-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GMG1SIF1Ge7G1d/e2oLT4IOJTd/iLNUP34MbLKFmLCOGV/jI00aT1pTJEAtWD609 V1hrOOxmF/Sv5ENkGW/ORg== 0000912057-97-000256.txt : 19970107 0000912057-97-000256.hdr.sgml : 19970107 ACCESSION NUMBER: 0000912057-97-000256 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19970106 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MYO DIAGNOSTICS INC CENTRAL INDEX KEY: 0001029312 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954089525 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19285 FILM NUMBER: 97501399 BUSINESS ADDRESS: STREET 1: 3760 S ROBERTSON CITY: CULVER CITY STATE: CA ZIP: 90232 BUSINESS PHONE: 3105595500 MAIL ADDRESS: STREET 1: 3760 S ROBERTSON CITY: CULVER CITY STATE: CA ZIP: 90232 SB-2 1 FORM SB-2 As filed with the Securities and Exchange Commission on January 6, 1997 Registration No. 33- ______ - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________________ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ___________ MYO DIAGNOSTICS, INC. (Name of Small Business Issuer in its Charter) CALIFORNIA 384 95-4089525 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification No.)
3760 SOUTH ROBERTSON BLVD. CULVER CITY, CALIFORNIA 90232 (310) 559-5500 (Address and Telephone Number of Principal Executive Offices) ___________ 3760 SOUTH ROBERTSON BLVD. CULVER CITY, CALIFORNIA 90232 (310) 559-5500 (Address of Principal Place of Business or Intended Principal Place of Business) ___________ GERALD D. APPEL PRESIDENT MYO DIAGNOSTIC, INC. 3760 SOUTH ROBERTSON BLVD. CULVER CITY, CALIFORNIA 90232 (310) 559-5500 (Name, Address and Telephone number of Agent for Service) ___________ COPIES TO: Alan B. Spatz Troop Meisinger Steuber & Pasich 10940 Wilshire Boulevard Los Angeles, California 90024 (310) 824-7000 Approximate Date of Proposed Sale to the Public: As soon as practicable after the effective date of this Registration Statement. 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 the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT (1) PRICE (1) REGISTRATION FEE - --------------------------- ---------------- -------------- ------------------- ---------------- Common Stock 3,255,561 shs. $2.42 $7,878,458 $2,388
(1) Based on the price at which the Registrant sold shares to unaffiliated third parties in December 1996. ___________ 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 SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. MYO DIAGNOSTICS, INC. CROSS REFERENCE SHEET
Item in Form SB-2 Location in Prospectus - ----------------- ---------------------- ITEM 1. Front of Registration Statement and Outside Front Cover of Prospectus . . . . . . . . . . . Outside Front Cover Page of Prospectus ITEM 2. Inside Front and Outside Back Cover Pages of Prospectus. . . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Page of Prospectus ITEM 3. Summary Information and Risk Factors. . . . . . "Prospectus Summary;" "Risk Factors" ITEM 4. Use of Proceeds . . . . . . . . . . . . . . . . Not Applicable ITEM 5. Determination of Offering Price . . . . . . . . Outside Front Cover Page of Prospectus ITEM 6. Dilution. . . . . . . . . . . . . . . . . . . . Not Applicable ITEM 7. Selling Security Holders. . . . . . . . . . . . "Principal and Selling Shareholders" ITEM 8. Plan of Distribution. . . . . . . . . . . . . . Outside Front Cover Page of Prospectus ITEM 9. Legal Proceedings . . . . . . . . . . . . . . . Not Applicable ITEM 10. Directors, Executive Officers, Promoters and Control Persons . . . . . . . . . . . . . . . . "Management" ITEM 11. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . "Principal and Selling Shareholders" ITEM 12. Description of Securities . . . . . . . . . . . "Risk Factors;" "Dividend Policy;" "Description of Capital Stock" ITEM 13. Interest of Named Experts and Counsel . . . . . Not Applicable ITEM 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities . . . . . . . . . . . . . . . . . . "Management" ITEM 15. Organization Within Last Five Years . . . . . . Not Applicable ITEM 16. Description of Business . . . . . . . . . . . . "Prospectus Summary;" "Management's Discussion and Analysis of Results of Operations and Financial Condition;" "Business" ITEM 17. Management's Discussion and Analysis or Plan of Operation. . . . . . . . . . . . . . . . . . "Management's Discussion and Analysis of Results of Operations and Financial Condition" ITEM 18. Description of Property . . . . . . . . . . . . "Business" ITEM 19. Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . "Certain Transactions" ITEM 20. Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . "Common Stock Matters;" "Risk Factors;" "Description of Capital Stock" ITEM 21. Executive Compensation. . . . . . . . . . . . . "Management" ITEM 22. Financial Statements. . . . . . . . . . . . . . Financial Statements ITEM 23. Changes in and Disagreements With Accountants on Account and Financial Disclosure . . . . . . Not Applicable
PROSPECTUS 3,255,561 SHARES MYO DIAGNOSTICS, INC. COMMON STOCK This Prospectus relates to the offer and sale from time to time by certain shareholders (the "Selling Shareholders") of Myo Diagnostics, Inc., a California corporation (the "Company"), of up to 3,255,561 shares of Common Stock, no par value (the "Shares"), of the Company. The Company will not receive any proceeds from the sale of the Shares. The Selling Shareholders may sell all or a portion of the shares of Common Stock offered hereby from time to time in brokerage transactions in the over-the-counter market at prices and terms prevailing at the times of such sales. The Selling Shareholders may also make private sales directly or through brokers. The Selling Shareholders may individually pay customary brokerage commissions and expenses. In connection with any sales, the Selling Shareholders and any brokers participating in such sales may be deemed to be underwriters within the meaning of the Securities Act, in which event commissions received by such brokers may be deemed underwriting commissions under such Act. Under the 1934 Act and the regulations thereunder, any person engaged in a distribution of the shares of Common Stock offered by this Prospectus may not simultaneously engage in market making activities with respect to the shares of Common Stock of the Company during the applicable "cooling off" periods prior to the commencement of such distribution. in addition, and without limiting the foregoing, the Selling Shareholders will need to comply with applicable provisions of the 1934 Act and the rules and regulations thereunder including, without limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of purchases and sales of shares of Common Stock by the Selling Shareholders. There is no public market for the Common Stock, and none is likely to develop as a result of this offering. THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is ______________, 1997 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission in Washington, D.C., a Registration Statement under the Securities Act with respect to the shares offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and with respect to any contract or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. For further information with respect to the Company and the shares offered hereby, reference is hereby made to the Registration Statement and exhibits thereto. A copy of the Registration Statement, including the exhibits thereto, may be inspected without charge at the Securities and Exchange Commission's principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of certain prescribed rates. The Company has become subject to the informational requirements of the Exchange Act and, in accordance therewith, will file reports and other information with the Securities and Exchange Commission in accordance with its rules. Such reports and other information concerning the Company may be inspected and copied at the public reference facilities referred to above as well as certain regional offices of the Securities and Exchange Commission. The Company intends to furnish its shareholders with audited reports containing annual financial statements. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE HEREIN. PROSPECTIVE INVESTORS ARE URGED TO CAREFULLY READ THIS PROSPECTUS PRIOR TO MAKING AN INVESTMENT IN THE COMPANY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE INHERENTLY UNCERTAIN. ACTUAL RESULTS MAY DIFFER FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS FOR THE REASONS, AMONG OTHERS, DESCRIBED IN "RISK FACTORS." THE COMPANY Myo Diagnostics, Inc. (the "Company"), is a development stage company which was formed in 1988 to develop and bring to market a new medical diagnostic technique: Muscle Pattern Recognition ("MPR"). MPR provides objective evidence of soft tissue muscle injury and detailed information on the site, nature and severity of muscle dysfunction. The Company believes that no other system in use today is capable of objectively evaluating data to be used in diagnosing muscle injury of the back and delivering a report outlining the existence, nature and severity of abnormal muscle recruitment patterns of the back without the need for a subjective evaluation of raw data by the treating physician. The Company licenses the MPR process and related technology from Toomim Research Group ("TRG"), a partnership of three of the Company's shareholders, which holds a United States patent on the MPR technology. The Company's MPR system involves proprietary hardware, software and protocols which presently has the capability of evaluating back and neck muscles. Following successful Alpha and Beta tests of the prototypes, the production design has been completed. The system has been submitted to clinical and market tests and the equipment, has been granted FDA pre-market approval, and is ready for full-scale roll-out. MPR is designed to assist physicians to help establish a diagnosis, select a treatment and assess the effectiveness of such treatment. MPR also addresses needs that have become increasingly important in the new health care environment. In medical/legal cases for instance, MPR can serve as a forensic medical tool. Furthermore, MPR supports the cost-containment and risk management drive of managed care providers and health care insurers by giving them the capability to measure treatment outcomes, to eliminate unnecessary care, and prevent fraud. These providers have been routinely reimbursing the cost of the procedure. Back pain and back muscle injuries from automobile, sports and work related accidents affect a large number of individuals. They represent the largest cause of work days lost and a main component of employers' costs for workers compensation. Bostonia Magazine quotes sources stating that there are over 75 million back-pain sufferers in the United States. According to the 1994 Statistical Abstract of the United States, in 1992, 13.8 million people suffered some sort of sprain or strain. The Company does not presently have sufficient funds to fully implement its marketing plan. Absent additional funding, through debt or equity financing or purchase order advances, it is not anticipated that the Company will be able to operate profitably. The Company's principal office is located at 3760 Robertson Blvd., Suite 212, Culver City, California 90232 and its telephone number is (310) 559-5500. RISK FACTORS AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY. RELIANCE ON LICENSE The Company licenses the MPR process and related technology from TRG. The license is exclusive. See "Business -- Intellectual Property." The license terminates in 2013, but may be terminated earlier upon the occurrence of certain events including (i) if the Company becomes insolvent or generally fails to pay its debts when due, (ii) the assignment by the Company of its property for the benefit of the Company's creditors or the appointment of a receiver for any part of the Company's property, (iii) the commencement of any proceedings under bankruptcy or insolvency law by or against the Company, (iv) the sale or other transfer of the license by the Company without TRG's consent and (v) the failure of the Company to comply with the terms of the license. Because the Company's entire business is based upon the licensed technology so licensed, any termination of the license would have a material adverse effect on the Company and would likely result in the shares of the Company being valueless. DEVELOPMENT STAGE COMPANY, WITH LIMITED OPERATING HISTORY The Company is in the development stage and its operations are subject to all the risks inherent in launching a new business enterprise, in developing and marketing a new product or service, and in establishing a name and a business reputation. The likelihood of success of the Company must be considered in the light of problems, expenses, difficulties and delays frequently encountered in converting prototype designs into viable production designs, and in achieving market acceptance with a new type of product or service. The Company has had limited revenues to date and, because it is only now entering its commercial stage, it will likely sustain operating losses for an indeterminate time period. There can be no assurance that the Company will ever generate material revenues or that the Company will ever be profitable. NEED FOR ADDITIONAL FUNDING The Company presently needs additional financing in order to implement fully its marketing plan. Without additional funds, through equity or debt financing or purchase order advances, it is unlikely that the Company can operate profitably. INTELLECTUAL PROPERTY TRG holds a United States patent on the MPR technology, and the Company is the exclusive licensee of the rights under the patent. The Company believes that its ability to be successful will be contingent on its ability to protect the MPR technology, its future developments and its know how. There can be no assurance, however, that this patent will provide substantial protection of the MPR technology or that its validity will not be challenged. Pursuant to its license agreement with TRG, the Company has the right to protect the MPR technology. The Company presently has no patent protection of the MPR technology outside the United States. The Company has the right to file patent applications and attempt to obtain patents in other jurisdictions. To date, the Company has not done so, in part because of lack of funds. TRG is under no obligation to patent the MPR technology in any jurisdiction and the Company's determination as to whether or not to seek patent protection will depend upon a number of factors, including the likelihood of the issuance of the patent, the Company's financial resources and marketing plans. COMPETITION The Company believes that there is no competitive diagnostic technology in use today capable of detecting, locating and evaluating soft tissue muscle injuries in a manner similar to the MPR system. However, there are many companies, both public and private, which are active in the field of medical diagnostic imaging. Some of these companies have substantially greater financial, technical and human resources, have a well established name and enjoy a strong market presence. There is no assurance that one or several such companies are not currently developing, or will not start developing, technology that will prove more effective or desirable than the Company's technology. Such occurrence could severely affect the Company's ability to establish and develop a market presence and to maintain its competitive position. NEW AND UNCERTAIN MARKET Until now, muscle injuries have always been diagnosed and evaluated subjectively by physicians through physical examination. Accordingly, there is no established demand for a computer-assisted procedure to diagnose such injuries, and it is difficult to predict if, and when, the procedure will gain wide acceptance by prescribers. Factors that may affect market penetration could include resistance to change, concerns over the lack of track record of the procedure, and the risk for insurance companies to use the results of the procedure to challenge or overrule the diagnostic or treatment decisions of a physician. DEPENDENCE ON THIRD PARTIES Like other health care companies, the Company is dependent upon medical institutions to conduct clinical trials of its product, upon physicians to refer patients, and upon insurance companies and managed care organizations to pay for or reimburse the procedure. While the Company has not experienced difficulties in obtaining clinical and scientific testing services to this date, and has found the market to be responsive to its offering during its initial marketing efforts, there is no assurance that the Company's dependence on third parties to succeed in the market place will not affect its development. DEPENDENCE ON KEY MANAGEMENT PERSONNEL The Company is substantially dependent upon the experience and efforts of Gerald D. Appel, President, Chief Executive Officer and founder of the Company. The loss of the services of Mr. Appel could have a material adverse impact on the Company and its business unless a suitable replacement for the individual is found promptly, but there is no assurance that such replacement can be found. PRODUCT LIABILITY The Company may be subject to substantial product liability costs if claims arise out of problems associated with the use of the Company's MPR system. The Company maintains insurance against such potential liabilities in amounts which it believes to be adequate. However, there can be no assurance that such product liability insurance will adequately insure against such risk. CONTROL BY MANAGEMENT Gerald D. Appel, owns beneficially 3,715,019 shares of the Common Stock, (which includes voting rights with respect to 111,900 shares), representing 48.0% of the outstanding voting power of the Company as of December 31, 1996. All directors and officers of the Company (including Mr. Appel) currently have voting power with respect to 51.3% of the outstanding Common Stock. Accordingly, Mr. Appel individually, and all directors and officers as a group, have the power to control the election of directors, and therefore the business and affairs of the Company. See "Principal and Selling Shareholders." This concentration of stock ownership may have the effect of delaying or preventing a change in the management or control of the Company. PREFERRED STOCK The Company is authorized to issue up to 10,000,000 shares of Preferred Stock, issuable in one or more series, the rights, preferences, privileges and restrictions of which may be established by the Company's Board of Directors without stockholder approval. As a result, in the future, the Company could issue Preferred Stock with voting and conversion rights that could adversely effect the voting power and other rights of the holders of the Common Stock. No shares of Preferred Stock are presently outstanding and the Company has no present plans to issue shares of Preferred Stock. ABSENCE OF PUBLIC MARKET Presently, there is no public market for any securities of the Company and it is unlikely that one will develop as a result of the sale of the Shares. No assurance can be given that any public market will ever develop for the Common Stock. SHARES ELIGIBLE FOR FUTURE SALE Any shares of Common Stock sold pursuant to this Prospectus will be freely tradable without restriction or registration under the Securities Act. An additional 5,016,031 shares of outstanding Common Stock are either "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act or shares which were issued to investors outside the United States. In general, "restricted securities" may be resold publicly in reliance on Rule 144. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated) who has beneficially owned shares for at least two years is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then outstanding shares of Common Stock (approximately 77,000 shares) or the average weekly public trading volume in the Common Stock during the four calendar weeks preceding the date on which notice of sale is filed with the Securities and Exchange Commission. