wall, or window of the Leased Premises, or elsewhere in the
Building, any sign, awning, marquee, decoration, lettering, attachment, or
canopy, or advertising matter or other thing of any kind, and will not place or
maintain any decoration, lettering, or advertising matter on the glass of any
window or door of the Leased Premises without first obtaining Landlord's written
approval. Tenant further agrees to maintain such sign, awning, canopy,
decoration, lettering, advertising matter, or other things as may be approved,
in good condition and repair at all times. Landlord may, at Tenant's cost and
without liability to Tenant, enter the Leased Premises and remove any item
erected in violation of this Part XXI. Landlord may establish rules and
regulations governing the size, type, and design of all signs, decorations,
etc., and Tenant agrees to abide thereby.
XXII. MISCELLANEOUS PROVISIONS
22.1 No Partnership. Landlord does not by this Lease, in any way or for
any purpose, become a partner or joint venturer of Tenant in the conduct of its
business or otherwise.
22.2 Force Majeure. Either party shall be excused for the period of any
delay in the performance of any obligations hereunder when prevented from so
doing by cause or causes beyond its respective control and without its fault or
negligence, including labor disputes, civil commotion, war, governmental
regulations or controls, fire or other casualty, inability to obtain any
material or service, or acts of God.
22.3 No Waiver. Failure of either party to insist upon the strict
performance of any provision or to exercise any option hereunder shall not be
deemed a waiver of such breach. No provision of this Lease shall be deemed to
have been waived unless such waiver be in writing and signed by the party
against whom the waiver is sought to be asserted.
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22.4 Notices. Any notice, demand, request, or other instrument which
may be or is required to be given under this Lease shall be delivered in person
or sent by United States certified or registered mail, postage prepaid, and
shall be addressed; (a) if to Landlord, at the place specified for payment of
rent, and (b) if to Tenant, at the address for Tenant which is stated below.
Either party may designate such other address as shall be given by written
notice.
Landlord: 265 East Associates
265 East 100 South, #265
Salt Lake City, UT 84111-1616
Attn: Heber S. Jacobsen
Tenant: Uro-Quest Corporation
265 East 100 South
Salt Lake City, UT 84111
Attn: Eric Hale
22.5 Captions; Attachments: Defined Terms. The captions to the Parts
and Sections of this Lease are for convenience of reference only and shall not
be deemed relevant in resolving questions of construction or interpretation
under this Lease. Exhibits referred to in this Lease, and any addendums and
schedules attached to this Lease and initialed by the parties, shall be deemed
to be incorporated in this Lease as though a part thereof.
22.6 Recording. Tenant shall not record this Lease or a memorandum
thereof without the written consent of Landlord, which shall not be unreasonably
withheld. Landlord, at its option and at any time, may file this Lease for
record with the Recorder of the County in which the Building is located. The
party exercising its right to record shall bear all costs and pay all fees
associated therewith.
22.7 Partial Invalidity. If any provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid, the remainder of this Lease or the application of such provision to
persons or circumstances other than those as to which it is held invalid shall
not be affected thereby and each provision of this Lease shall be valid and
enforced to the fullest extent permitted by law.
22.8 Broker's Commissions. Tenant represents and warrants that there
are no claims for brokerage commissions or finder's fees in connection with this
Lease and agrees to indemnify Landlord against and hold Landlord harmless from
all liabilities arising from any such claim or claims including any attorneys'
fees connected therewith.
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22.9 Tenant Defined: Use of Pronouns. The word "Tenant" shall be deemed
and taken to mean each and every person or party executing this document as a
Tenant herein. If there is more than one person or organization set forth on the
signature line as Tenant, their liability hereunder shall be joint and several.
If there is more than one Tenant, 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. The use of the neuter and
singular pronoun to refer to Landlord or Tenant shall be deemed a proper
reference even though Landlord or Tenant may be an individual, a partnership, a
corporation, or a group of two or more individuals or corporations. The
necessary grammatical changes required to make the provisions of this Lease
apply in the plural sense where there is more than one Landlord or Tenant, and
to corporations, associations, partnerships, or individuals, males or females,
shall in all instances be assumed as though in each case fully expressed.
22.10 Provisions Binding, Etc. Except as otherwise provided, all
provisions herein shall be binding upon and shall inure to the benefit of the
parties, their legal representatives, heirs, successors, and assigns. Each
provision to be performed by Tenant or Landlord shall be construed to be both a
covenant and a condition, and if there shall be more than one Tenant, they shall
all be bound, jointly and severally, by such provisions. In the event of any
sale or assignment (except for purposes of security or collateral) by Landlord
of the Building, the Leased Premises, or this Lease, Landlord shall, from and
after the date such sale or assignment occurs, be entirely relieved of all of
its obligations hereunder and such obligations shall, as of the time of such
sale or assignment or on the Commencement Date, whichever is later,
automatically pass to Landlord's successor in interest.
22.11 Entire Agreement, Etc. This Lease and the Exhibits, Riders,
and/or Addenda, if any, attached hereto, constitute the entire agreement between
the parties. All Exhibits, Riders, or Addenda mentioned in this Lease are
incorporated herein by reference. Any guaranty attached hereto is an integral
part of this Lease and constitutes consideration given to Landlord to enter into
this Lease. Any prior or contemporaneous conversations or writings are merged
herein and extinguished. No subsequent amendment to this Lease shall be binding
upon Landlord or Tenant unless reduced to writing and signed. Submission of this
Lease for examination does not constitute an option for the Leased Premises and
becomes effective as a lease only upon execution and delivery thereof by
Landlord to Tenant. If any provision contained in a Rider or Addenda is
inconsistent with a provision in the body of this Lease, the provision contained
in said Rider or Addenda shall control. It is hereby agreed that this Lease
contains no restrictive covenants or exclusives in favor of Tenant. The captions
Part and Section numbers appearing herein are inserted only as a matter of
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convenience and are not intended to define, limit, construe, or describe the
scope or intent of any Part, Section or Paragraph.
22.12 Arbitration and Resolution of Disputes. In the event a dispute
shall arise with respect to the interpretation or meaning of the terms or
conditions of this Lease, or a dispute concerning the performance or
nonperformance of the provisions hereof by either of the parties hereto, either
party to this Lease may require, by the service of written notice on the other
party in conformance with the requirements set forth herein, that such dispute
be submitted to arbitration within a period of sixty ( 60 ) days after the
service of said notice. Once such notice is served as aforesaid, each party
shall proceed forthwith to appoint one arbitrator and the two arbitrators so
appointed shall select a third arbitrator (each party shall select its
arbitrator within fifteen (15) days of the serving of notice and the third
arbitrator shall be selected within ten (10) days after the appointment of the
first two arbitrators) and all disputes shall be resolved according to the rules
and procedures of the American Arbitration Association and the laws of the State
of Utah. If the two arbitrators designated as hereinabove provided shall fail to
designate a third arbitrator, or if an individual designated as arbitrator as
hereinabove provided refuses or becomes unable to act as such and the party on
whose behalf such individual was designated as arbitrator fails to designate a
successor arbitrator, then the third or successor arbitrator shall be designated
according to the rules and procedures of the American Arbitration Association.
Failure by a party to select its arbitrator within the specified timeframe shall
cause the dispute to be resolved by the arbitrator selected by the party which
complied with the requirements as stated herein. It is hereby agreed that no
later than ten (10) days after a dispute is submitted for arbitration the
arbitrators shall render their decision in writing to be delivered to the
parties hereto in duplicate originals. All awards and determinations made by the
arbitrators pursuant to the provisions of this Lease shall be conclusive and
binding on all the parties hereto and judgment may be rendered thereon. This
agreement to arbitrate shall be specifically enforceable and the award rendered
by the arbitrators shall be final and judgment on it may be entered in any court
having jurisdiction. Each party shall pay the fees and expenses of the
arbitrator it has selected. The fees and expenses of the third arbitrator in
connection with each arbitration shall be paid as the arbitrators shall award.
Landlord and Tenant shall continue to perform all of the terms and conditions of
the Lease not in dispute and shall continue to make any and all payments as
required by the terms thereof during the period of any arbitration proceedings.
22.13 Recourse by Tenant. Anything in this Lease to the contrary
notwithstanding, Tenant agrees that it shall look solely to the estate and
property of Landlord in the Property, the Buildings and the Improvements
thereto, and subject to prior rights of any mortgagee, for the collection of any
judgment (or
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other judicial process) requiring the payment of money by Landlord in the event
of any default or breach by Landlord with respect to any of the terms,
covenants, and conditions of this Lease to be observed and/or performed by
Landlord, and no other assets of Landlord shall be subject to levy, execution,
or other procedures for the satisfaction of Tenant's remedies.
22.14 Choice of Law. This Lease shall be governed by and construed in
accordance with the laws of the State of Utah.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
day first set forth above.
LANDLORD: 265 EAST ASSOCIATES
7/6/95 By /s/Heber S. Jacobsen
--------------- ----------------------------------
Date Executed Its General Partner
----------------------------------
TENANT: URO-QUEST CORPORATION
July 6 1995 By /s/Eric B. Hale
--------------- ----------------------------------
Date Executed Its President
----------------------------------
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EXHIBIT "A"
LEGAL DESCRIPTION
265 East 1st South Building
The property consists of the following contiguous parcels.
Parcel #1
Commencing at the Southeast corner of Lot 1, Block 73, Plat A Salt
Lake City Survey thence West 247.5 feet; thence North 10 rods; thence East 165
feet; thence South 31.75 feet; thence East 5 rods; thence South 133.25 feet to
the point of beginning.
Parcel #2
Commencing 44.75 feet East of the Southeast corner of Lot 1, Block 73,
Plat A Salt Lake City Survey; thence East 37.75 feet; thence North 10 rods;
thence West 37.75 feet; thence South 10 rods to the point of beginning.
Parcel #3
Commencing at the Southwest corner of Lot 8, Block 73, Plat A Salt Lake
City Survey; thence North 5 rods; thence East 10 rods; thence South 5 rods;
thence West 10 rods to the point of beginning.
<PAGE> 31
EXHIBIT "C"
Landlord shall supply and install at Landlord's expense the following
Building Standard items:
- Walls
- Window Coverings
- Doors
- Ceiling Grid
- Floor Covering
- H.V.A.C.
- Electrical
- Paint
- Side light frames and glass
Premises is to be finished as per drawing dated June 15, 1995 and
attached herewith. All work is to be completed in a first class workmanlike
manner using current building standard materials.
<PAGE> 32
EXHIBIT "D"
Landlord and Tenant hereby acknowledge that pursuant to paragraph 2.3 of the
Lease, the Commencement Date thereof is hereby declared to be October 1, 1995.
LANDLORD : 265 East Associates TENANT: UroQuest Corporation
By /s/Heber S. Jacobsen By /s/G.S. Ayers
-------------------------------- -----------------------------
<PAGE> 33
ADDENDUM "A"
Security Deposit: At the beginning of each of the fourth and the fifth years of
the lease term Landlord agrees to refund to Tenant one third
(1/3) of the Security Deposit described in Paragraph 5.1,
provided that Tenant is in compliance at each date with all
terms and conditions of the lease.
<PAGE> 1
EXHIBIT 10.8
LEASE FOR
RANBURN WOODS PLAZA
GARY, INDIANA
ARTICLE I BASIC LEASE PROVISIONS
Section 1.1
LEASE DATE (for reference only):
LANDLORD: JVM Realty Corporation
ADDRESS OF LANDLORD: c/o JVM Realty Corporation, 2001 Spring Road, Suite 230,
Oak Brook, Illinois 60521
TENANT:
ADDRESS OF Leased Premises: 4157 South Cleveland Street,
Gary, Indiana 46408
MAILING ADDRESS OF TENANT: 5700 West 23rd Avenue, Gary, Indiana,
46406
TENANT'S TRADE NAME: Bivona, Inc.
LEASE TERM: Three (3) years
COMMENCEMENT DATE: December 16, 1995
EXPIRATION DATE: December 15, 1998
FIXED MINIMUM RENT: $4,975 per month for the first 24 months of the Lease,
$5,149 per month for the 25th through 36th months of the Lease
OPTION PERIOD: Not Applicable
FLOOR AREA: 18,600 square feet being the rentable area of the Leased
Premises.
TENANTS PROPORTIONATE SHARE OF THE CENTER: 29.96%
Leased Premises: 4157 South Cleveland Street,
Gary, Indiana 46408
SECURITY DEPOSIT: $4,650.00 on hand
GUARANTOR: Not Applicable
<PAGE> 2
Section 1.2 Significance of Basic Lease Provisions
Each reference in this Lease to any of the basic lease
provisions contained in Section 1.1 of this Article shall be deemed
and construed to incorporate all of the terms provided under each
such basic lease provision.
Section 1.3 Fixed Minimum Rent
Rental as stipulated in Section 1.1 herein shall be paid by
Tenant in advance on the fifteenth day of each and every calendar
month without any prior demand and without offset of deduction of
any kind or for any reason. Until further notice to Tenant, all
rent checks shall be payable to and mailed to JVM Realty
Corporation, 2001 Spring Road, Suite 230, Oak Brook, Illinois
60521, or at such place Landlord may designate in writing.
Rentals for partial calendar month shall be prorated based on
a 30 day month.
Rent shall be due and owing December 15, 1995, and shall be
due and owing in accordance with Section 1.3 hereof.
Section 1.4 Term of Lease
The lease term shall be for the period specified in Section
1.1 Supra., unless otherwise terminated or extended as provided herein.
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ARTICLE II TITLE AND ACCESS
Landlord covenants that it has the right and authority to make
this Lease for the term aforesaid. Landlord agrees that it will
put Tenant into complete and exclusive possession of the Leased
Premises and the common use of the common areas, and that if the
Tenant shall pay the rental and perform all the covenants and
provisions of this Lease to be performed by the Tenant, the Tenant
shall, during the term demised, and any extensions thereof, freely,
peaceably and quietly occupy the full possession of the Leased
Premises hereby leased, including the common use of the common
areas and the tenements, hereditaments and appurtenances thereunto
belonging and the rights and privileges herein granted without
molestation or hindrance, lawful or otherwise.
ARTICLE III USE
The Tenant covenants and agrees to conduct distribution and
warehouse from the Leased Premises and that the aforesaid Leased
Premises shall be used and occupied only for such purpose and not
other, and that the Tenant will not use the Leased Premises for any
other purpose nor in violation of any law, municipal ordinance or
regulation, and that on any breach of this agreement the Landlord
may at its option terminate this Lease forthwith and re-enter and
repossess the Leased Premises.
All furnishing, trade fixtures, signs, machinery and equipment
(not paid for by Landlord) owned and used by Tenant in the Leased
Premises shall at all times be and remain the property of the
Tenant without regard to the means by which they are installed in
or attached to the Leased Premises or by whom or when installed,
and the Tenant shall have the right to remove same from said Leased
Premises, whether attached or unattached.
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ARTICLE IV COMMON AREAS
Landlord agrees to operate and maintain all the common areas
and agrees to keep from snow and ice, and to maintain and to keep
the parking area striped to assist in the orderly parking of cars.
The common areas shall at all times be subject to the
exclusive control and management of Landlord, and Landlord shall
have the right from time to time to establish, modify and enforce
reasonable rules and regulations with respect to all facilities and
areas.
Landlord shall have the right from time to time to change the
arrangement of parking areas and other facilities hereinabove
referred to; to restrict parking by tenants, their officers, agents
and employees to employee parking areas; to close all or any
portion of said areas of facilities to such extent as may, in the
opinion of the Landlord's counsel, be legally sufficient to prevent a
dedication thereof or the accrual of any rights to any person or
the public therein; to close temporarily for repair any portion of
the parking areas or facilities; to discourage non-customer
parking; and to do and perform such other acts in and to said areas
and improvements as in the use of good business judgment, the
Landlord shall determine to be advisable with a view to the
improvement of the convenience and use thereof by tenants, their
officers, agents, employees and customers.
ARTICLE V MECHANICS' LIENS
Tenant further agrees that it will not permit any mechanics'
or materialmen's or other liens to stand against the Leased
Premises for work or material furnished Tenant; provided, however,
that Tenant shall have the right to contest the validity of any
lien or claim, and that upon the written request of Landlord,
Tenant shall post a bond satisfactory to Landlord to insure that
upon a final determination of validity of such lien or claim,
Tenant shall immediately pay judgment rendered against it with
all proper costs and charges and shall have said lien released
without cost to Landlord.
ARTICLE VI HEAT, UTILITIES AND GLASS
The Tenant agrees to heat the Leased Premises and to pay the
charges for all utilities, water and fuel used by it in the Leased
Premises.
The Tenant agrees to replace all cracked and broken glass,
including plate glass, during the term of this Lease; and the
Tenant agrees to keep the plate glass insured with a responsible
insurance company in the name of the Landlord and Tenant and
deliver the policy or policies to Landlord before taking possession
of the Leased Premises.
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ARTICLE VII LANDLORD'S REPAIRS
Landlord agrees, at its own expense, to make all roof,
exterior and structural repairs and restorations, and Landlord
hereby agrees to assign to Tenant all guarantees and warranties
received by it from the general contractors, all subcontractors and
materialmen arising out of the construction of the Leased Premises.
Landlord has the right to enter the Leased Premises periodically at
any reasonable time not interfering with Tenant's business, to
inspect the condition of the Leased Premises, and to make repairs
required of it. If Landlord is required to make repairs to the
exterior or structural portions by reason of Tenant's negligent
acts or omission to act, Landlord may add the cost of such repairs
to the rent which shall thereafter become due. Landlord agrees to
put heating and air conditioning equipment in good operating order
prior to Tenant's taking possession of the Leased Premises.
ARTICLE VIII TENANT'S REPAIRS
Tenant, throughout the term and at its sole cost and expense,
agrees to maintain in good repair the interior of the Leased
Premises (including maintenance of exterior entrances, all glass
and show window moldings) and all partitions, doors, fixtures,
equipment and appurtenances thereof including lighting, heating and
plumbing fixtures, and air conditioning fixtures and equipment,
except for damage or destruction resulting from fire or the
elements, unless caused by Tenant's negligence.