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and availability of current public information about the Company. Any person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the three months proceeding the sale and who is deemed to have owned shares, provided in Rule 144, for at least three years, is entitled to sell such shares under Rule 144(k) without limit regarding the volume limitations, manner of sale provisions, public information or notice requirements. In general, in the case of sales by non-public issuers (such as the Company), equity securities sold outside the United States may not be resold in the United States or to United States persons during a restricted period of one year unless such sales are registered under the Securities Act. At January 1, 1997 the Company had outstanding options or warrants to purchase an aggregate of 1,673,553 shares of Common Stock at various times through March 1999 at a weighted average exercise price of $1.67 per share. Except with respect to the shares covered by this Prospectus and 600,000 shares included in units anticipated to be sold within two weeks from the date of this Prospectus (see "Description of Capital Stock"), the Company has no obligation to register any shares of Common Stock for its shareholders. THE COMPANY The Company was incorporated in California on January 5, 1987 as AREX, Inc. The name was changed to Devion Group and then to Myo Diagnostics, Inc. in September 1989. The Company held a 97.2% general partnership interest in Myo Diagnostics, Ltd. (the "Partnership"), a California partnership, that began operations in April 1991. The Partnership researched and developed the hardware and related software to perform Muscle Pattern Recognition pursuant to a license agreement with TRG. In December 1994, the Partnership's assets (including the license agreement) and liabilities were transferred to the Company at their book value and neither the Partnership nor the Company recognized any gain or loss. The 2.8% partners exchanged their interests in the Partnership, totaling $547,885, for 755,330 shares of Common Stock and notes in the aggregate principal amount of $175,000. The business combination was recorded in a manner similar to a "pooling-of-interest" method of accounting. Under this method, assets and liabilities of the Partnership were recorded at historical cost. DIVIDEND POLICY The present policy of the Company is to retain earnings to provide funds for use in its business. The Company has not paid cash dividends on its Common Stocks and does not anticipate that it will do so in the foreseeable future. CAPITALIZATION The following table sets forth the capitalization of the Company at September 30, 1996. At September 30, 1996 --------------------- Shareholders' Deficit Common Stock, no par value -- 50,000,000 shares authorized; 7,241,037 shares outstanding(1) $ 3,200,154 Deficit accumulated during the development stage (3,623,262) ------------- Total Shareholders' Deficit $ (423,108) ------------- ------------- ______________________________ (1) Does not include: (i) 1,047,333 shares of Common Stock issuable upon exercise of outstanding warrants and options; and (ii) 505,000 shares of Common Stock issued in December 1996 and 163,200 shares of Common Stock issuable upon exercise of warrants issued in December 1996. In addition, by amendment of its Articles of Incorporation in December 1996, the Company is authorized to issue 10,000,000 shares of Preferred Stock. COMMON STOCK MATTERS Presently, there is no public market for any securities of the Company and it is unlikely that one will develop as a result of the sale of the Shares. No assurance can be given that any public market will ever develop for the Common Stock. As of December 31, 1996, there were 95 holders of record of the Common Stock. MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Company is a development stage company which has yet to realize any material revenues. The Company is ready to bring its product to market, but needs additional funding to implement its marketing plan. RESULTS OF OPERATIONS FISCAL 1995 COMPARED TO FISCAL 1994. The Company had revenues of $67,600 in fiscal 1995, compared to $8,041 in fiscal 1994. These revenues were derived from sales of MPR evaluations in connection with test marketing the Company's product. The Company had operating expenses of $1,090,639 in fiscal 1995 as compared to $784,802 in fiscal 1994. The increase was due to additional sales, marketing and general and administrative expenses as the Company increased its sales, marketing and administrative staffing in anticipation of commencing full scale marketing efforts in 1996. The Company suffered a net loss of $1,067,280 in fiscal 1995 compared to $821,898 in fiscal 1994 due to the increase in operating expenses in fiscal 1995. NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995. The Company's results of operations in these nine month periods were substantially identical. In 1996 the Company spent a significant portion of the year attempting to raise additional capital to finance the implementation of its marketing plan. Revenues declined in the nine months ended September 30, 1996 to $13,650 as compared to $57,200 in the nine months ended September 30, 1995, because the Company suspended marketing efforts pending raising additional capital. The Company's operating expenses in these nine month periods were roughly comparable, although in the nine months ended September 30, 1996 the Company had lower research and development, technical services and sales and marketing expenses, but higher general and administrative expenses, as the Company incurred costs of raising capital and increased its general and administrative staffs in anticipation of implementing its marketing plan. FINANCIAL CONDITION The Company has funded its operating expenses principally through equity and debt financings, as the Company has had no material cash flows from operations. During the nine months ended September 30, 1996, the Company funded its operations principally through the sales of Common Stock generating net proceeds of $1,171,818. The Company has six revolving lines of credit from a commercial bank pursuant to which the company may from time to time borrow up to $400,000 at interest rates equal to the bank's prime rate of interest plus .75% to 1.50%. These lines, which were fully utilized at September 30, 1996, mature at various times from January 1997 to June 1997. In December 1996, the Company received net proceeds of $1,116,000 from the issuance and sale of 480,000 units, each unit consisting of one share of Common Stock and one quarter stock purchase warrant. Each whole warrant entitles the holder to purchase one share of Common Stock for $3.00 per share at any time on or prior to December 1997. The Company has commitments to purchase another 480,000 units, which commitments are anticipated to be fulfilled within several weeks after the date of this Prospectus. The Company believes that the proceeds from the sale of these units will enable the Company to fund operations through the end of fiscal 1997. However, the Company needs additional funding in order to fully implement its marketing plan. Absent additional funding, the Company does not anticipate it can develop sufficient revenues to operate profitably. BUSINESS OVERVIEW The Company was formed to develop and bring to market a new patented diagnostic technique called Muscle Pattern Recognition ("MPR"). Utilizing proprietary hardware, expert systems and protocols, MPR analyzes patterns of muscle recruitment to provide objective evidence of muscle dysfunction to assist in the diagnosis of muscle injury. It can identify affected muscle sites, determine the nature of the dysfunction, and measure its severity. The results of an MPR evaluation are presented in a comprehensive report which is generated at the Company's central processing facility. The Company believes that the capabilities of its system are unique and MPR addresses an unmet market need which has become even more pressing in view of the cost-consciousness of the present health care environment. MPR supports the cost-containment and risk management goals of insurers and managed care providers by giving them means to measure treatment outcomes, to eliminate unnecessary care and to detect outright fraud. It can serve as a forensic medical tool in medical/legal cases and reduce the exposure of insurers of disability and workers compensation risks. These benefits have been recognized by the industry whose response to the new procedure has been very favorable. MPR's scientific foundation originates from the research of Dr. Toomim, one of the principals of the Company. Over the ten-year period that preceded the formation of the Company, Dr. Toomim did extensive research on the patterns of interactions occurring between the various muscles which participate in the execution of a movement. Central to the MPR concept is the discovery of movement-specific patterns which can be captured by simultaneously recording the electromyographic ("EMG") signals of all participating muscles. The comparison of a patient's patterns with those of "normal" subjects, using an expert system, is the basis of the evaluation. Up until now, the Company has focused its development efforts on the back and neck muscle application; it plans to address other muscle groups in the future. The first MPR system prototype capable of measuring simultaneously up to 14 muscle sites was Alpha and Beta tested in early 1990. A limited market test was initiated in September 1990 in Southern California, through a non-exclusive Mobile Diagnostic Distributor. Four technicians were certified and approximately 300 patients were tested through June 1991. In the fourth quarter of 1991, the Company appointed in-house and independent sales representatives to expand the market test. These market tests served to establish the prerequisites of a successful roll-out. These prerequisites included: an independent scientific validation of the system, conclusive clinical studies, a demonstration of the successful use the MPR information as medical/legal evidence, and the publication of papers in peer reviewed journals. In the opinion of management, these prerequisites were fully met by mid 1995 when the Company began market testing in Southern California and Chicago. In February 1996, the Company entered into an agreement with a well established, Cleveland-based diagnostic imaging service company which has committed to introduce the procedure in 20 markets in the 5 states in which it operates. Reimbursement for the procedure has been received from more than 60 local and national insurance companies. MARKET MARKET ENVIRONMENT: The United States health care delivery and payment systems have been undergoing profound changes over the past few years. These changes have been driven by the determination of employers to halt the alarming escalation of health care spending, by the concerns of the health care industry over the threat of regulatory controls, and by a general awareness that the system was plagued by major flaws. Some studies have placed the cost of unnecessary procedures and services at as high as 20% of total expenditures for patient care, and the General Accounting Office estimated in 1992 that outright fraud could represent a full 10% of the total health care budget. Lead by managed care providers, the re-engineering of the industry has brought a new focus on the cost-effectiveness of services and procedures. Capitated payment plans have reversed the financial incentives of managed care providers, and insurers of traditional indemnity plans have had to adopt similar cost-containment techniques to compete. Management believes these trends will benefit the Company as MPR provides important means required for cost-containment: means to objectively diagnose a condition to aid in the selection of the most appropriate treatment course, means to measure outcomes to prevent overuse, and means to detect fraud in workers compensation, personal injury and disability cases involving back injury. BACK MUSCLE DIAGNOSTIC MARKET: According to the 1994 Statistical Abstract of the United States, in 1992, 13.8 million people suffered some sort of sprain or strain. Bostonia Magazine quotes sources stating that there are over 75 million back-pain sufferers in the United States. An article in California Worker's Compensation Enquirer, under the signature of Dr. Richard Hyman, estimates that, in 1994, soft tissue back injuries may have accounted for up to 70% or $2.1 billion of California's $3 billion annual Worker's Compensation medical costs. The Company believes that the United States offers as many annual examination opportunities for MPR as it does for MRI whose existing market is in excess of 7 million examinations. BUSINESS STRATEGY The Company's goal is to establish MPR as a widely recognized and accepted procedure, to capitalize upon the full potential of this technology by developing protocols for other applications, and to achieve and maintain a leadership position in muscle-related diagnostic techniques. The Company's strategy to achieve these goals consists of the following principal elements: - DEVELOP AND STRENGTHEN ITS PRESENCE in California and Illinois, the markets where the Company has initiated its marketing program. The Company will train and certify additional technicians to service these sites, will explore new delivery channels and continue to develop relationships in the insurance industry. - EXPAND GEOGRAPHICALLY, primarily through limited exclusive distribution arrangements with diagnostic imaging services and strategic partners. The Company hopes that the existing referral base of these providers, their reputation and infrastructure will provide accelerated entry into a large number of markets. The Company's approach of such providers has generated considerable interest as the low capital investment and high margin of MPR provide an attractive opportunity for incremental profits. One distribution arrangement already in place gives the Company immediate entry into five states. - INCREASE EXPOSURE AND PEER RECOGNITION THROUGH PUBLICATIONS IN MEDICAL AND SCIENTIFIC JOURNALS: Peer-reviewed publications play an important role in overcoming physician resistance to new procedures. Accordingly, the Company has an on-going program of studies and trials aimed at providing statistical and clinical evidence for publication. Two papers co-authored by leading academicians have been published. One additional paper has been accepted for publication in Spring 1997. - DEVELOP NEW APPLICATIONS OF ITS CORE TECHNOLOGY: The Company intends to further capitalize on its know-how and core technology by addressing other applications related to arm and leg muscles. For example, the development of appropriate protocols would allow the Company to introduce evaluation systems for carpal tunnel syndrome, rotator cuff injuries and pre- and post-operative arthroscopic surgery evaluation. PRODUCT MPR is a computer-assisted evaluation procedure which is based on the simultaneous measurement of electromyographic signals produced by up to 16 muscles during the execution of a movement. A patient's EMG readings, which are collected during the examination procedure, digitized, then processed by an expert system, can be converted into graphic "images" of recognizable muscle patterns. A computer-assisted comparison of a patient's patterns with those produced by normal subjects reveals differences which are the basis of the diagnosis. All the components of the Company's MPR system have been designed and built based on published and accepted scientific data and proven medical, electronic, and statistical technology. The three proprietary components of the system include: - the Myo D 1600 Data Acquisition Module, - the Myo Diagnostics Expert System, and - the Myo Diagnostics Muscle Pattern Recognition Report. DATA ACQUISITION MODULE: The data acquisition equipment consists of a set of 29 cutaneous electrodes connected to the Myo D 1600 Data Acquisition Module. The electrodes, which are commercially available, pick up the EMG signals produced by muscles and feed them into the D 1600 whose design provides for the simultaneous reception of up to 14 of these signals. The Myo D 1600 has built-in features which analyze the quality of the signal received from each electrode and recognize and warn the technician/operator of any malfunction, thereby ensuring that data reflects accurate EMG measurements. The Data Acquisition Module also assists the operator by signaling the beginning and end of each movement through visual prompts and audio tones, and by providing a real-time feedback on the patient's performance through a graphic display. After affixing the electrodes on the skin of the patient's back, at carefully selected muscle sites, and after connecting the electrodes to the D 1600, the technician performs a calibration of the instrument. The purpose of the calibration is to prevent skin-specific variances to affect the readings, thereby ensuring that the patterns from various subjects can be compared. The patient is then directed to execute four repetitions of each of nine specific movements. Fourteen muscle sites are associated to each movement and report to the D 1600 during the execution of such movement. Their repetitions are important for the protocol. To convert these parallel inflows of signals into digital patterns ("images"), the D 1600 processes some 75,000 data points and calculates these points' relationships to each other. THE EXPERT SYSTEM: The data collected during the examination is submitted to the Company for processing by the Company's expert system. A report is generated which includes graphic, statistical and narrative representations of each muscle group's pattern compared to the pattern of a normative database of non-injured and pain-free subjects. The normative data has been collected utilizing the same protocols performed by the patient. The normative database is continuously updated as more data is collected. The report which is produced is reviewed by qualified personnel to ascertain that the data was properly collected and processed. The analytical system was developed by the Company based on statistical methodology in common use in this field for a number of years. In developing the analysis, it was determined that a high degree of statistical certainty would be required for the report to have the level of accuracy to be completely reliable. Based on this design, the statistical analysis assures results which have an average statistical certainty of 95%-99%. THE MUSCLE PATTERN RECOGNITION REPORT: The MPR Report provides the physician with findings to classify the patient as normal or with a graded level of muscle dysfunction. It provides four critical statements about the muscle groups examined, along with detailed information supportive of these conclusions. The statements address the following questions: - - EVIDENCE OF INJURY: Is there evidence that the patient's muscles are dysfunctional? If so, where does it occur? - - FREQUENCY AND SEVERITY OF THE INJURY: How severe is the dysfunction as compared to normal and how often does the dysfunction occur? - - WHAT ARE THE MUSCLE PATTERNS?: What deviations from normal muscle patterns exist in each movement and what are the patterns of muscle compensation? - - ARE THERE PATTERNS OF SECONDARY MUSCLE COMPENSATION?: Do the muscle patterns indicate that there is secondary muscle dysfunction due to muscles compensating involuntarily to protect the injury? - - WHAT IS THE RESULT OF THE ABNORMAL MUSCLE RECRUITMENT?: What is the bio-mechanical explanation for the muscle patterns? When a patient is retested and the second MPR evaluation is compared to the baseline test, several other critical questions are addressed: - - IS THE PATIENT'S MUSCLE RECRUITMENT PATTERN NOW WITHIN THE RANGE OF NORMAL? - - IF STILL DYSFUNCTIONAL, HAS THE PATIENT PROGRESSED THROUGH TREATMENT? - - SHOULD THE INSURANCE COMPANY CONTINUE TO FUND FURTHER (OR DIFFERENT) TREATMENT? These questions address the issues of rehabilitation and short and long term disability which affect insurance reserves. SCIENTIFIC VALIDATION OF THE SYSTEM: In May 1992, an independent study of the Company's evaluation methodology was completed. The study determined that the overall classification accuracy of normal subjects was 90%. In a further cross validation study involving 196 subjects, the results confirmed the stability of the data base. In June 1992, a second clinical study was completed. This study showed a high correlation between the Company's evaluation of doctor-diagnosed injured accident and Workers Compensation patients and the doctors' diagnoses. The results were particularly impressive because the test was able to detect injuries after a one to four week time lapse between the doctor's diagnosis and the Company's examination. A test/retest study of 40 of these patients indicated that 82% of the patients improved over a four week period. The retest also validated the accuracy of the Company's classification. The