Tenant shall, throughout the term and at its sole cost and
expense, ordinary and extraordinary, comply with and conform to all
of the requirements (present and future) of any governmental
authority relating in any way to the condition, use or occupancy of
the Leased Premises, and Tenant agrees to indemnify and save
Landlord harmless from any and all liabilities, costs and expenses
incurred because of non-compliance by Tenant, or in Landlord's
causing compliance.
Tenant may at any time remodel or alter the herein Leased
Premises, providing such remodeling and alterations are
necessitated by or in furtherance of Tenant's business purposes.
Any structural or exterior remodeling or alterations shall require
the prior written consent of the Landlord, and such remodeling or
alterations shall remain for the benefit of Landlord. At the
expiration of said term, Tenant will quit and surrender the Leased
Premises in broom clean and in the same condition as received by
Tenant, reasonable wear and tear incident to Tenant's business
excepted.
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ARTICLE IX INSURANCE AND INDEMNITY
Tenant agrees to defend, indemnify and hold harmless the
Landlord from any liability for damages to any person or property
in, on or about said Leased Premises from any cause whatsoever; and
Tenant will procure and keep in effect during the term and any
extensions hereof general comprehensive liability and property
damage insurance, in a responsible insurance company satisfactory
to Landlord, in the sum of at least Five Hundred Thousand Dollars
($500,000) for damages resulting to one person and at least Five
Hundred Thousand Dollars ($500,000) for damages resulting from one
casualty, and at least Fifty Thousand Dollars ($50,000) property
damage insurance resulting from any one occurrence. Tenant agrees
to name Landlord as an additional insured party. Tenant shall
deliver certificates of said policies to the Landlord before taking
possession of the Leased Premises and upon renewal of said policies
from time to time, and upon Tenant's failure to do so, the Landlord
may at its option obtain such insurance and the cost thereof shall
be paid as additional rent due and payable upon the next ensuing
rent day. All such policies shall provide that same may not be
cancelled or altered except upon 10 days' prior written notice to
the insured parties.
ARTICLE X DAMAGE OR DESTRUCTION
The Landlord hereby covenants and agrees to carry fire and
extended coverage, vandalism and malicious mischief insurance in an
amount equal to sixty percent (60%) of the replacement cost of the
shopping center (exclusive of the cost of excavation, foundations
and footings).
If the Leased Premises shall be damaged by fire, the elements,
unavoidable accident or other casualty insurable under full
standard extended risk insurance, but are not thereby rendered
untenantable, in whole or in part, Landlord shall promptly at its
expense cause such damage to be repaired, without abatement of
rent; if, however, the Leased Premises shall be rendered
untenantable in part, Landlord shall at its expense cause the
damage to be repaired. If by reason of such occurrence the Leased
Premises shall be rendered wholly untenantable, Landlord shall
cause such damage to be repaired, unless within sixty (60) days
after said occurrence Landlord shall notify Tenant in writing that
it has elected not to reconstruct the Leased Premises, whereupon
this Lease and the tenancy hereby created shall cease as of the
date of said occurrence, the minimum rent to be adjusted as of such
date. In no event shall Landlord be liable for damage to or
replacement or repair of fixtures, floor coverings, furniture and
equipment owned by Tenant nor leasehold improvements made by
Tenant.
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<PAGE> 7
Tenant hereby releases Landlord from any and all liability or
responsibility (to the other or anyone claiming through or under them by way of
subrogation or otherwise) for any loss or damage to property or other claims
caused by fire or any of the other risks covered by the insurance described in
the first paragraph of this Article, even if such fire or other casualty shall
have been caused by the fault or negligence of the Landlord, or anyone for whom
Landlord may be responsible.
ARTICLE XI CONDEMNATION
If title to all of the shopping center is taken for any public or
quasi-public use under any statute, or by right of eminent domain, or by private
purchase in lieu of eminent domain, or if title to so much of the shopping
center is so taken that a reasonable amount of reconstruction thereof will not
result in its being a practical center, or if 40% or more of the common area is
so taken, then, in any of those events, this Lease shall terminate on the date
that use thereof is prohibited.
If any part of the Leased Premises shall be so taken and the remaining
part (after reconstruction of the then existing building in which the Leased
Premises are located) is reasonably suitable for Tenant's continued occupancy
for the purposes and uses for which the Leased Premises are leased, this Lease
shall remain in full force and effect except as to the part so taken. As to the
part taken, this Lease shall terminate as of the date that possession of such
part is taken and Tenant is prohibited from using that portion thereof.
Landlord shall, at its own cost and expense, make all necessary repairs or
alterations to the Leased Premises. All rents and other charges payable by
Tenant hereunder shall be reduced from and after the date Tenant is deprived of
the use of such portion of the Leased Premises in the proportion that the area
taken bears to the total square footage of the ground floor area of the Leased
Premises.
In the event of any condemnation or taking as aforesaid, whether whole or
partial, the Tenant shall not be entitled to any part of the award paid for such
condemnation, and Landlord is to receive the full amount of such award, the
Tenant hereby expressly waiving any right or claim to any part thereof.
ARTICLE XII SIGNS
Landlord will approve size, location and design of all signs. Signs, sign
supports and sign lighting will be furnished and installed by Tenant and will be
properly maintained by the Tenant.
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<PAGE> 8
ARTICLE XIV DEFAULT
If Tenant shall default in payment of rent or other charges
hereunder as and when the same come due, and if such default shall
continue for five (5) days after Tenant has received written notice
of such default by registered or certified mail from Landlord, or
if Tenant shall fail or neglect to commence and to proceed with due
diligence to cure a default in the performance of any of the other
terms, conditions or covenants of this Lease to be observed or
performed by Tenant within thirty (30) days after Tenant has
received written notice of such default by registered or certified
mail from Landlord, or if the estate created hereby shall be taken
by execution, or if a petition in bankruptcy shall be filed by
Tenant or Tenant shall be adjudicated bankrupt or if Tenant shall
make a general assignment for the benefit of creditors or if in any
proceedings based upon the insolvency of Tenant a receiver of all
of the property of Tenant shall be appointed and shall not be
discharged within sixty (60) days after such appointment, or if
Tenant shall abandon or vacate the Leased Premises for a period of
twenty (20) (except in case of vacation by Tenant due to fire
or other casualty or strike or cause beyond its control), then it
shall be lawful for Landlord to re-enter the Leased Premises, or
any part thereof, either with or without process of law and to
expel, remove and put out Tenant and all persons occupying under
in, using such force as may be necessary in doing so, and again to
repossess and enjoy said Leased Premises, as in its first or former
state. Should Landlord elect to re-enter and repossess the Leased
Premises as herein provided, Landlord may either terminate this
Lease or it may, without terminating this Lease, relet said
premises or any part thereof for such rent and upon such terms as
to Landlord may seem fit, and if a sufficient sum shall not be thus
realized by Landlord monthly from such reletting to satisfy the
rent and upon such terms as to Landlord may seem fit, and if a
sufficient sum shall not be thus realized by Landlord monthly from
such reletting to satisfy the rent hereby reserved, after first
paying the expenses of such reletting and collecting, Tenant shall
satisfy and pay to Landlord all deficiency monthly during each
month of the remaining term of this Lease. Notwithstanding any
8
<PAGE> 9
such reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous default by Tenant.
In the alternative, in case the Tenant shall fail or neglect to keep and
perform any of the covenants or agreements in this Lease contained on the part
of the Tenant to be kept and performed, other than the failure to pay rent or
other sums, the Landlord, in addition to all other remedies now or hereafter
afforded by law or under this Lease, may at its election, and after twenty (20)
days' written notice to the Tenant to cure such default, perform such covenants
or agreements on behalf of such Tenant to make good any default, and any amount
or amounts which the Landlord shall advance on that behalf shall be repaid by
the Tenant to the Landlord on demand, together with interest thereon at the rate
of twelve percent (12%) per annum from the date of such advance to the repayment
thereof in full.
If the Landlord shall repossess the leased property pursuant to the
foregoing provisions of this Article, the Tenant agrees that, upon the election
of Landlord, the Landlord shall be entitled to an assignment of the Lease
covering the designated Leased Premises or to so much of the Leased Premises
covered by said Lease as the Landlord shall elect to receive, and the Tenant
covenants that it will immediately complete such assignment.
Tenant shall pay, as additional rent, attorney fees allowed by statute, or
by the court, court costs, and any other costs and expenses incurred by Landlord
because of any default of Tenant under this Lease or incurred by Landlord in
enforcing the terms of this Lease against Tenant.
Rent is due on the fifteenth day of the month of each month of this Lease.
If rent is not paid in full by the twentieth day of the month, rent shall be
increased by $25.00 per day for each day paid after the first day of the month.
ARTICLE XV SECURITY DEPOSIT
Tenant, concurrently with the execution of this Lease, has deposited with
Landlord the sum of Four Thousand Six Hundred Fifty and No/100 Dollars
($4,650.00), the receipt of which is hereby acknowledged by Landlord, which sum
shall be retained by Landlord as security for the payment by Tenant of the
rents herein agreed to be paid by Tenant and for the faithful performance by
Tenant of the terms and covenants of this Lease. The Tenant shall not be
entitled to interest on this deposit. The deposit may not be used as rent.
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<PAGE> 10
ARTICLE XVI HOLDING OVER
The holding over by Tenant after the expiration hereof will be
by written consent of Landlord and will be a month-to-month
tenancy, and if the Leased Premises are not surrendered at the end
of the term or sooner (or any extension thereof) for termination
thereof, Tenant shall indemnify Landlord against loss or liability
resulting from delay of Tenant in so surrendering the Leased
Premises. Hold over monthly rent shall be double the most recent
monthly rent paid.
ARTICLE XVII RELEASE OF CLAIMS
It is further agreed that the Landlord or its agents will not
be liable for any damage or any loss of profits or for interruption
of business or for any claims of damage resulting from fire or the
elements, or strikes or walkouts, or from any cause beyond its
control.
Neither Landlord nor its agents shall be liable to Tenant or
to any person claiming through Tenant, regardless of the cause, for
any injury (or any injury resulting in death) or for damage or
destruction of property occurring in or about or resulting from the
Leased Premises or any part thereof or any equipment or
appurtenances, all claims for such damages or injury being hereby
expressly waived by Tenant.
ARTICLE XVIII SUBORDINATION
The Tenant does hereby agree, if requested by Landlord, to
subordinate its interest in the Leased Premises to any mortgage
which now or hereafter may affect the fee title to the Leased
Premises. A separate subordination and non-disturbance agreement
shall be entered into between such mortgagee and Tenant which shall
provide that so long as Tenant pays rent to Landlord, its mortgagee
or the purchaser at any foreclosure sale it is not in default in
the payment of rent or any other of its obligations under this
Lease, Tenant's possession of the Leased Premises under this Lease,
or any extensions or renewals thereof as provided herein, shall not
be interfered with. Tenant agrees, within five days after written
request by Landlord, to execute and deliver any and all documents
reasonably requested by Landlord to confirm or effectuate such
subordination. If Tenant fails to do so, Tenant hereby irrevocably
appoints Landlord as Tenant's attorney-in-fact to make, execute,
acknowledge and deliver any such instruments in its name and in
behalf of Tenant.
ARTICLE XIX TRANSFER OF TITLE BY LESSOR
If during the term of this Lease Landlord shall sell, assign
or otherwise transfer its interest in the shopping center or the
Leased Premises, then from and after the effective date of the sale
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<PAGE> 11
or transfer Landlord shall be released and discharged from any and
all obligations and responsibilities under this Lease except those
already accrued, and such purchaser, assignee or transferee shall
succeed to all the rights, powers and duties of the Landlord
hereunder accruing after such effective date.
ARTICLE XX ACCESS
Tenant agrees to allow Landlord to place and display a "For
Rent" sign on and from said Leased Premises at any time 180 days
prior to the end of the term (or any extension thereof) of this
Lease, and Landlord shall have the right of entry to exhibit the
Leased Premises to prospective tenants or purchasers of the
shopping center and to make such repairs, alterations or
improvements as Landlord may deem necessary or desirable.
ARTICLE XXI OFFSET STATEMENTS
Tenant shall at any time and from time to time, without charge
and within five (5) days after written request therefor by
Landlord, complete, execute and deliver to Landlord, or to such
other person or entity as Landlord designates, a written statement
in such form as Landlord or any first deed of trust or first
mortgage lender may request, which shall include the following:
(a) confirmation or ratification of this Lease; (b) dates of
commencement and termination of this Lease; (c) certification that
this Lease is in full force and effect and has not been assigned,
modified, supplemented or amended (except as by such writings shall
be stated); (d) that all conditions under this Lease to be
performed by Landlord have been satisfied to date; (e) that there
are no defenses or offsets against the enforcement of this Lease by
the Landlord or stating those that are claimed by Tenant; (f) the
amount, if any, of advance rental paid by Tenant; (g) the date to
which rental has been paid; (h) the amount of security deposit with
Landlord; and (i) that Tenant's possession of the Leased Premises
is conclusive evidence of acceptance of construction in full
compliance with the terms of this Lease.
ARTICLE XXII CONTINUOUS OPERATION
Tenant covenants and warrants that it will continuously
operate, throughout the term or any extension thereof, described
herein in the whole of the Leased Premises.
ARTICLE XXIII ASSIGNMENT, SUBLETTING, SUBSTITUTION
Section 23.1 Assignment, Subletting
Tenant shall not subdivide, assign, license or sublet the
whole or any portion of the Leased Premises during the term of this
Lease of any extension thereof.
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<PAGE> 12
ARTICLE XXIV RULES
Tenant agrees:
Section 24.1 Not to injure, overload, deface or otherwise
harm the Leased Premises, nor commit any nuisance; nor permit the
emission of any objectionable noise or odor; nor burn any trash or
refuse within any use of the Leased Premises which is improper,
offensive or contrary to any law or ordinance or which will cause
the Leased Premises to be uninsurable; nor use any advertising
medium that may constitute a nuisance, such as loudspeakers, sound
amplifiers, or phonographs in a manner to be heard outside the
Leased Premises; nor conduct any auction, fire, "going out of
business" or bankruptcy sales; nor do any act tending to injure the
reputation of the shopping center; nor sell or display merchandise
on, or otherwise obstruct, the driveways, walks, malls, courts, and
parking areas other than those designated by Landlord for such use;
nor use the malls, courts and walks for any purpose other than
pedestrian traffic.
Section 24.2 Tenant covenants and agrees to properly provide
for the storage and disposal of all printing materials and solvents
and all other chemicals, supplies, equipment and substances within
its Leased Premises. Tenant further agrees that it will not
perform any act or cause the Landlord's insurance rate to be
greater as a result of Tenant's tenancy. Should Landlord's
insurance rate increase as a result of Tenant's tenancy, Tenant
covenants and agrees to reimburse Landlord for such increased cost
within 10 days of Tenant's receipt of notification thereof by
Landlord.
Section 24.3 Not to permit the painting or placing of any
exterior signs, placards or other exterior advertising media,
banners, pennants, awnings, aerials, antennas or the like, without
on each occasion obtaining prior written consent of Landlord.
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Section 24.4 Not to use any sidewalks in the shopping center
for any newsstand, cigar stand, sidewalk shop, taxi stand or other
business, occupation or undertaking without prior written consent
of Landlord.
Section 24.5 That no sign, lettering, picture, notice or
advertisement shall be placed on any outside window or in a
Position to be visible from outside the shopping center, it being
understood that Tenant may place signs on the interior side of a
window, which sign may be exposed to the outside.
ARTICLE XXV HVAC
All heating and air conditioning repairs and replacements
shall be the responsibility of the Tenant.
ARTICLE XXVI NOTICES
All notices hereunder shall be in writing and sent by United
States Certified or Registered Mail, return receipt requested,
postage prepaid, addressed if to Landlord to the place where rent
checks are to be mailed; and if to Tenant, to Mailing Address of
Tenant as stated in Article I of this Lease, provided that each
party by like notice may designate any future of different
addresses to which subsequent Notices shall be sent.
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<PAGE> 14
HEADINGS
Headings of the Articles contained in this Lease are for
convenience only, do not constitute a part of this Lease, and do
not limit, affect or construe the contents of such Articles.
ARTICLE XXVIII TAXES AND INSURANCE
DEFINITIONS
As used herein, the term "taxes" shall mean general real
estate taxes and all other taxes and assessments, special or
otherwise, levied or assessed upon or with respect to the Leased
Premises and Ranburn Woods Plaza, not including, however, any net
income or gross income tax or tax of a similar nature.
As used herein, the term "insurance expense" shall mean the
cost of carrying fire and extended coverage, vandalism and
malicious mischief insurance in a amount equal to sixty percent
(60%) of the replacement cost of Ranburn Woods Plaza (exclusive of
the cost of excavation, foundations and footings).
REAL ESTATE TAX AND INSURANCE "STOPS"
If the amount of taxes and insurance expenses for any calendar
year during the term of this Lease, including the calendar year in
which the term commences, and the calendar year in which the term
expires, shall exceed the following amounts, Tenant shall pay to
the Landlord as additional rent an amount equal to the Tenant's
proportionate share of said excess. This payment shall be made
within ten (10) days after Tenant receives a statement therefore.
Real Estate Tax Stop $34,798
Insurance Expense Stop $4,483
Tenant's proportionate share of excess tax and insurance
expense shall be determined by multiplying Tenant's proportionate
share of Ranburn Woods Plaza, currently 29.96% as defined in
Article I of this Lease by the total amount of said excess tax and
insurance expense. If at any time during the term of this Lease,
the net rentable area of either the Leased Premises or Ranburn
Woods Plaza changes for any reason, Tenant's proportion and share
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for the year in which such change takes place shall be computed on
the basis of the daily average of the net rentable area of the
Leased Premises in Ranburn Woods Plaza for that year.
For any partial leased year, the Tenant shall be obligated to
pay only a prorata share of said tax and insurance expense
adjustment, based upon the number of days of such partial leased
year.
It is understood and agreed that in the jurisdiction wherein
the Leased Premises are located, the real estate taxes are due and
payable in the year following which they are imposed; for example,
the taxes for the year 1995 are payable in the year 1996.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto executed
this Lease and affixed their respective seals as of the day and
year first above written.