Company's MPR system was submitted to leading academicians and clinicians. Dr. V. Reggie Edgerton of UCLA and Dr. Steven Wolf of Emory University reviewed the technical aspects of the system in detail and confirmed the validity of the science behind the system. They have separately authored a total of three papers relating to the Company's technology, two of which have been published and one of which has been accepted for publication in Spring 1997. LEGAL VALIDATION OF THE SYSTEM: In June 1992, the California Workers Compensation Appeals Board (WCAB) began to hear testimony to determine if MPR is a valid medical/legal procedure. In September 1993, the WCAB issued a decision that the Company "...persuaded the court as to the validity of lien-claimant's (Myo Diagnostics) methodology and mechanism. In addition, the Opinion stated that, "it is found that the procedure (Muscle Pattern Recognition) is a valid and useful diagnostic medical tool when used in the proper case...." It further states that "...it is a reasonable and necessary diagnostic test." This opinion helped validate Muscle Pattern Recognition as a valid medical/legal procedure. This case becomes a reference for any future legal test. COMPETITION The Company believes it has no direct competition and that no other system in use today is capable of delivering information similar in content, comprehensiveness and reliability to the Company's MPR system. EMG signals have been used by others to evaluate muscles at rest and muscles that do not have kinesiological relationships; but the Company believes that these methodologies are not supported by scientific studies and are not reliable. The Company believes that Magnetic Resonance Imaging ("MRI") does not compete with MPR because it cannot measure interactive muscle relationships when the muscles are under constant tension. MRI's use in relation to back problems is primarily to diagnose disk injuries. However, there are many companies, both public and private, which are active in the field of medical diagnostic imaging. Some of these companies have substantially greater financial, technical and human resources, have a well established name and enjoy a strong market presence. There is no assurance that one or several such companies are not currently developing, or will not start developing, technology that will prove more effective or desirable than the Company's technology. Such occurrence could severely affect the Company's ability to establish and develop a market presence and to maintain its competitive position. MARKETING PLAN SERVICE DELIVERY STRATEGIES: The Company markets its services on a per-use basis, either directly ("Direct Services Operations") or through third party "distributors". In the first instance, the Company itself performs patient examinations, whereas this service is provided by a distributor in the second mode of operation. In both cases, however, patient data is processed by the Company's Central Processing Center, which also produces the evaluation reports. DISTRIBUTOR OPERATIONS: The Company intends to establish distributor operations through limited exclusive arrangements with financially solid firms which presently provide mobile and fixed-site MRI, CT and ultrasound services to hospital, clinics and managed care locations. These firms, which market to the same referral base of doctors which will refer MPR, are attracted by the low capital investment and high margin of MPR. DIRECT SERVICES OPERATIONS: In this mode of operation, services will either be provided at a Company-owned and operated facility (Evaluation Center), or at the facility of a provider (Mobile Services) using equipment and personnel supplied by the Company. The Company has already established an Evaluation Center at its headquarters in Southern California. Until now this facility has been used mostly for research, but the Company plans to initiate revenue producing activities in the first quarter of 1997. Future Centers may be established as stand alone co-ventures with existing diagnostic, physical therapy and rehabilitation facilities, or based on lease arrangements with hospitals. An Evaluation Center can be operated at very low fixed overhead by subleasing space and services at existing clinics. Mobile Testing Services is the format under which the Company presently operates; it allows patient examination to take place on the premises of medical providers, using the Company's equipment and personnel. This approach overcomes providers' resistance to invest in equipment and incur additional personnel costs. Mobile service contracts are offered on the basis of a minimum daily rate plus a fee per test. Direct Services Operations provide to the Company the full benefit of the high margins of MPR while allowing it to remain in close contact with its end-user market. However, the Company has elected to pursue simultaneously a distribution strategy in order to achieve faster market penetration. MARKET TARGETS The Company's market is comprised of two major segments: the medical/legal market which deals primarily with workers compensation and personal injury claims, and the physical medicine market. Initially, the Company will focus on the medical/legal segment. To this end, the Company will target strategic alliances with firms servicing insurance companies, HMOs (Health Maintenance Organizations) and PPOs (Preferred Provider Organizations), self-insured employers and their third-party plan administrators, and risk and case management companies. The Company will also target the medical providers which service these markets such as hospitals, rehabilitation clinics, industrial clinics, diagnostic centers, physicians, physical therapists and MRI imaging centers. This second group is also an important component of the Company's strategy because, in addition to its capacity to prescribe MPR, it may serve as a delivery vehicle. INSURANCE COMPANIES are a primary target because their reimbursement policies and practices have a profound impact on the medical diagnostic industry; they largely dictate pricing policies, methods of distribution and growth strategies. Insurance companies are also playing an increasingly important role as prescribers. For example, recent Workers Compensation reforms in California have given insurers more control over treatment regimen. An insurer can now dictate the treatment of a patient for up to four months. Because MPR can serve to control direct medical costs and indirect costs such as lost time, disability claims and litigation costs, the Company believes that its procedure will be well received by insurers who may become a major source of referrals, particularly in the Workers Compensation market. More than 60 insurance companies have already approved the reimbursement of MPR procedures. HMOS AND PPOS are of vital importance to the Company due to their leadership role in the cost containment drive and the considerable market share they enjoy. SELF-INSURED EMPLOYERS accounted for 18.7% of total worker's compensation benefits paid in 1991. These employers represent a large volume of opportunities for the Company. HEALTH CARE PLAN ADMINISTRATORS are large organizations which provide services to self-insured employers, public or private. In their role to manage private plans, they can influence care strategies and/or treatment selection criteria, and they may have authority to commit funds for evaluation and treatment. Most of them have financial incentives to contain costs and limit payors' exposure related to ongoing treatment and disability. HOSPITALS, INDEPENDENT CLINICS, DIAGNOSTIC CENTERS AND INDIVIDUAL PHYSICIANS will be recruited as Evaluation Centers. These providers may become the delivery system for corporate clients and insurance companies. They may service the medical/legal market and may later become the sites for entry into the medical back pain and physical medicine market. MANUFACTURING The Data Acquisition Module consists of a standard laptop computer, a modified board and the Company's proprietary software. The Company acquires the laptop computers from an outside source. The modified boards are manufactured by the subcontractor who participated in their development, and with whom the Company has established a long term relationship. Once tested, the boards are shipped to the Company which installs them along with its proprietary software and tests the completed Module. FACILITIES AND EMPLOYEES The Company operates from leased facilities in Culver City, California. Research and development, manufacturing and report processing activities are centralized to allow closer control over service and response time, and to better protect the technology. The Company intends to maintain its central processing activities at this headquarter location, but research and development and future clinical studies will be conducted at various sites in Southern California, in Atlanta, Georgia and at independent hospitals and universities throughout the United States and Canada. As of December 31, 1996, the Company had 15 full time employees. REGULATORY REQUIREMENTS The medical equipment manufactured and marketed by the Company is subject to regulation by the Food and Drug Administration ("FDA"). Under the FDA Act, manufacturers of medical devices must comply with certain regulations governing the testing, manufacturing, packaging and marketing of medical devices. Commercial sales or use of the Company's medical equipment must be preceded by FDA pre-market clearance pursuant to section 510(k) of the FDA Act. The Company has met all applicable FDA requirements in connection with its product. INTELLECTUAL PROPERTY The Company licenses the right to manufacture, market, sell, distribute and further develop the MPR system and technology and any related or derivative technology throughout the world pursuant to an exclusive license with TRG, a partnership among Gerald D. Appel, Daniel J. Levendowski and Hershel Toomim, principal shareholders of the Company. The MPR system and technology and all additions or modifications thereto remain the property of TRG, provided, however, that any derivative technology developed by the Company for purposes other than the evaluation and treatment of muscle dysfunction in the back, arms and legs ("Derivative Technology") will be the property of the Company. The Company pays royalties to TRG for the use of the MPR technology and any Derivative Technology as follows: (i) the lesser of $30.00 per use or 10% of total revenues received by the Company for each of the first 10,000 times the MPR procedure is used, (ii) the greater of $12.50 per use or 5% of total revenues received by the Company for each use thereafter, (iii) 5% of total revenues received by the Company for each sale, lease, license or other transfer of the MPR procedure or related equipment or technology and (iv) 3% of total revenues received by the Company for each sale, lease, license or other transfer of the Derivative Technology. The Company is not required to make any payments on revenues pursuant to (iii) or (iv) to the extent royalties were previously paid on such revenues pursuant to (i) or (ii). The license expires in 2013. The license is terminable by TRG upon 14 days notice (subject to cure during such period) (i) if the Company fails to observe the terms of the Agreement, (ii) if the Company becomes insolvent or generally fails to pay its debts when due, (iii) the assignment by the Company of its property for the benefit of the Company's creditors or the appointment of a receiver for any part of the Company's property, (iv) the commencement of any proceedings under bankruptcy or insolvency law by or against the Company and (v) the sale or other transfer of the license by the Company without TRG's consent. If the license is terminated for any reason, the Company becomes subject to a three-year agreement not to engage in the manufacture, sale or distribution of the MPR system or any similar product in any area in which the MPR system or procedure has been sold. The Company and TRG rely upon the law of trade secrets, patent protection and unpatented proprietary know-how to protect the MPR technology. Due to the rapid technological change that characterizes the medical device industry, the Company believes that reliance upon trade secrets and unpatented know-how, and on the continued introduction of improvements and new products, are generally as important as patent protection in establishing and maintaining a competitive advantage. TRG was granted a United States patent covering the MPR system. The Company presently has no patent protection of the MPR technology outside the United States. The Company has the right to file patent applications and attempt to obtain patents in other jurisdictions. To date, the Company has not done so, in part because of lack of funds. TRG is under no obligation to patent the MPR technology in any jurisdiction and the Company's determination as to whether or not to seek patent protection will depend upon a number of factors, including the likelihood of the issuance of the patent, the Company's financial resources and marketing plans. MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information with respect to each executive officer and director of the Company. NAME AGE(1) POSITION Gerald D. Appel 60 President, Chief Executive Officer and Chairman of the Board of Directors John Osborne 37 Vice President - Marketing Scott Roecklein 39 Vice President of Operations, Secretary J. Steven Nelson 32 Director of Research and Development Dr. Hershel Toomim, Sc.D. 80 Director Wayne C. Cockburn 40 Director - --------------- (1) At December 31, 1996 MR. APPEL has served as President and Chief Executive Officer of the Company since 1991, and as a director of the Company since inception. Mr. Appel is also Chairman of the Board of Directors. MR. OSBORNE has served as Vice President--Marketing since November 1996. From January 1995 to November 1996, Mr. Osborne served as Director of Sales and Marketing for DermaNet, Inc., where he was responsible for developing marketing plans, establishing distribution channels and overseeing sales activity. From October 1993 to November 1994, Mr. Osborne was Vice President and General Manager of KCI Clinical Systems, a division of KCI, Inc., a publicly traded therapeutic specialty bed rental company, and from January 1983 to July 1993, Mr. Osborne served as Director Sales and Marketing for ATI Medical, Inc., a medical equipment rental company. MR. ROECKLEIN has been Vice President of Operations since September 1996 and Secretary since November 1996. For the two years prior to that he was an independent health care consultant. From March 1991 through August 1994 Mr. Roecklein was Vice President-Operations for Tokos Medical Corp., an in-home provider of skilled nursing and activity monitoring for woman at risk of pre-term labor. MR. NELSON has served as Director of Research and Development of the Company since October 1996. From August 1994 to September 1996, Mr. Nelson served as Director of Operations and Finance of the Company. Prior to joining the Company, Mr. Nelson earned a Masters Degree in Business Administration in June 1994, and worked as a senior financial analyst for the Operations Division of Mattel, Inc. from October 1990 to October 1992. DR. TOOMIM has served as a Director of the Company since he co-founded it with Mr. Appel in 1988. Dr. Toomim also served as Vice President of Research and Development of the Company from 1988 to 1996. MR. COCKBURN has served as a Director of the Company since July 1995. Mr. Cockburn has been employed by Imutec Corporation, a Canadian biopharmaceutical company, since January 1995, and is currently Vice President of Corporate Development. From 1994 to 1995 Mr. Cockburn was an investment banker with McDermid St. Laurence Chisholm, Ontario, Canada, and for more than the three years prior to that, he was a securities broker with Midland Walwyn, Ontario, Canada. MEDICAL ADVISORY BOARD The Company has a Medical Advisory Board ("MAB") whose members are physicians with expertise relevant to the Company's business. The role of the MAB is to advise on the medical considerations involved in designing the product, to provide a user/prescriber perspective, and to assist with the design of clinical trials. The MAB meets on an ad hoc basis. GUNNAR ANDERSSON M.D., PH.D. Dr. Andersson is Chairman of Orthopedic Surgery at Rush Presbyterian - St. Luke's Medical Center in Chicago. He is the deputy editor for the journal SPINE. Dr. Andersson is also a managing partner of Midwest Orthopedics and has served as President of the International Society for the Study of the Lumbar Spine. PHILIP J. FAGAN, JR., M.D. Dr. Fagan obtained his medical degree from the Tulane University School of Medicine, New Orleans in 1969. He is the Chief Executive Officer and President of Emergency Department Physicians Medical Group Inc. Dr. Fagan is the Director of the Emergency Department for Daniel Freeman Marina Hospital, Marina Del Rey and the Hollywood Presbyterian Medical Center, Los Angeles. He is the Medical Director of E.R. Physicians Medical Group, Inc., and Chief Executive Officer and Medical Director of the Burbank Urgent Care and Industrial Medicine Clinic. He is a Diplomate of the American Board of the Emergency Physicians and the American Board of Family Practice and a Fellow of the American Academy of Family Physicians and the American College of Emergency Physicians. ALAN J. GOLDMAN, M.D. Dr. Goldman was awarded his degree in medicine from the University of Michigan Medical School in 1971. Currently he is in private practice while serving as an Assistant Clinical Professor of Neurology at the University of California at Irvine. For ten years beginning in 1976, he was an Assistant Clinical Professor of Neurology at UCLA and was the Chief of Staff and Chairman of the Department of Medicine at the Medicine Center at Garden Grove, California. Dr. Goldman serves as a neurological reviewer of new technologies for a number of national insurance carriers. ROBERT SAMUEL MAYER, M.D. Dr. Mayer is an Assistant Professor in the Department of Physical Medicine and Rehabilitation at Rush Medical College and a practicing Physiatrist at the Rehabilitation Clinic, S.C. Dr. Mayer serves as the Residency Program Director for the Rush-Marianjoy Residency in Physical Medicine and Rehabilitation. Dr. Mayer also serves on the Editorial Advisory Committee for the journal SPINE. SCIENTIFIC ADVISORY BOARD The Company has a Scientific Advisory Board ("SAB") to advise the Company in the scientific aspects of its technology and in the area of statistical analysis, including modeling. This Board meets twice yearly in January and July. ANTHONY DELITTO, PH.D. Dr. Delitto is an Associate Professor and Chairman of the Department of Physical Therapy in the School of Health and Rehabilitation Services at the University of Pittsburgh. Dr. Delitto also serves as the Director of Research for the Comprehensive Spine Center at the University of Pittsburgh and Vice President for Education and Research at CORE network. V. REGGIE EDGERTON, PH.D., M.S. Dr. Edgerton received his Bachelor of Science in Physical Education and Biology from East Carolina University, his Master of Science in Physical Education from the University of Iowa and Ph.D. in Exercise Physiology from Michigan State University. Dr. Edgerton is currently a professor within the Physiological Sciences Department at UCLA and has served as Chairman of UCLA's Department of Kinesiology. Dr. Edgerton has published over 200 papers in peer-reviewed journals focusing primarily on muscle fiber and its activity. Since 1980, he has been the Project Program Director of the NIH Grant regarding neurological sciences. He has also worked with NASA and has published extensively regarding muscle adaptation outside Earth's atmosphere. Dr. Edgerton has been an officer of and/or associated with organizations including the American Physiological Society, the American College of Sports Medicine, the American Society of Gravitational Biology, the Society for Neurosciences, the Neurotrauma Society, and the American Spinal Injury Association. HOWARD FULLMAN, M.D. Dr. Fullman has been trained as a medical technologist and as such has consulted for major health care firms regarding medical devices and procedures. He presently sits on the Board of Directors of several privately held medical services companies. Dr. Fullman has a medical practice in Los Angeles California. ROBERT I. JENNRICH, PH.D., M.S. Dr. Jennrich received his Bachelor of Science and Master of Science in Mathematics from the University of Wisconsin