LANDLORD
JVM Realty Corporation
By: /s/
--------------------
TENANT
Bivona, Inc.
By: /s/ Tom E. Brandt
---------------------
By:
---------------------
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State of IN )
--------) SS
County of LAKE )
--------
I, the undersigned, a Notary Public in and for said County and
State aforesaid, do hereby certify that Tom E. Brandt, personally known to be
to be the same person whose name is subscribed to the foregoing instrument,
appeared before me in person, and acknowledged the he signed, sealed and
delivered this instrument as his free and voluntary act this 2nd day of
February, 1996.
/s/ Joe Flacke
(SEAL) -----------------------------------
Notary Public
My Commission Expires: 5/31/96
JOE FLACKE
NOTARY PUBLIC STATE OF INDIANA
LAKE COUNTY
MY COMMISSION EXP MAY 31, 1996
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ADDENDUM TO LEASE
LEASE TERMINATION AGREEMENT
Tenant shall have the right to terminate this Lease on the
fifteenth (15th) day of any month prior to the Lease Expiration
Date by payment of a Break Lease Fee and by giving Sufficient
Notice to Landlord, both as specified below.
The Break Lease Fee shall be in an amount equal to three times
the then current rent amount. Break Lease Fee is payable to the
Landlord on or before the fifteenth (15th) day of the Month of
Notification. The Month of Notification is that month during
which, and prior to the fifteenth (15th) day of said month, the
Tenant provides Landlord with notice of his intent to terminate the
Lease.
Term of Sufficient Notice to Landlord shall be considered to be
ninety (90) days after the fifteenth (15th) day of the Month of
Notification. Sufficient Notice to Landlord shall be addressed in
writing to Landlord and delivered to Landlord's address via
certified mail.
Tenant's right to early lease termination shall be conditioned on
the Tenant not being in violation of any of the terms or conditions
of the Lease.
LANDLORD TENANT
JVM Realty Corporation Bivona, Inc.
By: /s/ illegible By: /s/ Tom E. Brandt
------------------------ --------------------
By:
--------------------
<PAGE> 1
EXHIBIT 10.10
AMENDED
EMPLOYMENT AGREEMENT
This Letter Agreement dated November 1, 1994 ("this Agreement"), as amended as
of June 9, 1995 ("this Amendment") is made, by and between Mr. Eric B. Hale
(hereinafter "Employee") whose principal residence is 1575 East Federal Heights
Drive, Salt Lake City, Utah, and UroQuest Corporation (hereinafter The
"Company") a Florida Corporation with principal offices located at 14280 Carlson
Circle, Tampa, Florida, for the expressed purpose of defining an Employment
Agreement (hereinafter the "Agreement") between the Parties.
RECITALS:
WHEREAS Employee desires to obtain employment under the terms and conditions
listed hereunder; and
WHEREAS the Company seeks to continue employing Employee under the terms and
conditions listed hereunder;
The Parties hereby agree to the following:
PRINCIPAL TERMS:
1. The POSITION of employment shall be as the Company's President and
Chief Executive Officer. In addition, the Company shall use its best
efforts to have Employee elected to a seat on the Company's Board of
Directors having all of the rights, privileges, and title to vote as an
equal member with the other Directors.
2. The DATE of this Agreement shall be as of November 1, 1994 and the Date
of this Amendment shall be as of June 9, 1995.
3. The TERM of this Agreement and this amendment shall be for a period of
Five (5) years from the Date of this Agreement, subject to the
provisions of Section 20 (Severance) below.
4. The FUNDING DATE shall be the date of the Company's successful closing
whereby proceeds of a cumulative investment of at least One Million
Five Hundred Thousand ($1,500,000) Dollars are received by the Company,
as calculated from the Date of this Agreement or some other date
mutually agreed upon by the parties.
5. The INTERIM PERIOD shall be that term of employment from the Date of
this Agreement until the Funding Date. During the Interim Period
Employee shall accrue an ANNUAL SALARY in the amount of One Hundred
Eighty-Five Thousand ($185,000) Dollars to be vested bi-weekly, and
paid out at the Funding Date, or some other mutually agreed upon date.
Thereafter, said Annual Salary shall increase to an amount of One
Hundred Ninety-five Thousand ($195,000) Dollars. All such bi-weekly
payments shall be subject to deductions for taxes, FICA, and other
usual and customary amounts. The Company shall direct deposit all
salary payments to any account(s) as directed by Employee. The Employee
shall be eligible for periodic annual salary increases as determined by
the Board of Directors.
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<PAGE> 2
6. Employee shall be eligible to receive an ANNUAL BONUS, at and/or by the
end of the Company's fiscal year, in an amount of up to Forty (40%)
Percent of Employee's Annual Salary based upon an
as-yet-to-be-agreed-upon formula, to be attached hereto in writing
prior to, or simultaneous with, the Funding Date. The specific amount
of said Annual Bonus, the date of payment(s), and other such details,
shall be based upon the achievement of certain corporate milestones
during the year. Such milestones shall be determined annually by the
Company's Board of Directors in concert with the ratification of the
Company's updated and restated Business Plan.
7. Employee shall receive additional compensation in the form of STOCK
OPTIONS (hereinafter the "Options") granted from the Company's
Non-Qualified Stock Option Plan (hereinafter the "Plan"). The Employee
shall receive a grant of One Million (1,296,516) shares of the
Company's Options effective as of the Date of this Agreement. These
Options shall be granted at an exercise price of $0.20 Dollars per
share, which is consistent with the Plan as currently amended. The
exercise period for all such Options shall be Ten (10) years from the
Date of this Agreement. Such shares shall vest over the Term of this
Agreement as outlined in the Vesting Schedule below:
VESTING SCHEDULE
<TABLE>
<CAPTION>
ANNUAL NUMBER
OF SHARES TIMING AND/OR EVENTS TOTAL SHARES
--------- -------------------- ------------
<S> <C> <C>
126,516 Upon the Execution of this Agreement 126,516
150,000 Upon the Anniversary of this Agreement
over the following four (4) years 600,000
54,000 For each year of Board Service vested
monthly over 60 equal vesting periods 270,000
100,000 At the commercialization of the Male
On-Command Catheter 100,000
100,000 At the commercialization of the Female
On-Command Catheter 100,000
100,000 At the time that the Company's valuation,
as determined by either the Board or
through an initial public offering exceeds
Fifty Million ($50,000,000) Dollars 100,000
---------
TOTAL 1,296,516
=========
</TABLE>
8. All issued Options shall IMMEDIATELY VEST upon the sale, in a single
transaction, of either 51% of the assets or 51% of the issued capital
stock of the company. The exercise in full or in part of the warrant
held by Warburg, Pincus Investors, L.P. ("Warburg") as of June 9, 1995
(the "Warrant") by Warburg or its assigns does not trigger this
accelerated vesting provision.
Page 2
<PAGE> 3
9. Employee shall be reimbursed for all reasonable out-of-pocket
RELOCATION EXPENSES, limited to Fifty Thousand ($50,000) Dollars, for
the movement of Employee's eight-person household, the household goods,
three (3) automobiles, and related transportation and lodging expenses.
Should Employee fail to exercise this relocation expense reimbursement
by September 30, 1995 such benefit shall expire. Any and all such
reimbursement shall be (re)paid out of the proceeds of the Funding Date
closing or at such appropriate time thereafter.
10. Employee shall be reimbursed for one "HOUSE-HUNTING" trip up to seven
(7) days in length, for all usual and customary expenses associated
with the travel, food, and lodging for Employee and Employee's spouse.
11. Employee shall receive the following paid HOLIDAYS:
- New Year's Day
- Good Friday
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
12. Employee shall be eligible to take Four (4) weeks of paid VACATION
annually, such eligibility to begin at the Funding Date.
13. Employee shall receive a BENEFITS PACKAGE consisting of health, life,
and disability insurances and other such perquisites as may be now or
ever generally made available to the Company's senior management. Such
benefits package to take effect simultaneously with the Funding Date.
14. Employee shall be eligible to receive an AUTOMOBILE ALLOWANCE of Six
Hundred ($600) Dollars monthly to begin at the Funding Date.
15. Employee shall at the request of the Company be required to pass a "KEY
MAN" LIFE INSURANCE physical whereupon the Company shall be named as
beneficiary.
16. Employee shall be reimbursed for all usual and customary OUT-OF-POCKET
EXPENSES incurred as the result of any and all business-related
activities as of the Date of this Agreement.
17. Employee shall receive a bonus in conjunction with secured capital
financing with Warburg and Vertical Fund Associates, L.P. in the amount
of $160,000 payable as follows:
a. The lesser of (i) Ninety Thousand Dollars ($90,000) or (ii) such
amount of money necessary in order to exercise the Employee's vested
Stock Options as of June 9, 1995 plus any amount due and payable to
satisfy Federal and State income taxes.
b. Such amount of money represented by Ninety Thousand Dollars
($90,000) minus the amount paid to the Employee pursuant to clause (a)
above payable at the time of the next vesting of Stock Options pursuant
to Section 7 of this Amendment.
Page 3
<PAGE> 4
c. Seventy Thousand Dollars ($70,000) (the "Warrant Bonus") payable to
the Employee in cash or stock, such determination to be mutually
acceptable to the Employee and the members of the Board of Directors,
following the exercise in full of the Warrant. In the event the Warrant
is exercised in part by Warburg (or its assigns) the Warrant Bonus
shall be prorated by multiplying the Warrant Bonus by a fraction the
numerator of which is the amount of money paid by Warburg (or its
assigns) to the Company in order to exercise the Warrant and the
denominator of which is $5,000,000.
18. Employee shall have the right to VOLUNTARILY TERMINATE his employment
at any time with Sixty (60) days written notice to the Company.
However, any such voluntary termination of employment shall cause
Employee to forfeit any and all rights to receive any further Options,
Warrants, or other of the Company's securities or any and all other
benefits awarded either herein or in the future, to include severance,
insurances, allowances, and perquisites received or receivable by
Employee at the effective date of said voluntary termination. Employee
shall be entitled to receive any accrued salary and bonuses due at and
upon the effective date of said voluntary termination, which shall not
be earlier than Sixty (60) days subsequent to the Company's receipt of
Employee's notice of voluntary termination.
19. Should Employee ever be TERMINATED FOR CAUSE, found guilty of any
felony, breach any confidentiality agreements or other agreements made
with the Company, or commit any acts of moral turpitude, or any other
acts which would dishonor the good name of the Company, its employees,
affiliates, associates, or other related parties; Employee shall
forfeit any and all rights to any of the above compensations, benefits,
and perquisites. In addition, should Employee be terminated for cause,
the Company shall have the right to repurchase any and all Options then
beneficially owned by Employee at the same price paid by Employee.
Furthermore, any and all Options vested but as yet not purchased shall
be forfeited by Employee upon the effective date of such termination.
20. The Company shall have the right to terminate this Agreement prior to
the expiration of the Term herein, without cause. In the event the
Company terminates the Employee without cause at any time prior to the
time Warburg (or its assigns) exercises the Warrant the Employee shall
be entitled to receive Severance Pay equal to twelve months Total
Annual Compensation (as defined below) payable in equal monthly
installments, and in the event the Company terminates the Employee
without cause at any time subsequent to the time Warburg (or its
assigns) exercises the Warrant, the Employee shall be entitled to
receive Severance Pay equal to eighteen months Total Annual
Compensation payable in equal monthly installments; provided, however,
that the Employee shall not be entitled to such Severance Pay at any
time twelve months after termination in the event he is offered a
position (which position is comparable in responsibility and
compensation) with a new entity. Notwithstanding the foregoing, in the
event the Employee is terminated immediately subsequent to a sale of
51% of the assets or 51% of the issued capital stock of the Company
(other than through the exercise of the Warrant in full or in part by
Warburg or its assigns), then the Employee shall be entitled to
immediate payment of Severance Pay equal to eighteen months Total
Annual Compensation. The term "Total Annual Compensation" means the
Employee's annual cash compensation and benefits, including salary,
bonus (other than the bonus described in Section 17 of this
Agreement), car allowances and insurances.
Page 4
<PAGE> 5
21. Employee agrees to abide by and to EXECUTE the Company's Invention,
Confidential Information, and Non-Competition Agreement incorporated
herein by reference and attached hereto as Addendum A, at the execution
of the Agreement.
22. This Agreement shall be INTERPRETED under the laws of the State of
Florida, and shall be binding upon the heirs, successors, assigns,
Executors, and Administrators of both Parties.
23. This Agreement represents the ENTIRE AGREEMENT and no modifications may
be made hereto without the execution of additional written amendments
to this Agreement.
Page 5
<PAGE> 6
IN WITNESS OF THE above understanding, the Parties hereunder affix their seals:
COMPANY EMPLOYEE
By: /s/ Richard C. Davis, M.D. /s/ Eric B. Hale
--------------------------- -------------------------
Richard C. Davis, M.D. Eric B. Hale
Title: Chairman and Chief Executive Officer,
UroQuest Corporation
Date: June 9, 1995 June 9, 1995
Page 6
<PAGE> 1
EXHIBIT 10.11
AMENDED
EMPLOYMENT AGREEMENT
This Letter Agreement dated December 1, 1994 ("this Agreement"), as amended as
of June 9, 1995 ("this Amendment") is made, by and between Richard C. Davis,
Jr., M.D. (hereinafter "Employee") whose principal residence is 3384 Tarpon
Woods Blvd., Palm Harbor, Florida 34685 and UroQuest Corporation (hereinafter
The "Company") a Florida Corporation with principal offices located at 14280
Carlson Circle, Tampa, Florida, for the expressed purpose of defining an
Employment Agreement (hereinafter the "Agreement") between the Parties.
RECITALS:
WHEREAS Employee desires to continue employment under the terms and conditions
listed hereunder; and
WHEREAS the Company seeks to continue employing Employee under the terms and
conditions listed hereunder;
The Parties hereby agree to the following:
PRINCIPAL TERMS:
1. The POSITION of employment shall be as the Company's Chief Science Officer,
and Chairman of the Company's Board of Directors having all of the rights,
privileges, and title to vote as an equal member with the other Directors.
2. The DATE of this Agreement shall be as of December 1, 1994 and the Date of
this Amendment shall be as of June 9, 1995.
3. The TERM of this Agreement and this Amendment shall be for a period of Five
(5) years from the Date of this Agreement, subject to the provisions of
Section 16 (Severance) below.
4. The FUNDING DATE shall be the date of the Company's successful closing
whereby proceeds of a cumulative investment of at least One Million Five
Hundred Thousand ($1,500,000) Dollars are received by the Company, as
calculated from the Date of this Agreement or some other date mutually
agreed upon by the parties.
5. The INTERIM PERIOD shall be that term of employment from the Date of this
Agreement until the Funding Date. During the Interim Period Employee shall
be paid an ANNUAL SALARY in the amount of One Hundred Twenty Thousand
($120,000) Dollars to be paid bi-weekly. Thereafter, said Annual Salary
shall increase to an amount of One Hundred Thirty Thousand ($130,000)
Dollars. All such bi-weekly payments shall be subject to deductions for
taxes, FICA, and other usual and customary amounts. The Company shall
direct deposit all salary payments to any account(s) as directed by
Employee. The Employee shall be eligible for periodic annual salary
increases as determined by the Board of Directors.
Page 1
<PAGE> 2
6. Employee shall be eligible to receive an ANNUAL BONUS, at and/or by the end
of the Company's fiscal year, in an amount of up to Twenty-five (25%)
Percent of Employee's Annual Salary based upon an as-yet-to-be-agreed-upon
formula, to be attached hereto in writing prior to, or simultaneous with,
the Funding Date. The specific amount of said Annual Bonus, the date of
payment(s), and other such details, shall be based upon the achievement of
certain corporate milestones during the year. Such milestones shall be
determined annually by the Company's Board of Directors in concert with the
ratification of the Company's updated and restated Business Plan.
7. Employee shall receive additional compensation in the form of STOCK OPTIONS
(hereinafter the "Options") granted from the Company's Non-Qualified Stock
Option Plan (hereinafter the "Plan"). The Employee shall receive a grant of
Three Hundred Seventy Five Thousand (375,000) shares of the Company's
Options effective as of the Date of the Company's June, 1994 Board meeting.
These Options shall be granted at an exercise price of $0.20 Dollars per
share, which is consistent with the Plan as currently amended. The exercise
period for all such Options shall be Ten (10) years from the Date of this
Agreement. Such shares shall vest over the Term of this Agreement as
outlined in the Vesting Schedule below:
<TABLE>
<CAPTION>
VESTING SCHEDULE
----------------
ANNUAL NUMBER
OF SHARES TIMING AND/OR EVENTS TOTAL SHARES
--------- -------------------- ------------
<S> <C> <C>
75,000 For each year of Board Service vested
monthly over 60 equal vesting periods 375,000
-------
TOTAL 375,000
=======
</TABLE>
8. All issued Options shall IMMEDIATELY VEST upon the sale, in a single
transaction, of either 51% of the assets or 51% of the issued capital stock
of the company. The exercise in full or in part of the warrant held by
Warburg, Pincus Investors, L.P. ("Warburg") as of June 9, 1995 (the
"Warrant") by Warburg or its assigns does not trigger this accelerated
vesting provision.
9. Employee shall receive the following paid HOLIDAYS:
- New Year's Day
- Good Friday
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
10. Employee shall be eligible to take Four (4) weeks of paid VACATION
annually, such eligibility to begin at the Funding Date.
11. Employee shall receive a BENEFITS PACKAGE consisting of health, life, and
disability insurances and other such perquisites as may be now or ever
generally made available to
Page 2
<PAGE> 3
the Company's senior management. Such benefits package to take effect
simultaneously with the Funding Date.
12. Employee shall at the request of the Company be required to pass a "KEY
MAN" LIFE INSURANCE physical whereupon the Company shall be named as
beneficiary.
13. Employee shall be reimbursed for all usual and customary OUT-OF-POCKET
EXPENSES incurred as the result of any and all business-related activities
as of the Date of this Agreement.