and his Ph.D. in Mathematics from UCLA. Dr. Jennrich is currently a professor within the Department of Mathematics at UCLA. He has published over 60 papers in peer-reviewed journals, his most important papers concerning biological and technical applications of advanced statistics. Dr. Jennrich is an active member of the Institute of Mathematical Statistics, the American Statistical Association and the Psychometric Society and has received numerous honors from these and other societies. JULES ROTHSTEIN, PH.D. Dr. Rothstein is a Professor and Chairman for The Department of Physical Therapy at the University of Illinois at Chicago. Dr. Rothstein is the Editor for the journal PHYSICAL THERAPY. ROLAND ROY, PH.D. Dr. Roy is currently a Researcher for the Brain Research Institute at the University of California at Los Angeles. Dr. Roy also serves as the Co-Director for the Laboratory for Neural Control of Movement and Neural Muscular Plasticity. STEVEN L. WOLF, PH.D. Dr. Wolf received his Bachelor of Arts in Biology from Clark University, his Master of Science degrees in Physical Therapy from Boston University and Anatomy from Emory University and his Ph.D. in Anatomy and Neurophysiology from Emory University. Dr. Wolf is currently a professor and Director of Research within the Department of Rehabilitation Medicine, Emory University School of Medicine. Dr. Wolf has published over 130 papers in peer-reviewed journals, authored six books focusing on electromyography, biofeedback, physical therapy and rehabilitation and has made over 300 presentations, including key note speaker, for groups including the American Association of Orthopedic Surgeons, the American Physical Therapy Association, the International Society for Electrokinesiology and the American Neurology Association. Dr. Wolf has received over 20 grants from organizations including the National Institute of Aging and the Veterans Administration. Most recently, Dr. Wolf has served as Chairman of the Advisory Council of the American Physical Therapy Association, Board of Director of the International Society for Electrokinesiology, Chairman of the Scientific Abstracts Committee of the World Confederation of Physical Therapy, External Reviewer for Rehabilitation Graduate Programs for the University of Toronto and Massachusetts General Hospital (Harvard University) and on the Advisory Committee for the MGH Institute of Health Professions. EXECUTIVE REMUNERATION The following table sets for certain information regarding the compensation of the Chief Executive Officer for the year ended December 31, 1995 and 1996 (no other officer had annual compensation in excess of $100,000 during these years): SUMMARY COMPENSATION TABLE ----------------------------- NAME AND PRINCIPAL POSITIONS YEAR SALARY ---------------------------- ---- ------ Gerald D. Appel, President and Chief 1995 $92,000 Executive Officer 1996 $124,000 EMPLOYEE STOCK OPTION PLAN The Board of Directors has approved the establishment of a stock option plan pursuant to which the Company may from time to time issue up to 1,000,000 shares of Common Stock to selected employees. No written plan has been adopted, and no options have been granted under such a plan. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Articles of Incorporation include a provision that eliminates the personal liability of its directors to the Company and its shareholders for monetary damages for breach of the directors' fiduciary duties in certain circumstances. This limitation has no effect on a director's liability (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the Company or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the Company or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of a serious injury to the Company or its shareholders, (v) 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 shareholders, (vi) under Section 310 of the California Corporations Code (the "California Code") (concerning contracts or transactions between the Company and a director) or (vii) under Section 316 of the California Code (concerning directors' liability for improper dividends, loans and guarantees). The provision does not extend to acts or omissions of a director in his capacity as an officer. Further, the provision will not affect the availability of injunctions and other equitable remedies available to the Company's shareholders for any violation of a director's fiduciary duty to the Company or its shareholders. The Company's Articles of Incorporation also include an authorization for the Company to indemnify its agents (as defined in Section 317 of the California Code), through bylaw provisions, by agreement or otherwise, to the fullest extent permitted by law. Pursuant to this latter provision, the Company's Bylaws provide for indemnification of the Company's directors, officers, agents and employees. In addition, the Company, at its discretion, may provide indemnification to persons whom the Company is not obligated to indemnify. The Company has entered into indemnity agreements with all directors which provide the maximum indemnification permitted by law. These agreements, together with the Company's Bylaws and Articles of Incorporation, may require the Company, among other things, to indemnify such directors against certain liabilities that may arise by reason of their status or service as directors (other than liabilities resulting from willful misconduct of a culpable nature), to advance expenses to them as they are incurred, provided that they undertake to repay the amount advanced if it is ultimately determined by a court that they are not entitled to indemnification, and to obtain directors' and officers' insurance if available on reasonable terms. Section 317 of the California Code and the Company's Bylaws make provision for the indemnification of officers, directors and other corporate agents in terms sufficiently broad to indemnify such persons, under certain circumstances, for liabilities (including reimbursement of expenses incurred) arising under the Securities Act. The Company is currently reviewing director and officer liability insurance policies and may purchase such a policy in the future. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant 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. PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth as of the date hereof, certain information regarding the ownership of the Common Stock by: (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding Common Stock; (ii) each of the Company's directors (other than members of the Medical Advisory Board and Scientific Advisory Board); (iii) all of the Company's executive officers and directors as a group and (iv) each Selling Shareholder. Except as may be indicated in the footnotes to the table and subject to applicable community property laws, each of the persons has sole voting and investment power with respect to the Shares owned. Beneficial ownership has been determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended. Under this Rule, certain shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date the information is provided; in computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the persons actual voting power at any particular date.
Beneficial Ownership Prior to Beneficial Ownership Offering After the Offering (1) ------------------------- ---------------------- Number Number of of Shares Shares Number of Name Owned Percent Offered Shares Percent - ---------------------------------------- ----------- ------- --------- --------- ------- Gerald D. Appel 3,715,019(2) 48.0% 1,000,000 2,715,019(2) 35.1% 3760 South Robertson Blvd. Culver City, California 90232 Ontario Municipal Employees 1,401,561(3) 17.2% 1,401,561 0 0% Retirement Board One University Avenue, Suite 1100 Toronto, Ontario M5J 2P1 Canada Altamira Management Ltd. 750,000(4) 9.2% 375,000 375,000 4.6% 250 Bloor Street East, Suite 300 Toronto, Ontario M4W 1E6 Canada Bona Vista Asset Management Ltd. 450,000(5) 5.6% 225,000 225,000 2.8% 2300 Yonge Street, Suite 2900 P.O. Box 2384 Toronto, Ontario M4P 1E4 Canada Hershel Toomim 192,000 2.5% 192,000 0 0% 3710 South Robertson Blvd. Culver City, California 90232 Wayne Cockburn 63,000(6) 0.8% 62,000 1,000 -- Imutec Corporation 1285 Morningside Avenue Scarboro, Ontario M1B 3W2 Canada All directors and executive officers as a 3,985,019(2)(7) 51.3% 1,254,000 2,731,019 35.2% group (6 persons)
- ----------------------- (1) Assumes all shares offered are sold. (2) Includes 111,900 shares with respect to which Mr. Appel believes he has voting power as a result of a proxy granted by Daniel J. Levendowski. (3) Includes 405,555 shares which may be acquired upon exercise of warrants. (4) Includes 75,000 shares which may be acquired upon exercise of warrants, and 375,000 shares Altamira Management Ltd. has the right and obligation to purchase immediately following the date of this Prospectus, of which 75,000 shares may be acquired upon the exercise of warrants. (5) Includes 45,000 shares which may be acquired upon exercise of warrants, and 225,000 shares Bona Vista Asset Management Ltd. has the right and obligation to purchase immediately following the date of this Prospectus, of which 45,000 shares may be acquired upon the exercise of warrants. (6) Includes 1,000 shares registered in the name of 260-274 Geary Avenue Ltd. over which Mr. Cockburn has exclusive voting and investment power. (7) Includes 15,000 shares which may be acquired upon exercise of an option. CERTAIN TRANSACTIONS In December 1994, the Company entered into a Securities Purchase Agreement (the "December Purchase Agreement") with Ontario Municipal Employees Retirement Board ("OMERB"). Pursuant to the terms of the December Purchase Agreement, the Company sold to OMERB 680,741 shares of Common Stock for an aggregate purchase price of $1,000,000, and granted to OMERB currently exercisable warrants to purchase 100,000 shares (the "Series A Warrant") and 83,333 shares (the "Series B Warrant") of Common Stock with a current exercise price of $1.50 and $1.75 per share, respectively. The Series A Warrant expires on December 23, 1997 and the Series B Warrant expires on June 23, 1998. In August 1995, the Company entered into another Securities Purchase Agreement (the "August Purchase Agreement") with OMERB. Pursuant to the terms of the August Purchase Agreement, the Company sold to OMERB 111,111 shares of Common Stock for an aggregate purchase price of $200,000, and granted to OMERB currently exercisable warrants to purchase 222,222 shares of Common Stock (the "Series C Warrant") with a current exercise price of $2.00 per share. The Series C Warrant expires on December 31, 1998. The Company licenses the right to manufacture, market, sell, distribute and further develop the MPR System and technology and any related or derivative technology throughout the world pursuant to an exclusive twenty-year license with TRG, a partnership among Gerald D. Appel, Daniel J. Levendowski and Hershel Toomim. Mr. Appel is the Chairman of the Board, Chief Executive Officer, President and a principal shareholder of the Company, and Dr. Toomim is a director and a principal shareholder of the Company. See "Business--Intellectual Property." In May 1996 the Company issued to a corporation controlled by Mr. Cockburn 100,000 shares of Common Stock in satisfaction of obligations of the Company to such corporation for consulting services rendered during the prior several years. This corporation presently provides no services to the Company. DESCRIPTION OF CAPITAL STOCK The Company is authorized to issue up to 50,000,000 shares of Common Stock. Subject to dividend and liquidation preferences that may be applicable to any shares of Preferred Stock outstanding, the holders of Common Stock are entitled to receive dividends as and when declared by the Board of Directors out of funds legally available therefor, and, upon liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities. The holders of Common Stock are entitled to one vote for each share of Common Stock held of record by them, may cumulate votes in the election of directors, have no preemptive or conversion rights and are not subject to further calls or assessments by the Company. There are no redemption or sinking fund provisions applicable to the Common Stock. The Common Stock currently outstanding is fully paid and non-assessable. The Company is also authorized to issue up to 10,000,000 shares of Preferred Stock. The Board of Directors of the Company is authorized to fix the dividend rights, dividend rate, conversion rights, voting rights, liquidation preferences, rights and terms of redemption (including sinking fund provisions) on any wholly-unissued series of Preferred Stock, the number of shares constituting any such series and the designation thereof. At present, no shares of Preferred Stock are outstanding and the Company has no present plans to issue shares of Preferred Stock. At January 1, 1997 the Company had outstanding options or warrants to purchase an aggregate of 1,673,553 shares of Common Stock at various times through March 1999 at a weighted average exercise price of $1.67 per share. The Company has commitments from certain shareholders to purchase 480,000 shares of Common Stock and warrants to purchase 120,000 shares of Common Stock, which warrants are exercisable at a price of $3.00 per share for one year from issuance. It is anticipated that these units will be issued within two weeks of the date of this Prospectus. In the event of such issuance, the Company will issue a warrant to the broker/dealer participating in the Offering to purchase 43,200 shares of Common Stock for an exercise price of $2.50 per share at any time within two years from the date of issuance. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California. EXPERTS The audited financial statements of the Company as of December 31, 1995 and for the two-years then ended have been audited by Lever, Lippe, Hellie & Company LLP, independent certified public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority to said firm as experts in giving said report. INDEX TO FINANCIAL STATEMENTS
PAGE ---- AUDITED FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC. Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-2 Balance Sheets as of December 31, 1994 and 1995. . . . . . . . . . . . . . . . . . . .F-3 Statements of Operations for the years ended December 31, 1994 and 1995. . . . . . . .F-4 Statements of Shareholders' Deficit for the years ended December 31, 1994 and 1995 . .F-5 Statements of Cash Flows for the years ended December 31, 1994 and 1995. . . . . . . .F-6 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-7 UNAUDITED FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC. Balance Sheet as of September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . .F-16 Statements of Operations and Shareholders' Deficit for the nine months ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . .F-17 Statements of Cash Flows for the nine months ended September 30, 1995 and 1996 . . . .F-18
INDEPENDENT AUDITORS' REPORT Myo Diagnostics, Inc. Culver City, California We have audited the accompanying balance sheets of Myo Diagnostics, Inc. (a development stage company), a California corporation (the "Company"), as of December 31, 1995 and 1994, and the related statements of operations, shareholders' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion. Statement of Financial Accounting Standards No. 7 "Accounting and Reporting by Development Stage Enterprises", requires the statement of operations and statement of cash flows to present cumulative amounts from the Company's inception. The accompanying financial statements do not disclose the cumulative amounts for the period from January 5, 1987 (date of inception) to the year ended December 31, 1993. In our opinion, except for the omission from the financial statements of the disclosures described in the preceding paragraph, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. LEVER, LIPPE, HELLIE & COMPANY LLP June 6, 1996 F-2 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS DECEMBER 31, 1995 AND 1994 ASSETS 1995 1994 ----------- ----------- CURRENT ASSETS: Cash $ 3,030 $ 657,584 Accounts receivable - less allowance for doubtful accounts of $6,222 and $0 for 1995 and 1994, respectively 31,468 5,200 Prepaid expenses and other assets 5,659 453 ----------- ----------- Total Current Assets 40,157 663,237 FURNITURE AND EQUIPMENT, NET (Note 2) 63,487 58,486 OTHER ASSETS (Note 3) 26,079 14,399 ----------- ----------- TOTAL ASSETS $ 129,723 $ 736,122 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable and accrued expenses (Note 7) $ 342,568 $ 77,995 Accrued interest payable (Note 5) 45,520 45,610 Notes payable to bank (Note 4) 400,000 400,000 Notes payable to related parties (Note 5) 146,000 248,500 ----------- ----------- Total Current Liabilities 934,088 772,105 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 7) SHAREHOLDERS' DEFICIT (Notes 5, 7, 8 and 9): Common stock, no par value, 50,000,000 shares authorized, 6,521,259 and 6,267,410 shares issued and outstanding for 1995 and 1994, respectively 2,028,322 1,729,424 Deficit accumulated during the development stage (2,832,687) (1,765,407) ----------- ----------- TOTAL SHAREHOLDERS' DEFICIT (804,365) (35,983) ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 129,723 $ 736,122 ----------- ----------- ----------- ----------- SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-3 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 1995 1994 ----------- --------- REVENUE $ 67,600 $ 8,041 OPERATING EXPENSES: Research and development 239,307 257,536 Technical services 191,588 155,688 Sales and marketing 143,934 55,983 General and administrative 515,810 315,595 ----------- --------- Total Operating Expenses 1,090,639 784,802 ----------- --------- Loss from Operations (1,023,039) (776,761) OTHER INCOME (EXPENSE): Interest expense (49,251) (45,427) Interest income 5,810 1,090 ----------- --------- Total Other Income (Expense) (43,441) (44,337) ----------- --------- Loss Before Provision for Income Taxes (1,066,480) (821,098) Provision for Income Taxes (Note 6) 800 800 ----------- --------- Net Loss $(1,067,280) $(821,898) ----------- --------- ----------- --------- SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-4 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF SHAREHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 1995 AND 1994