14. Employee shall have the right to VOLUNTARILY TERMINATE his employment at
any time with One hundred eighty (180) days written notice to the Company.
However, any such voluntary termination of employment shall cause Employee
to forfeit any and all rights to receive any further Options, Warrants, or
other of the Company's securities or any and all other benefits awarded
either herein or in the future, to include severance, insurances,
allowances, and perquisites received or receivable by Employee at the
effective date of said voluntary termination. Employee shall be entitled to
receive any accrued salary and bonuses due at and upon the effective date
of said voluntary termination, which shall not be earlier than Sixty (60)
days subsequent to the Company's receipt of Employee's notice of voluntary
termination.
15. Should Employee ever be TERMINATED FOR CAUSE, found guilty of any felony,
breach any confidentiality agreements or other agreements made with the
Company, or commit any acts of moral turpitude, or any other acts which
would dishonor the good name of the Company, its employees, affiliates,
associates, or other related parties; Employee shall forfeit any and all
rights to any of the above compensations, benefits, and perquisites. In
addition, should Employee be terminated for cause, the Company shall have
the right to repurchase any and all Options then beneficially owned by
Employee at the same price paid by Employee. Furthermore, any and all
Options vested but as yet not purchased shall be forfeited by Employee upon
the effective date of such termination.
16. The Company shall have the right to terminate this Agreement prior to the
expiration of the Term herein, without cause. In the event the Company
terminates the Employee without cause at any time, the Employee shall be
entitled to receive Severance Pay equal to six months Total Annual
Compensation (as defined below) payable in equal monthly installments,
provided, however, that the Employee shall not be entitled to such
Severance Pay in the event he is offered a position (which
position is comparable in responsibility and compensation) with a new
entity. Notwithstanding the foregoing, in the event the Employee is
terminated immediately subsequent to a sale of 51% of the assets or 51% of
the issued capital stock of the Company (other than through the exercise of
the Warrant in full or in part by Warburg or its assigns), then the
Employee shall be entitled to immediate payment of Severance Pay equal to
nine months Total Annual Compensation. The term "Total Annual Compensation"
means the Employee's annual cash compensation and benefits, including
salary and bonus.
17. Employee agrees to abide by and to EXECUTE the Company's Invention,
Confidential Information, and Non-Competition Agreement incorporated herein
by reference and attached hereto as Addendum A, at the execution of the
Agreement.
18. This Agreement shall be INTERPRETED under the laws of the State of Florida,
and shall be binding upon the heirs, successors, assigns, Executors, and
Administrators of both Parties.
Page 3
<PAGE> 4
19. This Agreement represents the ENTIRE AGREEMENT and no modifications may be
made hereto without the execution of additional written amendments to this
Agreement.
Page 4
<PAGE> 5
IN WITNESS OF THE above understanding, the Parties hereunder affix their seals:
COMPANY EMPLOYEE
By: /s/ Eric B. Hale /s/ [illegible]
-------------------------- -------------------------
Eric B. Hale Richard C. Davis, Jr., M.D.
Title: Chief Executive Officer,
UroQuest Corporation
Date: __________________________ ________________________
Page 5
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This Letter Agreement dated June 1, 1995 is made, by and between Mr. Terrence L.
Domin (hereinafter "Employee") whose principal residence is 4718 Ripon Road,
Crystal Lake, Illinois, and UroQuest Corporation (hereinafter The "Company") a
Florida Corporation with principal offices located at 14280 Carlson Circle,
Tampa, Florida, for the expressed purpose of defining an Employment Agreement
(hereinafter the "Agreement") between the Parties.
RECITALS:
WHEREAS Employee desires to obtain employment under the terms and conditions
listed hereunder; and
WHEREAS the Company seeks to employ Employee under the terms and conditions
listed hereunder;
The Parties hereby agree to the following:
PRINCIPAL TERMS:
1. The POSITION of employment shall be as the Company's Secretary and Vice
President, Manufacturing and Operations.
2. The DATE of this Agreement shall be effective as of June 1, 1995.
3. The TERM of this Agreement shall be for a period of Five (5) years from the
Date of this Agreement, subject to the provisions of Section 12 (Severance)
below.
4. Employee shall receive a salary of Ten Thousand Dollars ($10,000) per month
or One Hundred Twenty Thousand Dollars ($120,000) annually payable in
bi-weekly installments and subject to deductions in taxes, FICA and other
usual and customary amounts.
5. Employee shall receive the following paid HOLIDAYS:
- New Year's Day
- Good Friday
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
6. Employee shall be eligible to take Two (2) weeks of paid VACATION annually,
such eligibility to begin at the Funding Date.
7. Employee shall receive a BENEFITS PACKAGE consisting of health, life, and
disability insurances and other such perquisites as may be now or ever
generally made available
Page 1
<PAGE> 2
to the Company's senior management. Such benefits package to take effect
simultaneously with the Funding Date.
8. Employee shall at the request of the Company be required to pass a "KEY
MAN" LIFE INSURANCE physical whereupon the Company shall be named as
beneficiary.
9. Employee shall be reimbursed for all usual and customary OUT-OF-POCKET
EXPENSES incurred as the result of any and all business-related activities
as of the Date of this Agreement.
10. Employee shall have the right to VOLUNTARILY TERMINATE his employment at
any time with Sixty (60) days written notice to the Company. However, any
such voluntary termination of employment shall cause Employee to forfeit
any and all rights to receive any further Options, Warrants, or other of
the Company's securities or any and all other benefits awarded either
herein or in the future, to include severance, insurances, allowances, and
perquisites received or receivable by Employee at the effective date of
said voluntary termination. Employee shall be entitled to receive any
accrued salary and bonuses due at and upon the effective date of said
voluntary termination, which shall not be earlier than Sixty (60) days
subsequent to the Company's receipt of Employee's notice of voluntary
termination.
11. Should Employee ever be TERMINATED FOR CAUSE, found guilty of any felony,
breach any confidentiality agreements or other agreements made with the
Company, or commit any acts of moral turpitude, or any other acts which
would dishonor the good name of the Company, its employees, affiliates,
associates, or other related parties; Employee shall forfeit any and all
rights to any of the above compensations, benefits, and perquisites. In
addition, should Employee be terminated for cause, the Company shall have
the right to repurchase any and all Options then beneficially owned by
Employee at the same price paid by Employee. Furthermore, any and all
Options vested but as yet not purchased shall be forfeited by Employee upon
the effective date of such termination.
12. The Company shall have the right to terminate this Agreement prior to the
expiration of the Term herein, without cause. In the event the Company
terminates the Employee without cause at any time, the Employee shall be
entitled to receive Severance Pay equal to six months Total Annual
Compensation (as defined below) payable in equal monthly installments,
provided, however, that the Employee shall not be entitled to such
Severance Pay in the event he is offered a position (which position is
comparable in responsibility and compensation) with a new entity.
Notwithstanding the foregoing, in the event the Employee is terminated
immediately subsequent to a sale of 51% of the assets or 51% of the issued
capital stock of the Company (other than through the exercise of the
Warrant in full or in part by Warburg or its assigns), then the Employee
shall be entitled to immediate payment of Severance Pay equal to nine
months Total Annual Compensation. The term "Total Annual Compensation"
means the Employee's annual cash compensation and benefits, including
salary.
13. Employee agrees to abide by and to EXECUTE the Company's Invention,
Confidential Information, and Non-Competition Agreement incorporated herein
by reference and attached hereto as Addendum A, at the execution of the
Agreement.
14. This Agreement shall be INTERPRETED under the laws of the State of Florida,
and shall be binding upon the heirs, successors, assigns, Executors, and
Administrators of both Parties.
Page 2
<PAGE> 3
15. This Agreement represents the ENTIRE AGREEMENT and no modifications may be
made hereto without the execution of additional written amendments to this
Agreement.
IN WITNESS OF THE above understanding, the Parties hereunder affix their seals:
COMPANY EMPLOYEE
By: Eric B. Hale /s/ Terrence L. Domin
__________________________ ________________________
Eric B. Hale Terrence L. Domin
Title: President and Chief Executive Officer,
UroQuest Corporation
Date: __________________________ ________________________
Page 3
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This Letter Agreement dated June 1, 1995 is made, by and between Mr. Gregory S.
Ayers (hereinafter "Employee") whose principal residence is 3113 San Carlos
Street, Tampa, Florida, and UroQuest Corporation (hereinafter The "Company"), a
Florida Corporation with principal offices located at 14280 Carlson Circle,
Tampa, Florida, for the expressed purpose of defining an Employment Agreement
(hereinafter the "Agreement") between the Parties.
RECITALS:
WHEREAS Employee desires to obtain employment under the terms and conditions
listed hereunder; and
WHEREAS the Company seeks to employ Employee under the terms and conditions
listed hereunder;
The Parties hereby agree to the following:
PRINCIPAL TERMS:
1. The POSITION of employment shall be as the Company's Treasurer, Assistant
Secretary and Vice President, Finance.
2. The DATE of this Agreement shall be effective as of June 1, 1995.
3. The TERM of this Agreement shall be for a period of Five (5) years from the
Date of this Agreement, subject to the provisions of Section 14 (Severance)
below.