NO. OF VALUE SHARES ADDITIONAL PER ISSUED COMMON PAID-IN ACCUMULATED SHARE (NOTE 8) STOCK CAPITAL DEFICIT TOTAL ------- --------- -------- ----------- ----------- ------------ Issued upon incorporation for services $ 0.01 910,000 $ 9,100 $ (1,415) $ -- $ 7,685 Issued for services 0.01 952,250 9,523 -- 9,523 Net loss from inception through December 31, 1990 -- -- -- $ (20,367) (20,367) --------- -------- ----------- ----------- ------------ Balance - December 31, 1990 1,862,250 18,623 (1,415) (20,367) (3,159) Issued for services 0.01 305,950 3,060 (656) -- 2,404 Issued for cash 2.23 11,230 112 24,888 -- 25,000 Net loss -- -- -- (243,621) (243,621) --------- -------- ----------- ----------- ------------ Balance - December 31, 1991 2,179,430 21,795 22,817 (263,988) (219,376) Net loss -- -- -- (258,180) (258,180) --------- -------- ----------- ----------- ------------ Balance - December 31, 1992 2,179,430 21,795 22,817 (522,168) (477,556) Issued for cash 0.10 11,230 112 1,011 1,123 Net loss -- -- -- (421,341) (421,341) --------- -------- ----------- ----------- ------------ Balance - December 31, 1993 2,190,660 21,907 23,828 (943,509) (897,774) Stock split 2,190,660 21,907 (21,907) -- -- Issued for exchange of $174,090 of debt 1.20 144,619 1,446 172,644 -- 174,090 Issued for services 0.01 60,000 600 -- -- 600 Issued for net assets of limited partnership, net of related expenses of $1,350 0.49 755,330 7,553 365,332 -- 372,885 Issued for cash in a private placement, net of related expenses of $6,600 1.22 245,400 2,454 297,696 -- 300,150 Issued for cash in a private placement, net of related expenses of $164,036 1.23 680,741 6,807 829,157 -- 835,964 Net loss -- -- -- (821,898) (821,898) --------- -------- ----------- ----------- ------------ Balance - December 31, 1994 6,267,410 62,674 1,666,750 (1,765,407) (35,983) Issued for cash 0.05 15,000 150 600 -- 750 Issued for cash in a private placement, net of related expenses of $67,609 1.80 125,000 1,250 156,141 -- 157,391 Issued for cash in a private placement, net of related expenses of $64,243 1.80 111,111 1,111 134,646 -- 135,757 Issued for cash 1.82 2,738 28 4,972 -- 5,000 Net loss -- -- -- (1,067,280) (1,067,280) --------- -------- ----------- ----------- ------------ Balance - December 31, 1995 6,521,259 $ 65,213 $1,963,109 $(2,832,687) $ (804,365) --------- -------- ----------- ----------- ------------ --------- -------- ----------- ----------- ------------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-5 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,067,280) $ (821,898) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 36,104 27,054 Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable (26,269) (5,200) Prepaid expenses (5,206) (453) Other assets (12,867) (2,061) Increase (decrease) in liabilities: Accounts payable and accrued expenses 264,483 84,609 ------------ ---------- Net Cash Used in Operating Activities (811,035) (717,949) ------------ ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (39,917) (27,285) ------------ ---------- Net Cash Used in Investing Activities (39,917) (27,285) ------------ ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under bank revolving lines of credit -- 400,000 Borrowings on notes payable to related parties 12,000 48,500 Repayments on notes payable to related parties (114,500) (103,500) Net proceeds from issuance of common stock 298,898 997,265 ------------ ---------- Net Cash Provided by Financing Activities 196,398 1,342,265 ------------ ---------- Net (Decrease) Increase in Cash (654,554) 597,031 CASH - Beginning of Year 657,584 60,553 ------------ ---------- CASH - END OF YEAR $ 3,030 $ 657,584 ------------ ---------- ------------ ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the years for: Interest $ 49,251 $ 44,047 ------------ ---------- ------------ ---------- Taxes $ 800 $ 1,600 ------------ ---------- ------------ ---------- SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: During 1994, limited partners' interest in assets and liabilities of the Partnership were transferred to the Company through issuance of common stock and debt as follows: Notes payable to related parties $ - $ 175,000 Common stock issued - 372,885 ------------ ---------- Limited partners' interest in net assets of Partnership $ - $ 547,885 ------------ ---------- ------------ ---------- During 1994, 144,619 Shares of common stock were issued upon the conversion of notes payable to related parties $ - $ 174,090 ------------ ---------- ------------ ----------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-6 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES GENERAL Myo Diagnostics, Inc. (the "Company") (a development stage company), a California corporation, was incorporated and commenced operations on January 5, 1987 as AREX, Inc. The name was changed to Devion Group and then to Myo Diagnostics, Inc. on September 15, 1989. The principal activity of the Company is the research and development of Muscle Pattern Recognition. Muscle Pattern Recognition provides an objective evaluation of soft-tissue-muscle injuries. BUSINESS COMBINATION On December 19, 1994, the Company concluded a business combination as discussed in the following paragraph: The Company held a 97.2% sole general partner interest in Myo Diagnostics, Ltd. (the "Partnership"), a California limited partnership, that began operations on April 18, 1991. The Partnership researched and developed the hardware and related software to perform Muscle Pattern Recognition. Effective on December 19, 1994, the Partnership's assets and liabilities were transferred to the Company at their book value and neither the Partnership or Corporation recognized gain or loss. The 2.8% limited partners exchanged their interests in the Partnership totaling $547,885 for 755,330 shares of common stock and $175,000 in notes payable (see Note 5). The business combination was recorded in a manner similar to a "pooling-of-interest" method of accounting. Under this method, assets and liabilities of the Partnership were recorded at historical cost. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to credit risk include: Cash on deposit with a financial institution amounting to approximately $6,451 and $790,000 as of December 31, 1995 and 1994, respectively, which was insured for up to $100,000 by the U.S. Federal Deposit Insurance Corporation. REVENUE Revenue is reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered. SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-7 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS An allowance for uncollectibles is recorded to report the receivables for services at their net realizable value. Estimates for uncollectible accounts are reported in the period during which the services are provided even though the actual amounts may become known at a later date. Included in general and administrative expenses is bad debt expense of $18,291 and $0 for the years ended December 31, 1995 and 1994, respectively. FURNITURE AND EQUIPMENT Furniture and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets. The estimated useful lives are as follows: Furniture and equipment 5 -7 years Computer hardware and software 5 years Leasehold improvements are amortized over 3 years, which is the shorter of their estimated useful lives or the remaining term of the lease. Expenditures for maintenance and repair are charged to operations as incurred, while renewals and betterments are capitalized. PATENT Patents consist of legal fees incurred in securing a patent for the Company's product. These costs are amortized over a period of seventeen years using the straight-line method. INCOME TAXES Effective January 1, 1993, the Company became a taxable entity. Previously, the Company was taxed as an "S" corporation. As such, the Company's earnings and losses were included in the personal tax returns of the stockholders, and the Company did not record an income-tax provision. Effective with the change in tax status, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to temporary differences between tax and financial reporting of certain assets and liabilities. SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-8 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) USE OF ESTIMATES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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. RECLASSIFICATIONS Certain amounts in the 1994 financial statements have been reclassified to conform with the 1995 presentation. 2. FURNITURE AND EQUIPMENT Furniture and equipment consists of the following: 1995 1994 --------- -------- Leasehold improvements $ 1,420 $ -- Furniture and equipment 67,911 60,095 Computer hardware and software 121,245 90,564 --------- -------- 190,576 150,659 Accumulated depreciation (127,089) (92,173) --------- -------- FURNITURE AND EQUIPMENT, NET $ 63,487 $ 58,486 --------- -------- --------- -------- Depreciation and amortization expense charged to operations during the years ended December 31, 1995 and 1994 was $34,916 and $26,466, respectively. SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-9 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 3. OTHER ASSETS Other assets consist of the following: 1995 1994 ------- ------- Patents (net of accumulated amortization of $2,265 in 1995 and $1,077 in 1994) $19,957 $10,011 Security deposits 6,122 4,388 ------- ------- TOTAL OTHER ASSETS $26,079 $14,399 ------- ------- ------- ------- Amortization expense on patent costs charged to operations during the years ended December 31, 1995 and 1994 was $1,188 and $870. 4. NOTES PAYABLE TO BANK The Company has six revolving lines of credit with a bank that provide for borrowings up to a total of $400,000. Borrowings under these lines of credit bear interest at the bank's prime rate (8.75% and 8.5% as of December 31, 1995 and 1994, respectively) plus .75% to 1.5%, payable monthly. These revolving lines of credit will mature beginning June 10, 1996 through January 10, 1997, and are collateralized by standby letters of credit issued to certain third parties (see Note 9). The Company has $400,000 outstanding on these revolving lines of credit as of December 31, 1995 and 1994. SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-10 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 5. RELATED PARTY TRANSACTIONS NOTES PAYABLE TO RELATED PARTIES Notes payable to related parties consist of amounts borrowed from shareholders of the Company. These amounts are as follows as of December 31, 1995 and 1994: 1995 1994 -------- -------- Unsecured-promissory notes payable to shareholders in the original principal amount totaling $175,000 were incurred in connection with purchasing the 2.8% limited partners' interest in the Partnership. These notes bear interest at 8% per annum. The principal sum of $87,500 plus accrued interest was due January 31, 1995. The remaining principal sum of $87,500 plus accrued interest was due September 30, 1995. In the event of default of the remaining principal sum of $87,500, the Company shall issue 3,000 shares of common stock to the holders of such notes in addition to the payment of principal and interest. The Company is in default on the $87,500 remaining principal sum and is committed to issue 42,000 shares of common stock (see Note 7) $ 87,500 $175,000 Unsecured-promissory notes payable to the Company's officer and majority shareholder. These notes bear interest at 10% per annum and are due upon demand. 58,500 73,500 -------- -------- TOTAL $146,000 $248,500 -------- -------- -------- -------- LICENSING AGREEMENT The Company is obligated under a licensing agreement to a partnership whose partners are officers and shareholders of the Company (see Note 7). SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-11 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 6. INCOME TAXES As discussed in Note 1, the Company changed its tax status, effective January 1, 1993. As of December 31, 1995, the Company has approximately $2,267,000 in federal net operating loss carryforwards, attributable to losses incurred since the change in its tax status, that may be offset against future taxable income through the year 2008. The deferred-income- tax benefit of the loss carryforward has been offset by a valuation allowance of the same amount. Accordingly, no deferred-income-tax benefit has been recognized in the 1995 and 1994 financial statements. The provision for income taxes consists of current taxes payable in the amount of $800, which represents the California minimum franchise tax. 7. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company leases its facilities and certain equipment under non- cancelable-operating leases and sub-leases expiring at various dates through 1997. Certain leases contain renewal provisions. Future minimum lease payments under these operating leases as of December 31, 1995 are summarized as follows: YEARS ENDING AMOUNT -------------- ---------- 1996 $ 51,281 1997 50,761 1998 24,600 ---------- Total $126,642 ---------- ---------- Rent expense under all operating leases was $41,309 and $35,187 for the years ended December 31, 1995 and 1994. LICENSING AGREEMENT The Company has a licensing agreement with Toomim Research Group ("TRG"), a partnership, whose partners are also shareholders of the Company (see Note 5). Under the terms of the licensing agreement, the Company is entitled to exclusive rights to the product under development by the Company, beginning on August 1, 1993 and ending on August 1, 2013, unless terminated earlier. As consideration for the exclusive rights to the product, the Company shall pay TRG a royalty. SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-12 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 7. COMMITMENTS AND CONTINGENCIES (Continued) The royalty is payable quarterly under the following terms: - The Company shall pay a royalty on the lesser of 10% of total revenue or $30 per patient examined and report prepared up to the first 10,000 examinations. After the first 10,000 examinations, the Company shall pay a royalty of 5% of total revenue but not less than $12.50 per patient examined and report prepared. - The Company shall pay a royalty of 5% of total revenue for each sale, lease, rental, license, transfer or assignment of the product under license to the extent that no royalty was paid on such total revenue. - The Company shall pay a royalty of 3% of total revenue for any derivative technology developed by the Company to the extent that no royalty was paid on such total revenue. Under the terms of this agreement, included in accounts payable and accrued expenses are royalties payable of $1,350 and $0 as of December 31, 1995 and 1994, respectively. There were no royalties paid during the years ended December 31, 1995 and 1994. COMMITMENTS TO ISSUE COMMON STOCK The Company is committed to issue common stock as of December 31, 1995, as follows: As discussed in Note 5, the Company defaulted on the $87,500 remaining principal sum of the notes payable to related parties and is obligated to issue 42,000 shares of common stock. As of December 31, 1995, included in accounts payable and accrued expenses is $75,600 that represents the estimated fair value, on date of default, of the 42,000 shares of common stock to be issued in 1996. As of December 31, 1995, the Company is obligated to pay $100,000 in connection with services rendered for common-stock-private placements. The Company will settle this obligation with cash or common stock. 8. SHAREHOLDERS' DEFICIT STOCK SPLIT On May 4, 1994, the Board of Directors authorized a two-for-one-stock split of the Company's no par value common stock for shareholders as of that date. As a result of the split, 2,190,660 shares were issued. All references in the accompanying financial statements to the per share amounts for 1994 have been restated to reflect the stock split. SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-13 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 8. SHAREHOLDERS' DEFICIT (Continued) COMMON STOCK ISSUED FOR SERVICES Since its inception, the Company has issued a total of 4,396,400 shares of common stock for services rendered. The common stock issued was recorded at $.01 per share, which was the fair value determined by the Board of Directors at the time of issuance. COMMON STOCK ISSUED FOR NET ASSETS OF PARTNERSHIP During 1994, the Company issued a total of 755,330 shares of common stock for approximately $.49 per share in connection with a business combination with the Partnership, as discussed in Note 1. The fair value assigned to the common stock was determined by the Board of Directors on the date of the business combination and represents the net book value of the limited partners' interest in the net assets transferred, net of $175,000 notes payable (Note 5). STOCK ISSUE COSTS The Company incurred a total of $44,984 in expenses relating to a withdrawn 1995-private placement. These expenses were charged to operations and are included in general and administrative expenses for the year ended December 31, 1995. 9. STOCK OPTIONS AND WARRANTS STOCK OPTIONS There were 70,000 and 50,000 options granted allowing employees and consultants to purchase shares of common stock at option prices, ranging from $.10 to $1.47 per share as of December 31, 1995 and 1994, respectively. These options expire upon certain events. These options have not been exercised as of December 31, 1995. SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-14 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 9. STOCK OPTIONS AND WARRANTS (Continued) WARRANTS As of December 31, 1995, the Company had outstanding warrants to purchase a total of 615,555 shares of common stock as follows: Warrant Expiration Date 12/23/97 6/23/98 12/31/98 12/31/96 12/31/96 --------- -------- --------- --------- --------- Shares allocated 100,000 83,333 222,222 200,000 10,000 --------- -------- --------- --------- --------- --------- -------- --------- --------- --------- Warrant price per share $1.50 $1.75 $2.00 $2.50 $2.00 --------- -------- --------- --------- --------- --------- -------- --------- --------- --------- STOCK OPTIONS GRANTED FOR COLLATERALIZING NOTES PAYABLE TO BANK As collateral for the bank revolving lines of credit (see Note 4), certain third parties (the "Guarantors") have guaranteed the notes payable to bank by obtaining standby letters of credit totaling $400,000. The Company granted stock options to purchase the Company's common stock as consideration for the guarantees. These options entitle the Guarantors to purchase an aggregate of 400,000 shares of common stock for $1.13 per share, if certain conditions are met. The options became exercisable at various dates during 1995; and expire upon certain conditions. These options have not been exercised as of December 31, 1995. SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-15 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET SEPTEMBER 30, 1996 ASSETS CURRENT ASSETS: Cash $ 224,455 Accounts receivable - less allowance for doubtful accounts of $9,150 18,022 Prepaid expenses and other assets 6,509 ------------- Total Current Assets 248,986 FURNITURE AND EQUIPMENT, Net of accumulated depreciation of $155,030 128,165 OTHER ASSETS 29,251 ------------- Total Assets $ 406,402 ------------- ------------- LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable and accrued expenses $ 106,954 Accrued interest payable 45,710 Capital lease obligation 47,346 Notes payable to bank 400,000 Notes payable to related parties 229,500 ------------- Total Current Liabilities 829,510 ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT: Common stock, no par value, 50,000,000 shares authorized, 7,221,037 shares issued and outstanding 3,200,154 Deficit accumulated during the development stage (3,623,262) ------------- Total Shareholders' Deficit (423,108) ------------- Total Liabilities and Shareholders' Deficit $ 406,402 ------------- -------------- SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT AND NOTES TO FINANCIAL STATEMENTS F-16 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS AND SHAREHOLDERS' DEFICIT NINE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ----------------- ----------------- REVENUE $ 13,650 $ 57,200 OPERATING EXPENSES: Research and development 164,253 194,959 Technical services 133,415 161,133 Sales and marketing 65,975 118,096 General and administrative 399,076 285,729 ----------------- ----------------- Total Operating Expenses 762,719 759,917 ----------------- ----------------- Loss from Operations (749,069) (702,717) OTHER INCOME (EXPENSE): Interest expense (46,612) (36,561) Interest income 5,121 5,427 ----------------- ----------------- Total Other Income (Expense) (41,491) (31,134) ----------------- ----------------- Net Loss (790,560) (733,851) SHAREHOLDERS' DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE - BEGINNING OF YEAR (2,832,702) (1,765,090) ----------------- ----------------- SHAREHOLDERS' DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE - END OF YEAR $ (3,623,262) $ (2,498,941) ----------------- ----------------- ----------------- ----------------- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT F-17 MYO DIAGNOSTICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (790,560) $ (733,851) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 27,940 26,158 Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable 13,446 (42,073) Prepaid expenses (850) (14,189) Other assets (3,172) (8,435) Increase (decrease) in liabilities: Accounts payable and accrued expenses (235,424) 35,987 ----------------- ----------------- Net Cash Used in Operating Activities (988,620) (736,403) ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (92,619) (13,725) ----------------- ----------------- Net Cash Used in Investing Activities (92,619) (13,725) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on notes payable to related parties 95,500 - Repayments on notes payable to related parties (12,000) (114,500) Net proceeds from issuance of common stock 1,171,818 - Capital lease obligation 47,346 374,386 ----------------- ----------------- Net Cash Provided by Financing Activities 1,302,664 259,886 ----------------- ----------------- Net Increase (Decrease) in Cash 221,425 (490,242) CASH - Beginning of Periods 3,030 657,584 ----------------- ----------------- CASH - End of Periods $ 224,455 $ 167,342 ----------------- ----------------- ----------------- ----------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the periods for: Interest $ 40,483 $ 39,634 ----------------- ----------------- ----------------- ----------------- Income Taxes $ 800 $ 800 ----------------- ----------------- ----------------- ----------------- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT F-18 No dealer, salesperson or any other individual has been authorized to give any information or make any representations in connection with the Offering covered by this Prospectus other than those contained in this Prospectus. If given or made, such information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the Shares in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create an implication that there has not been any change in the facts set forth in this Prospectus or in the affairs of the Company since the date hereof. TABLE OF CONTENTS Additional Information .................................. 