4. Employee shall receive a salary of Seven Thousand Five Hundred Dollars
($7,500) per month or Ninety Thousand Dollars ($90,000) annually, payable
in bi-weekly installments and subject to deductions in taxes, FICA and
other usual and customary amounts.
5. Employee shall receive additional compensation in the form of STOCK OPTIONS
(hereinafter the "Options") granted from the Company's Non-Qualified Stock
Option Plan (hereinafter the "Plan"). The Employee has received a grant of
Two Hundred Fifty Thousand (250,000) shares of the Company's Options
effective as of June 29, 1994, and as set forth more fully in the Incentive
Stock Option Agreement entered into pursuant to the Plan. These Options
were granted at an exercise price of $0.20 Dollars per share, which is
consistent with the Plan as currently amended. Such shares vest over the
Term of this Agreement as outlined in the Vesting Schedule below:
VESTING SCHEDULE
----------------
<TABLE>
<CAPTION>
ANNUAL NUMBER
OF SHARES TIMING AND/OR EVENTS TOTAL SHARES
--------------- --------------------------------- ------------
<S> <C> <C>
25,000 As of June 29, 1994 25,000
25,000 Upon the Anniversary of June 29, 1994
over the following four (4) years 100,000
</TABLE>
Page 1
<PAGE> 2
<TABLE>
<CAPTION>
ANNUAL NUMBER
OF SHARES TIMING AND/OR EVENTS TOTAL SHARES
--------------- --------------------------------- ------------
<S> <C> <C>
50,000 Upon the first commercial sale of the Male
On-Command Catheter 50,000
15,000 Upon the first commercial sale of the Female
On-Command Catheter 15,000
10,000 Upon the first commercial sale of the
Snap Shot Device 10,000
12,500 At the time that the Company's valuation,
as determined by either the Board or
through an initial public offering exceeds
Ten Million ($10,000,000) Dollars 12,500
12,500 At the time that the Company's valuation,
as determined by either the Board or
through an initial public offering exceeds
Twenty Million ($20,000,000) Dollars 12,500
25,000 At the time that the Company's valuation,
as determined by either the Board or
through an initial public offering exceeds
Thirty Million ($30,000,000) Dollars 25,000
--------
TOTAL 250,000
=======
</TABLE>
6. All issued Options shall IMMEDIATELY VEST upon the sale, in a single
transaction, of either 51% of the assets or 51% of the issued capital stock
of the company. The exercise in full or in part of the warrant held by
Warburg, Pincus Investors, L.P. ("Warburg") as of June 9, 1995 (the
"Warrant") by Warburg or its assigns does not trigger this accelerated
vesting provision.
7. Employee shall receive the following paid HOLIDAYS:
- New Year's Day
- Good Friday
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
8. Employee shall be eligible to take Two (2) weeks of paid VACATION annually
such eligibility to begin at the Funding Date.
9. Employee shall receive a BENEFITS PACKAGE consisting of health, life, and
disability insurances and other such perquisites as may be now or ever
generally made available to the Company's senior management. Such benefits
package to take effect simultaneously with the Funding Date.
Page 2
<PAGE> 3
10. Employee shall at the request of the Company be required to pass a "KEY
MAN" LIFE INSURANCE physical whereupon the Company shall be named as
beneficiary.
11. Employee shall be reimbursed for all usual and customary OUT-OF-POCKET
EXPENSES incurred as the result of any and all business-related activities
as of the Date of this Agreement.
12. Employee shall have the right to VOLUNTARILY TERMINATE his employment at
any time with Sixty (60) days written notice to the Company. However, any
such voluntary termination of employment shall cause Employee to forfeit
any and all rights to receive any further Options, Warrants, or other of
the Company's securities or any and all other benefits awarded either
herein or in the future, to include severance, insurances, allowances, and
perquisites received or receivable by Employee at the effective date of
said voluntary termination. Employee shall be entitled to receive any
accrued salary and bonuses due at and upon the effective date of said
voluntary termination, which shall not be earlier than Sixty (60) days
subsequent to the Company's receipt of Employee's notice of voluntary
termination.
13. Should Employee ever be TERMINATED FOR CAUSE, found guilty of any felony,
breach any confidentiality agreements or other agreements made with the
Company, or commit any acts of moral turpitude, or any other acts which
would dishonor the good name of the Company, its employees, affiliates,
associates, or other related parties; Employee shall forfeit any and all
rights to any of the above compensations, benefits, and perquisites. In
addition, should Employee be terminated for cause, the Company shall have
the right to repurchase any and all Options then beneficially owned by
Employee at the same price paid by Employee. Furthermore, any and all
Options vested but as yet not purchased shall be forfeited by Employee upon
the effective date of such termination.
14. The Company shall have the right to terminate this Agreement prior to the
expiration of the Term herein, without cause. In the event the Company
terminates the Employee without cause at any time, the Employee shall be
entitled to receive Severance Pay equal to six months Total Annual
Compensation (as defined below) payable in equal monthly installments,
provided, however, that the Employee shall not be entitled to such
Severance Pay in the event he is offered a position (which position is
comparable in responsibility and compensation) with a new entity.
Notwithstanding the foregoing, in the event the Employee is terminated
immediately subsequent to a sale of 51% of the assets or 51% of the issued
capital stock of the Company (other than through the exercise of the
Warrant in full or in part by Warburg or its assigns), then the Employee
shall be entitled to immediate payment of Severance Pay equal to nine
months Total Annual Compensation. The term "Total Annual Compensation"
means the Employee's annual cash compensation and benefits, including
salary.
15. Employee agrees to abide by and to EXECUTE the Company's Invention,
Confidential Information, and Non-Competition Agreement incorporated herein
by reference and attached hereto as Addendum A, at the execution of the
Agreement.
16. This Agreement shall be INTERPRETED under the laws of the State of Florida,
and shall be binding upon the heirs, successors, assigns, Executors, and
Administrators of both Parties.
17. This Agreement represents the ENTIRE AGREEMENT and no modifications may be
made hereto without the execution of additional written amendments to this
Agreement.
Page 3
<PAGE> 4
IN WITNESS OF THE above understanding, the Parties hereunder affix their seals:
COMPANY EMPLOYEE
By: /s/ Eric B. Hale /s/ G.S. Ayers
-------------------------- -------------------------
Eric B. Hale Gregory S. Ayers
Title: President and Chief Executive Officer,
UroQuest Corporation
Date: __________________________ ________________________
Page 4
<PAGE> 1
EXHIBIT 11.1
UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 8, 1992) YEARS ENDED DECEMBER 31, THREE MONTHS
TO DEC. 31, -------------------------------------- ENDED
1992 1993 1994 1995 MARCH 31, 1996
--------------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net loss................... $ (11,234) $ (315,423) $(1,205,194) $(1,513,747) $ (446,793)
========== ========== =========== =========== ==========
Weighted average common
shares outstanding during
the period............... 1,428,572 1,498,630 3,098,033 3,194,243 3,258,060
Weighted average preferred
shares, as converted to
common stock, outstanding
during the period........ -- 3,966 284,941 962,725 1,253,583
Stock options treated in
accordance with Staff
Accounting Bulletin No.
83....................... 33,543 33,543 33,543 33,543 33,543
---------- ---------- ----------- ----------- ----------
Shares used in
computation.............. 1,462,115 1,536,139 3,416,517 4,190,511 4,545,186
========== ========== =========== =========== ==========
Net loss per share......... $ (.01) $ (.21) $ (.35) $ (.36) $ (.10)
========== ========== =========== =========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
UroQuest Medical Corporation:
We consent to the use of our report dated March 20, 1996, except as to note 10,
which is as of June 28, 1996, on the financial statements of UroQuest Medical
Corporation and Subsidiary as of December 31, 1994 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended December 31, 1995, and for the
period April 8, 1992 (inception) to December 31, 1995, included herein and to
the reference to our Firm under the headings "Selected Financial Data" and
"Experts" in the Prospectus.
KPMG Peat Marwick LLP
Salt Lake City, Utah
June 28, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 19, 1996 (except for Note H as to which
the date is June 27, 1996) accompanying the consolidated financial statements
of BMT, Inc. contained in the Registration Statement and Prospectus of UroQuest
Medical Corporation. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus and to the use of our name as it appears
under the captions "Selected Consolidated Financial Data" and "Experts".
GRANT THORNTON LLP
Chicago, Illinois
June 28, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT
We hereby consent to the reference to our firm under the heading "Experts"
in the Prospectus which forms a part of the Registration Statement on Form S-1
of UroQuest Corporation.
Griffin, Butler, Whisenhut & Kurtossy
By F. Price Butler
June 28, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT
We hereby consent to the reference to our firm under the heading "Experts"
in the Prospectus which forms a part of the Registration Statement on Form S-1
of UroQuest Corporation.
Emrich & Dithmar
By Paul L. Brown, Partner
June 28, 1996
<PAGE> 1
EXHIBIT 99.1
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
The undersigned consents to the reference to the undersigned in the
UroQuest Registration Statement on Form S-1 as a person named in the
Registration Statement as about to become a director of UroQuest Medical
Corporation.
/s/ TOM E. BRANDT
--------------------------------------
Tom Brandt
Dated: June 28, 1996
2