2 Prospectus Summary ...................................... 3 Risk Factors ............................................ 4 The Company ............................................. 7 Dividend Policy ......................................... 7 Capitalization .......................................... 7 Common Stock Matters .................................... 7 Management's Discussion and Analysis of Results of Operations and Financial Condition ................... 8 Business ................................................ 9 Management .............................................. 16 Principal and Selling Shareholders ...................... 20 Certain Transactions .................................... 21 Description of Capital Stock ............................ 21 Legal Matters ........................................... 22 Experts ................................................. 22 Index to Financial Statements ........................... F-1 UNTIL _______________, 1997, (90 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. 3,255,561 Shares MYO DIAGNOSTICS, INC. Common Stock _______________ PROSPECTUS _______________ ______________ ____, 1997 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Registrant's Articles of Incorporation include a provision that eliminates the personal liability of its directors to the Registrant and its shareholders for monetary damages for breach of the directors' fiduciary duties in certain circumstances. This limitation has no effect on a director's liability (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the Registrant or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the Registrant or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of a serious injury to the Registrant or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Registrant or its shareholders, (vi) under Section 310 of the California Corporations Code (the "California Code") (concerning contracts or transactions between the Registrant and a director) or (vii) under Section 316 of the California Code (concerning directors' liability for improper dividends, loans and guarantees). The provision does not extend to acts or omissions of a director in his capacity as an officer. Further, the provision will not affect the availability of injunctions and other equitable remedies available to the Registrant's shareholders for any violation of a director's fiduciary duty to the Registrant or its shareholders. The Registrant's Articles of Incorporation also include an authorization for the Registrant to indemnify its agents (as defined in Section 317 of the California Code), through bylaw provisions, by agreement or otherwise, to the fullest extent permitted by law. Pursuant to this latter provision, the Registrant's Bylaws provide for indemnification of the Registrant's directors, officers, agents and employees. In addition, the Registrant, at its discretion, may provide indemnification to persons whom the Registrant is not obligated to indemnify. Registrant has entered into indemnity agreements with all directors which provide the maximum indemnification permitted by law. These agreements, together with the Registrant's Bylaws and Articles of Incorporation, may require the Registrant, among other things, to indemnify such directors against certain liabilities that may arise by reason of their status or service as directors (other than liabilities resulting from willful misconduct of a culpable nature), to advance expenses to them as they are incurred, provided that they undertake to repay the amount advanced if it is ultimately determined by a court that they are not entitled to indemnification, and to obtain directors' and officers' insurance if available on reasonable terms. Section 317 of the California Code and the Registrant's Bylaws make provision for the indemnification of officers, directors and other corporate agents in terms sufficiently broad to indemnify such persons, under certain circumstances, for liabilities (including reimbursement of expenses incurred) arising under the Securities Act. The Registrant is currently reviewing director and officer liability insurance policies and may purchase such a policy in the future. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant 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. Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein: DOCUMENT EXHIBIT NUMBER Registrant's Amended and Restated Articles of Incorporation........................................... 3.1 Registrant's Bylaws....................................... 3.2 Registrant's Form of Indemnification Agreement............ 10.1 ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table itemizes the expenses incurred by the Registrant in connection with the issuance and distribution of the securities being registered. All the amounts shown are estimates except the Securities and Exchange Commission registration fee: Registration fee--Securities and Exchange Commission ............................ $ 2,388 Accounting fees and expenses ........................ $ 1,500 Legal fees and expenses ............................. $30,000 Printing ............................................ $ 6,500 Miscellaneous ....................................... $ 1,000 ------- Total ..................................... $41,388 ------- ------- ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES In May 1994 the Company issued 11,230 shares of Common Stock for $1,123 upon exercise of an option issued for a certain securities brokerage services provided by a securities broker. The issuance of these shares was exempt from registration pursuant to Section 4(2) of the Act as a transaction not involving any public offering. In August 1994 the Company issued options to purchase 400,000 shares of Common Stock for $1.13 per share to six Canadian residents who provided letters of credit to support the Company's bank debt. The issuance of these shares was exempt from registration pursuant to Regulation S and pursuant to Section 4(2) of the Act as a transaction not involving any public offering. In December 1994 the Company issued 60,000 shares for $600 upon exercise of an option granted to Wayne Cockburn, a Canadian resident, for financial consulting and investment banking services provided by that individual. The issuance of these shares was exempt from registration pursuant to Regulation S and Section 4(2) of the Act as a transaction not involving any public offering. In December 1994 the Company issued an aggregate of 755,330 shares of Common Stock and notes in the aggregate principal amount of $175,000 in exchange for limited partnership interest and revenue participation interests of limited partners and others in Myo Diagnostics, Ltd., a limited partnership for which the Company was the general partner (the "Partnership"). In June 1996 the Company issued 42,000 shares of Common Stock to the former limited partners of the Partnership as a penalty for failing to timely pay principal and interest on notes issued to such partners. The issuance of these securities was exempt from registration pursuant to Regulation S and pursuant to Section 4(2) of the Act as a transaction not involving any public offering. In December 1994 the Company issued 680,741 shares of Common Stock and warrants to purchase 183,333 shares of Common Stock for an aggregate of $1,000,000 to the Ontario Municipal Employees Retirement Board, Ontario, Canada ("OMERB"). The issuance of these securities was exempt from registration pursuant to Regulation S and pursuant to Section 4(2) as a transaction not involving any public offering. The Company paid a brokerage commission of $100,000 to Michael Ryshpan, Ontario, Canada, for services in connection with this transaction. In December 1994 the Company issued 144,619 shares of Common Stock to Gerald D. Appel, Chief Executive Officer, Chairman of the Board and principal shareholder of the Company, in cancellation of indebtedness of $212,589 owed by the Company to Mr. Appel for advances made by Mr. Appel to the Company. The issuance of to these shares was exempt from registration pursuant to Section 4(2) as a transaction not involving any public offering. In March 1995, the Company issued: (i) an option to purchase 15,000 shares of Common Stock for $.10 per share to an executive officer of the Company, and (ii) an option to purchase 5,000 shares of Common Stock for $1.17 per share to an employee of the Company. The issuance of these options was exempt from registration pursuant to Section 4(2) of the Act as a transaction not involving any public offering. In April 1995 the Company issued 15,000 shares of the Common Stock for $750 upon an exercise of an option granted in 1992 to a physician who had provided facilities and services in connection with clinical studies by the Company. The issuance of these shares was exempt from registration pursuant to Section 4(2) of the Act as a transaction not involving any public offering. In August 1995 the Company issued 125,000 shares of Common Stock and warrants to purchase 200,000 shares of Common Stock for an aggregate of $225,000 to an institutional investment fund in Ontario, Canada, and issued 113,849 shares of Common Stock and warrants to purchase 222,000 shares of Common Stock for an aggregate purchase price of $205,000 to OMERB. The issuance of these securities was exempt from registration pursuant to Regulation S and pursuant to Section 4(2) of the Act as a transaction not involving any public offering. In January 1996 the Company issued 27,778 shares for an aggregate of $50,000 to a shareholder of the Company who was a resident of Canada. The issuance of these shares was exempt from registration pursuant to Regulation S and pursuant to Section 4(2) of the Act as a transaction not involving any public offering. In February 1996, the Company issued a note in the amount of $50,000 and warrants to purchase 20,000 shares of Common Stock for $2.50 per share for an aggregate of $50,000 to an investment fund in Ontario, Canada. In December 1996, the Company issued to the investment fund 25,000 shares of Common Stock in cancellation of this note. The issuance of these securities was exempt from registration pursuant to Regulation S and pursuant to Section 4(2) of the Act as a transaction not involving any public offering. In May 1996, Registrant sold 500,000 shares of its Common Stock for $2.00 per share, or an aggregate purchase price of $1,000,000, to Canadian investors. The issuance of these securities was exempt from registration pursuant to Regulation S and pursuant to Section 4(2) of the Act as a transaction not involving any public offering. In June 1996, Registrant issued an option to purchase 12,000 shares of Common Stock for $.50 per share to an individual who is on the Scientific Advisory Board of the Registrant in satisfaction of certain consulting services provided by this individual. The issuance of this option was exempt from registration pursuant to Section 4(2) of the Act as a transaction not involving any public offering by the Registrant. In September 1996 the Registrant issued 50,000 shares of Common Stock for $.10 per share upon exercise of an option granted in September 1993 to an individual who is on the Company's Medical Advisory Board for consulting services to the Registrant. The issuance of these shares was exempt from registration pursuant to Section 4(2) of the Act as a transaction not involving any public offering. In December 1996 the Registrant issued and sold 480,000 units to two Canadian institutional investors for an aggregate of $1,200,000. Each unit was comprised of one share of Common Stock and one quarter stock purchase warrant. Each whole warrant entitles the holder to purchase one share of Common Stock at a price of $3.00 per share through December 1997. The Registrant utilized the services of Griffiths McBurney & Partners, a broker/dealer in Ontario, Canada, in connection with this transaction, which received a fee of $84,000 and warrants to purchase 43,200 shares of Common Stock at a price of $2.50 per share, exercisable through December 1998. The issuance of these securities was exempt from registration pursuant to Regulation S and pursuant to Section 4(2) of the Act as a transaction not involving any public offering. ITEM 27. EXHIBITS. EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 3.1 Amended and Restated Articles of Incorporation of Registrant. 3.2 Bylaws of Registrant. 4.1 Specimen Stock Certificate of Common Stock of Registrant. 5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.* 10.1 Form of Indemnification Agreement. 10.2 Licensing Agreement, dated October 31, 1993, by and between Registrant and Toomim Research Group, as amended. 10.3 Securities Purchase Agreement, dated December 23, 1994, by and among Registrant, OMERB, Gerald Appel and Hershel Toomim. 10.4 Securities Purchase Agreement, dated August 18, 1995, by and among Registrant, OMERB and Gerald Appel. 10.5 Series A Warrant of OMERB, dated December 23, 1994, as amended. 10.6 Series B Warrant of OMERB, dated December 23, 1994, as amended. 10.7 Series C Warrant of OMERB, dated August 18, 1995, as amended. 10.8 Waiver Letter, dated December 8, 1995, from OMERB to Registrant. 10.9 Letter Agreement, dated July 8, 1996, by and between Registrant and OMERB. 10.10 Letter Agreement, dated December 13, 1994, by and among Registrant and Donald Patterson, Ronald Goldsack, James Connacher, Chris Skillen, Richard Reid and James Black, and Form of Stock Option Agreement, dated December 19, 1994, by and among Registrant and such persons, as amended. 10.11 Lease Agreement, dated August 1, 1996, by and between Registrant and The Urcis Family Trust. 10.12 Non-transferable Warrant of Griffiths McBurney & Partners, dated December 6, 1996. 10.13 Form of Warrant, dated December 6, 1996, by and among Registrant and persons purchasing units in private placement of December 6, 1996. 10.14 Stock Option Agreement, dated March 23, 1995, by and between Registrant and Steve Nelson. 10.15 Business PrimeLine Promissory Notes, between Registrant and Wells Fargo Bank, National Association, as amended. 23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its opinion to be filed as Exhibit 5.1 hereto).* 23.2 Consent of Lever, Lippe, Hellie & Company LLP 24.1 Power of Attorney (included in signature page). 27 Financial Data Schedule. ___________________________ * To be filed by Amendment. ITEM 28. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes: (1) to file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form or prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial BONA FIDE offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant 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 registrant of expenses incurred or paid by a director, officer of controlling person of the registrant in the successful defense of any action, suite of proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by a 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. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on January 3, 1997. MYO DIAGNOSTICS, INC. BY: /S/ GERALD D. APPEL ---------------------------------- GERALD D. APPEL, PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Gerald D. Appel as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and his name, place and stead, in any and all capacities, to sign any or all amendments (including post effective amendments) to this Registration Statement and a new Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933 and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Gerald D. Appel President, Chief Executive January 3, 1997 - ---------------------------- Officer and Chairman of GERALD D. APPEL the Board of Directors /s/ Scott Roecklein Vice President of Operations January 2, 1997 - ---------------------------- and Secretary SCOTT ROECKLEIN (Principal Financial and Accounting Officer) /s/ Dr. Hershel Toomim, Sc.D. Director January 2, 1997 - ---------------------------- DR. HERSHEL TOOMIM, SC.D. /s/ Wayne C. Cockburn Director January 3, 1997 - ---------------------------- WAYNE C. COCKBURN EX-3.1 2 EXHIBIT 3.1 CERTIFICATE OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MYO DIAGNOSTICS, INC. Gerald D. Appel and Scott Roecklein certify that: 1. They are the President and the Secretary, respectively, of Myo Diagnostics, Inc., a California corporation. 2. The Articles of Incorporation of the Corporation are amended and restated to read as follows: I The name of this Corporation is Myo Diagnostics, Inc. II The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code. III (a) The liability of the directors of this Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) This Corporation is authorized to provide for, whether by bylaw, agreement or otherwise, the indemnification of agents (as defined in Section 317 of the California General Corporation Law) of this Corporation in excess of that expressly permitted by such Section 317 for those agents, for breach of duty to this Corporation and its shareholders to the extent permissible under California law (as now or hereafter in effect). In furtherance and not in limitation of the powers conferred by statute: (i) this Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of this Corporation, or is serving at the request of this Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not this Corporation would have the power to indemnify against such liability under the provisions of law; and in furtherance thereof, this Corporation is authorized to the fullest extent permissible under California law (as now or hereafter in effect) to own all or any portion of the shares of the company issuing any such policy of insurance; and (ii) this Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the fullest extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. No such bylaw, agreement or other form of indemnification shall be interpreted as limiting in any manner the rights which such agents would have to indemnification in the absence of such bylaw, agreement or other form of indemnification. (c) Any repeal or modification of the foregoing provisions of this Article III by the shareholders of this Corporation shall not adversely affect any right or protection of a director of this Corporation existing at the time of such repeal or modification. IV This Corporation is authorized to issue two classes of shares, designated, respectively, "Preferred Stock" and "Common Stock." The number of shares of Preferred Stock authorized to be issued is 10,000,000 and the number of shares of Common Stock authorized to be issued is 50,000,000. The Preferred Stock may be divided into such number of series as the Board of Directors of this Corporation may determine. The Board of Directors of this Corporation is authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred Stock or any series thereof with respect to any wholly unissued class or series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors of this Corporation, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors of this Corporation originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of that series. 3. The foregoing amendment and restatement of Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment and restatement of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of the 2 Corporation is 7,721,037. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. DATE: December 23, 1996 /s/ Gerald D. Appel ---------------------------------------- Gerald D. Appel, President /s/ Scott Roecklein ---------------------------------------- Scott Roecklein, Secretary 3 EX-3.2 3 EXHIBIT 3.2 BY-LAWS OF MYO DIAGNOSTICS, INC. (A California Corporation) ARTICLE I SHAREHOLDERS' MEETINGS SECTION 1. TIME. An annual meeting for the election of directors and for the transaction of any other proper business and any special meeting shall be held on the date and at the time as the Board of Directors shall from time to time fix. Time of Meeting: 1:30 o'clock p.m. Date of Meeting: The day of first of November, 1990. SECTION 2. PLACE. Annual meetings and special meetings shall be held at such place, within or without the State of California, as the Directors may, from time to time, fix. Whenever the Directors shall fail to fix such place, the meetings shall be held at the principal executive office of the corporation. SECTION 3. CALL. Annual meetings may be called by the Directors, by the Chairman of the Board, if any, Vice Chairman of the Board, if any, the President, if any, the Secretary, or by any officer instructed by the Directors to call the meeting. Special meetings may be called in like manner and by the holders of shares entitled to cast not less than ten percent of the votes at the meeting being called. SECTION 4. NOTICE. Written notice stating the place, day and hour of each meeting, and, in the case of a special meeting, the general nature of the business to be transacted or, in the case of an Annual Meeting, those matters which the Board of Directors, at the time of mailing of the notice, intends to present for action by the shareholders, shall be given not less than ten days (or not less than any such other minimum period of days as may be prescribed by the General Corporation Law) or more than sixty days (or more than any such maximum period of days as may be prescribed by the General Corporation Law) before the date of the meeting, by mail, personally, or by other means of written communication, charges prepaid by or at the direction of the Directors, the President, if any, the Secretary or the officer or persons calling the meeting, addressed to each shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice, or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the said principal executive office is located. Such notice shall be deemed to be delivered when deposited in the United States mail with first class postage therein prepaid, or sent by other means of written communication addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of notice to be presented by management for election. At an annual meeting of shareholders, any matter relating to the affairs of the corporation, whether or not stated in the notice of the meeting, may be brought up for action except matters which the General Corporation Law requires to be stated in the notice of the meeting. The notice of any annual or special meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken; provided that, if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. SECTION 5. CONSENT. The transaction of any meeting, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the shareholders or his proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting constitutes a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting shall not constitute a waiver of any right to object to the consideration of matters required by the General Corporation Law to be included in the notice if such objection is expressly made at the meeting. Except as otherwise provided in subdivision (f) of Section 601 of the General Corporation Law, neither the business to be transacted at nor the purpose of any regular or special meeting need be specified in any written waiver of notice. SECTION 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided over by one of the following officers in the order of seniority and if present and acting -- the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, if any, a Vice President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the shareholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but, if neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting. SECTION 7. PROXY REPRESENTATION. Every shareholder may authorize another person or persons to act as his proxy at a meeting or by written action. No proxy shall be valid after the expiration of eleven months from the date of its execution unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it prior to the vote or written action pursuant thereto, except as otherwise provided by the General Corporation Law. As used herein, a "proxy" shall be deemed to mean a written authorization signed by a shareholder or a shareholder's attorney in fact giving another person or persons power to vote or consent in writing with respect to the shares of such shareholder, and "Signed" as used herein shall be deemed to mean the placing of such shareholder's name on the proxy, whether by manual signature, typewriting, telegraphic transmission or otherwise by such shareholder or such shareholder's attorney in fact. Where applicable, the form of any proxy shall comply with the provisions of Section 604 of the General Corporation Law. SECTION 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or, if any persons so appointed fail to appear or refuse to act, the Chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election, or persons to replace any of those who so fail or refuse, at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented shall determine whether one or three inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, receive votes, ballots, if any, or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. SECTION 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries. SECTION 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the voting shares shall constitute a quorum at a meeting of shareholders for the transaction of any business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum if any action taken, other than adjournment, is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented thereat, but no other business may be transacted except as hereinbefore provided. In the election of directors, a plurality of the votes cast shall elect. No shareholder shall be entitled to exercise the right of cumulative voting at a meeting for the election of director unless the candidate's name or the candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for such candidates in nomination. Except as otherwise provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at a meeting at which a quorum is present shall be authorized by the affirmative vote of a majority of the shares represented at the meeting. Except in the election of directors by written consent in lieu of a meeting, and except as may otherwise be provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by holders of shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Notice of any shareholder approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten days before the consummation of the action authorized by such approval, and prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. SECTION 11. BALLOT. Elections of directors at a meeting need not be by ballot unless a shareholder demands election by ballot at the election and before the voting begins. In all other matters, voting need not be by ballot. SECTION 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in the event this corporation elects to become a close corporation, an agreement between two or more shareholders thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in Section 706, and may otherwise modify these provisions as to shareholders' meetings and actions. ARTICLE II BOARD OF DIRECTORS SECTION 1. FUNCTIONS. The business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of its Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any lawful capacity. Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances. (Section 309). SECTION 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of Section 1, in the event that this corporation shall elect to become a close corporation as defined in Section 186, its shareholders may enter into a Shareholders' Agreement as provided in Section 300 (b). Said Agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the shareholders, provided however such agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Section 300 (d). SECTION 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of the corporation, a citizen of the United States, or a resident of the State of California. The authorized number of directors constituting the Board of Directors until further changed shall be 3. Thereafter the authorized number of directors constituting the Board shall be at least three provided that, whenever the corporation shall have only two shareholders, the number of directors may be at least two, and, whenever the corporation shall have only one shareholder, the number of directors may be at least one. Subject to the foregoing provisions, the number of directors may be changed from time to time by an amendment of these By-Laws adopted by the shareholders. Any such amendment reducing the number of directors to fewer than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in writing in the case of action by written consent are equal to more than sixteen and two-thirds percent of the outstanding shares. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director. SECTION 4. ELECTION AND TERM. The initial Board of Directors shall consist of the persons elected at the meeting of the incorporator, all of whom shall hold office until the first annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation or removal from office. Thereafter, directors who are elected to replace any or all of the members of the initial Board of Directors or who are elected at an annual meeting of shareholders, and directors who are elected in the interim to fill vacancies, shall hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation, removal from office, or death. In the interim between annual meetings of shareholders or of special meetings of shareholders called for the election of directors, any vacancies in the Board of Directors, including vacancies resulting from an increase in the authorized number of directors which have not been filled by the shareholders, including any other vacancies which the General Corporation Law authorizes directors to fill, and including vacancies resulting from the removal of directors which are not filled at the meeting of shareholders at which any such removal has been effected, if the Articles of Incorporation or a By-Law adopted by the shareholders so provides, may be filled by the vote of a majority of the directors then in office or of the sole remaining director, although less than a quorum exists. Any director may resign effective upon giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to the office when the resignation becomes effective. The shareholders may elect a director at any time to fill any vacancy which the directors are entitled to fill, but which they have not filled. Any such election by written consent shall require the consent of a majority of the shares. SECTION 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Section 317. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. SECTION 6. MEETINGS. TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. PLACE. Meetings may be held at any place, within or without the State of California, which has been designated in any notice of the meeting, or, if not stated in said notice, or, if there is no notice given, at the place designated by resolution of the Board of Directors. CALL. Meetings may be called by the Chairman of the Board, if any and acting, by the Vice Chairman of the Board, if any, by the President, if any, by any Vice President or Secretary, or by any two directors. NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings for which the time and place have been fixed by the Board of Directors. Special meetings shall be held upon at least four days' notice by mail or upon at least forty-eight hours' notice delivered personally or by telephone or telegraph. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. A notice or waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. SECTION 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event only one director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. SECTION 8. QUORUM AND ACTION. A majority of the authorized number of directors shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided such majority shall constitute at least either one-third of the authorized number of directors or at least two directors, whichever is larger, or unless the authorized number of directors is only one. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors, if any, who were not present at the time of the adjournment. Except as the Articles of Incorporation, these By-Laws and the General Corporation Law may otherwise provide, the act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and participation by such use shall be deemed to constitute presence in person at any such meeting. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action which may be taken is approved by at least a majority of the required quorum for such meeting. SECTION 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present and acting, the Vice Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the President, if any and present and acting, or any director chosen by the Board, shall preside. SECTION 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any individual director may be removed from office without cause by approval of the holders of at least a majority of the shares provided, that unless the entire Board is removed, an individual director shall not be removed when the votes cast against such removal, or not consenting in writing to such removal would be sufficient to elect such director if voted cumulatively at an election of directors at which the same total number of votes were cast, or, if such action is taken by written consent, in lieu of a meeting, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. If any or all directors are so removed, new directors may be elected at the same meeting or by such written consent. The Board of Director may declare vacant the office of any director who has been declared of unsound mind by an order of court or convicted of a felony. SECTION 11. COMMITTEES. The Board of Directors, by resolution adopted by a majority of the authorized number of directors, may designate one or more committees, each consisting of two or more directors to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member at any meeting of such committee. Any such committee to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors except such authority as may not be delegated by the provisions of the General Corporation Law. SECTION 12. INFORMAL ACTION. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held shall be as valid as though had at a meeting duly held after tee call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 13. WRITTEN ACTION. Any action required or permitted to be taken may be taken without a meeting if all of the members of the Board of Directors shall individually or collectively consent in writing to such action. Any such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. ARTICLE III OFFICERS SECTION 1. OFFICERS. The officers of the corporation shall be a Chairman of the Board or a President or both, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. SECTION 2. ELECTION. The officers of the corporation, except such Officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. SECTION 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws. SECTION 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. SECTION 8. VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws. SECTION 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws. SECTION 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or and shares. The books of account shall at all reasonable times be open to inspection by any director. This officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. ARTICLE IV CERTIFICATES AND TRANSFERS OF SHARES SECTION 1. CERTIFICATES FOR SHARES. Each certificate for shares of the corporation shall set forth therein the name of the record holder of the shares represented thereby, the number of shares and the class or series of shares owned by said holder, the par value, if any, of the shares represented thereby, and such other statements, as applicable, prescribed by Sections 416 - 419, inclusive, and other relevant Sections of the General Corporation Law of the State of California (the "General Corporation Law") and such other statements, as applicable, which may be prescribed by the Corporate Securities Law of the State of California and any other applicable provision of the law. Each such certificate issued shall be signed in the name of the corporation by the Chairman of the Board of Directors, if any, or the Vice Chairman of the Board of Directors, if any, the President, if any, or a Vice President, if any, and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all of the signatures on a certificate for shares may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate for shares shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. In the event that the corporation shall issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor, any such certificate for shares shall set forth thereon the statements prescribed by Section 409 of the General Corporation Law. SECTION 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue a new certificate for shares or for any other security in the place of any other certificate theretofore issued by it, which is alleged to have been lost, stolen or destroyed. As a condition to such issuance, the corporation may require any such owner of the allegedly lost, stolen or destroyed certificate or any such owner's legal representative to give the corporation a bond, or other adequate security, sufficient to indemnify it against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 3. SHARE TRANSFERS. Upon compliance with any provisions of the General Corporation Law and/or the Corporate Securities Law of 1968 which may restrict the transferability of shares, transfers of shares of the corporation shall be made only on the record of shareholders of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes, if any, due thereon SECTION 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may determine the shareholders entitled to notice of any meeting or to vote or be entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the Board of Directors may fix, in advance a record date, which shall not be more than sixty days or fewer than ten days prior to the date of such meeting or more than sixty days prior to any other action. If the Board of Directors shall not have fixed a record date as aforesaid, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth day prior to the day of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five days from the date set for the original meeting. Except as may be otherwise provided by the General Corporation Law, shareholders on the record date shall be entitled to notice and to vote or to receive any dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. SECTION 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President or any other person authorized by resolution of the Board of Directors. SECTION 6. MEANING OF CERTAIN TERMS. As used in these By-Laws in respect of the right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to assent or consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an outstanding share or shares and to a holder or holders of record or outstanding shares when the corporation is authorized to issue only one class of shares, and said reference is also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Articles of Incorporation confer such rights where there are two or more classes or series of shares or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the Articles of Incorporation may provide for more than one class or series of shares, one or more of which are limited or denied such rights thereunder. SECTION 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Section 418(c). ARTICLE V EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION Any Shareholders' Agreement authorized by Section 300 (b) shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Section 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Sections 158 (defining close corporations), 202 (requirements of Articles of Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. ARTICLE VI CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purposes or any amount, except as provided in Section 313 of the Corporations Code. ARTICLE VII CONTROL OVER BY-LAWS After the initial By-Laws of the corporation shall have been adopted by the incorporator or incorporators of the corporation, the By-Laws may be amended or repealed or new By-Laws may be adopted by the shareholders entitled to exercise a majority of the voting power or by the Board of Directors; provided, however, that the Board of Directors shall have no control over any By-Law which fixes or changes the authorized number of directors of the corporation; provided, further, than any control over the By-Laws herein vested in the Board of Directors shall be subject to the authority of the aforesaid shareholders to amend or repeal the By-Laws or to adopt new By-Laws; and provided further that any By-Law amendment or new By-Law which changes the minimum number of directors to fewer than five shall require authorization by the greater proportion of voting power of the shareholders as hereinbefore set forth. ARTICLE VIII BOOKS AND RECORDS - STATUTORY AGENT SECTION 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its principal executive office in the State of California, if its principal executive office is not in the State of California, the original or a copy of the By-Laws as amended to date, which be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California, and, if the corporation has no principal business office in the State of California, it shall upon request of any shareholder furnish a copy of the By-Laws as amended to date. The corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees, if any, of the Board of Directors. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Such minutes shall be in written form. Such other books and records shall be kept either in written form or in any other form capable of being converted into written form. SECTION 2. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issue, in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. SECTION 3. ANNUAL REPORT. Whenever the corporation shall have fewer than one hundred shareholders, the Board of Directors shall not be required to cause to be sent to the shareholders of the corporation the annual report prescribed by Section 1501 of the General Corporation Law unless it shall determine that a useful purpose would be served by causing the same to be sent or unless the Department of Corporations, pursuant to the provisions of the Corporate Securities Law of 1968, shall direct the sending of the same. SECTION 4. AGENT FOR SERVICE. The name of the agent for service of process within the State of California is ARTICLE IX AMENDMENT OF BYLAWS SECTION 1. BY SHAREHOLDERS. Bylaws may be adopted, amended or repealed by the affirmative vote or by the written consent of holders of a majority of the outstanding shares of the corporation entitled to vote. However, a bylaw amendment which reduces the fixed number of directors to a number less than five (5) shall not be effective the votes cast against the amendment or the shares not consenting its adoption are equal to more than 33 per cent of the outstanding shares entitled to vote. SECTION 2. BY DIRECTORS. Subject to the right of the shareholders to adopt, amend or repeal bylaws, the directors may adopt, amend or repeal any bylaw except that a bylaw amendment changing the authorized number of directors may be adopted by the board of directors only prior to the issuance of shares. CERTIFICATE This is to certify that the foregoing is a true and correct copy of the Bylaws of the corporation named in the title thereto and that such Bylaws were duly adopted by the board of directors of the corporation on the date set forth below. Dated November 1, 1990 ----------------------------- /s/ John Kasten - ---------------------------------- , Secretary EX-4.1 4 EXHIBIT 4.1 NUMBER SHARES MYO DIAGNOSTICS INC. Authorized Capital Stock: 50,000,000 Common Stock This Certifies that _________________________________ is the registered holder of __________________________________ Shares Transferable only on the books of the corporation by the holder hereof in person or by attorney upon surrender of this certificate properly endorsed. IN WITNESS WHEREOF the said Corporation has caused this Certificate to be signed by its duly authorized officers and its Corporate Seal to be hereunto affixed This day of A.D. 19 /s/ Scott Roecklein /s/ Gerald D. Appel - --------------------------- ----------------------------- Secretary President [SEAL OF MYO DIAGNOSTICS INC.] EX-10.1 5 EXHIBIT 10.1 INDEMNIFICATION AGREEMENT This Indemnification Agreement ("AGREEMENT") is made as of this ____ day of _____________, 19__, by and between Myo Diagnostics, Inc., a California corporation (the "COMPANY"), and _________________________________ ("INDEMNITEE"). R E C I T A L S A. The Company and Indemnitee recognize that the vagaries of public policy and the interpretation of ambiguous statutes, regulations and court opinions are too uncertain to provide the Company's officers, directors, employees and other agents with adequate or reliable advance knowledge or guidance with respect to the legal risks and potential liabilities to which they may become personally exposed as a result of performing their duties in good faith for the Company. B. The Company and Indemnitee recognize that the cost of defending against lawsuits resulting from the performance of their duties in good faith for the Company, whether or not meritorious, is typically beyond the financial resources of most officers, directors, employees and other agents of the Company. C. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risk at the same time that the availability and coverage of liability insurance has been severely limited. D. The Company and the Indemnitee recognize that the legal risks and potential liabilities, and the very threat thereof, associated with lawsuits filed against the officers, directors, employees and other agents of the Company, and the resultant substantial time, expense, harassment, ridicule, abuse and anxiety spent and endured in defending against such lawsuits bears no reasonable or logical relationship to the amount of compensation received by the Company's officers and directors, and thus poses a significant deterrent to and results in increased reluctance on the part of experienced and capable individuals to serve as officers or directors of the Company. E. In order to induce and encourage highly experienced and capable persons such as Indemnitee to serve as officers and/or directors of the Company and to otherwise promote the desirable end that such persons will resist what they consider unjustifiable lawsuits and claims made against them in connection with the good faith performance of their duties to the Company, secure in the knowledge that certain expenses, costs and liabilities incurred by them in their defense of such litigation will be borne by the Company and that they will receive the maximum protection against such risks and liabilities as may be afforded by law, the Board of Directors of the Company (the "BOARD") has determined, after due consideration and investigation of the terms and provisions of this Agreement and the various other options available to the Company and Indemnitee in lieu hereof, that the following Agreement is not only reasonable and prudent but necessary to promote and ensure the best interests of the Company and the Company's shareholders. F. The Company desires to have Indemnitee serve or continue to serve as an officer and/or director of the Company, as the case may be, free from undue concern for unpredictable, inappropriate or unreasonable legal risks and personal liabilities by reason of his acting in good faith in the performance of his duty to the Company; and Indemnitee desires to serve or continue to serve as an officer or director of the Company; provided, and on the express condition, that he is furnished with the indemnity set forth hereinafter. G. The Company and Indemnitee desire that the indemnification rights provided by this Agreement shall be supplemental to, and shall not supersede or replace, any indemnification rights which may be provided by other sources, including without limitation any indemnification which may be provided by the Company pursuant to its bylaws, by contract or by applicable law. A G R E E M E N T The Company and Indemnitee hereby agree as follows: 1. INDEMNIFICATION. (a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (collectively, "ACTION") (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent (collectively, "AGENT") of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an Agent or by reason of the fact that Indemnitee is or was serving at the request of the Company as an Agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) and other amounts actually and reasonably incurred by Indemnitee in connection with such Action if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interest of the Company or subsidiary (as applicable) and, with respect to any criminal action or proceeding, 2 had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interest of the Company, or with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed Action by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was an Agent of the Company or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an Agent, or by reason of the fact that Indemnitee is or was serving at the request of the Company as an Agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit in such circumstances and to the extent that indemnity is not expressly prohibited by Section 317 of the California General Corporation Law as to the indemnification by a corporation of its agents: (i) if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders; or (ii) to the extent that the action or contemplated action seeks monetary damages for breach of Indemnitee's duties to the Company and its shareholders, provided that no indemnification shall be made for any acts or omissions or transactions for which a director may not be relieved of liability pursuant to the exception to Section 204(a)(10) of the California General Corporation Law. For purposes of this Section 1(b), indemnification shall include, to the extent not prohibited by law, indemnification against all judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with such Action. (c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any Action referred to in subsection (a) or (b) of this Section 1 or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. 2. EXPENSES; INDEMNIFICATION PROCEDURE. (a) ADVANCEMENT OF EXPENSES. The Company shall advance all reasonable expenses actually incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Action referenced in Section 1 hereof (but not amounts actually 3 paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. (b) NOTICE TO COMPANY BY INDEMNITEE. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which such indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the executive offices of the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) PROCEDURE. Any indemnification and advances provided for in Section 1 and this Section 2 shall be made no later than 45 days after receipt of the written request of Indemnitee. If a claim under this Agreement is not paid in full by the Company within 45 days after a written request for payment therefor has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any Action in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under the applicable law for the Company to indemnify Indemnitee, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to subsection (a) of this Section 2 unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the intention of the parties that if the Company contests Indemnitee's right to indemnification under this Agreement or applicable law, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its officers, Board, any committee or subgroup of its Board, independent legal counsel or its shareholders) to have made a determination that indemnification of Indemnitee is or is not proper in the circumstances because Indemnitee has or has not met the applicable standard of conduct required by this Agreement or by applicable law, nor an actual determination by the Company (including its officers, Board, any committee or subgroup of its Board, independent legal counsel or its shareholders) that Indemnitee has or has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 2(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to 4 the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (e) SELECTION OF COUNSEL. In the event the Company shall be obligated under Section 2(a) hereof to pay the expenses of any proceedings against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ separate counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. (f) EFFECT OF CHANGE IN LAW. Notwithstanding any other provision of this Agreement, in the event of any change in any applicable law, statute or rule which narrows the right of the Company to indemnify Indemnitee, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder. (g) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested directors, applicable law, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee from any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. 3. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any Action, but not, however, for the total amount thereof, the Company shall 5 nevertheless indemnify Indemnitee for the portion of such expenses, judgements, fines or penalties to which Indemnitee is entitled. 4. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal or state law, regulation or applicable public policy may prohibit the Company from indemnifying Indemnitee under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under law or public policy to indemnify Indemnitee. 5. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to law, regulation or court order, to perform its obligations under this Agreement shall be severable as provided in this Section 5. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this entire Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 6. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to Actions initiated or brought voluntarily by Indemnitee and not by way of defense, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board has approved the initiation or bringing of such suit; (b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any Action initiated by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceedings was not made in good faith or was frivolous; or (c) NO DUPLICATION OF PAYMENTS. To make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise received payment (under any insurance policy, the Articles of Incorporation or Bylaws of the Company, contract or otherwise) of the amounts otherwise indemnifiable hereunder. If the Company makes any indemnification payment to Indemnitee in connection with any claim made against Indemnitee and Indemnitee has already received or thereafter receives payments in connection with the same claim, then Indemnitee shall reimburse the 6 Company in an amount equal to the lesser of (i) the amount of the payment otherwise received by Indemnitee, and (ii) the full amount of the indemnification payment made by the Company. 7. CONSTRUCTION OF CERTAIN PHRASES. (a) For purposes of this Agreement, references to the "COMPANY" shall include any successor, resulting, or surviving corporation of the Company. (b) For purposes of this Agreement, references to "FINES" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as an Agent of the Company or any subsidiary of the Company which imposes duties on, or involves services by, such Agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "in the best interest of the Company" as referred to in this Agreement. 8. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 10. NOTICE. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked if addressed as provided for on the signature page of this Agreement, unless sooner received, or as subsequently modified by written notice. 11. ATTORNEYS' FEES. If any action or proceeding is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover as an element of its costs, and not its damages, reasonable attorneys' fees to be fixed by the court. The prevailing party is the party who is entitled to recover the costs of its action or proceeding, whether or not such action or proceeding proceeds to final judgment. A party not entitled to recover its costs of suit may not recover attorneys' fees. No sum for attorneys' fees shall be counted in calculating the amount of a judgment for purposes of determining whether a party is entitled to recover its costs or attorneys' fees. 7 12. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consents to the jurisdiction of the court of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agrees that any action instituted under this Agreement shall be brought only in the state courts of the State of California, or in Federal courts located in such State. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MYO DIAGNOSTICS, INC. By: ------------------------------ Its: ------------------------------ AGREED TO AND ACCEPTED: INDEMNITEE: - ----------------------------- (type name) - ----------------------------- (signature) - ----------------------------- - ----------------------------- (address) 8 EX-10.2 6 EXHIBIT 10.2 LICENSING AGREEMENT This Agreement is entered into as of this 31st day of October, 1993, by and between Toomim Research Group, a partnership ("Licensor") and Myo Diagnostic Ltd., a California Corporation ("Licensee") (collectively, the "Parties"). RECITALS A. WHEREAS, Licensor has developed (i) unique technology for the measurement of muscle interrelationships and reporting of muscle dysfunction and the monitoring of treatment of dysfunctional muscles including, but not limited to, certain unique measuring and correlation instrumentation (the "Instruments") and computer hardware including, but not limited to, schematics, board layouts, parts tests, functional descriptions and testing procedures, and unique technology (collectively, the "Technology"); (ii) computer software to accept data as collected by the Instruments and analyze the data including, but not limited to, the use of algorithms (the "Software"); (iii) certain examination procedures and protocols and other processes (the "Processes") for which patents have been applied; and (iv) a presentation of the results derived from the Software wherein certain findings are presented and graphic presentation of those findings called functional images are presented (the "Reports"); and B. WHEREAS, Licensor's Instruments, Technology, Software, Processes and Reports are directed toward the evaluation and treatment of muscle dysfunction in the back, arms and legs; and C. WHEREAS, Licensor's Instruments, Technology, Software, Processes and Reports can be the basis for development of other related and/or derivative technology (the "Derivative Technology") for purposes other than the evaluation and treatment of muscle dysfunction in the back, arms and legs; and D. WHEREAS, Licensor has the exclusive rights to manufacture and market the Instruments, Technology, Software and Processes (collectively, the "Product") and the Reports which derive from it; and E. WHEREAS, Licensee desires to obtain an exclusive license to manufacture, market, sell, distribute and further develop the Product and Report and to design, develop, manufacture, market, sell and distribute Derivative Technology; NOW, THEREFORE, in consideration of the mutual terms, conditions and covenants hereinafter set forth, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties hereto, hereby agree as follows: 1. GRANTING OF LICENSE: (a) Licensor hereby grants to Licensee the exclusive right to manufacture, market, sell, distribute and further develop the Product and any Derivative Technology throughout the world for a period commencing on August 1, 1993 (the "Effective Date") and ending Twenty (20) years from the Effective Date (the "Initial Term"), unless sooner terminated pursuant to this Agreement. (b) Licensor grants to Licensee the right to sub-license any or all of the rights granted under this Agreement, provided that Licensee obtains the prior written consent of Licensor, which consent shall not be unreasonably withheld, and further provided that at a minimum, any sub-license is subject to the restrictions on sub-license by Licensor contained in this Agreement and subject to the same provisions for the benefit of Licensor contained in this Agreement, including but not limited to the provisions relating to Royalty Payments, Confidentiality and Non-Competition. (c) Licensor shall have the right to freely transfer and/or assign any and all rights granted under this Agreement. Licensee shall have the right to transfer and/or assign any and all rights under this Agreement, provided that Licensee obtains the prior written consent of Licensor, which consent shall not be unreasonably withheld, and further provided that at a minimum, any assignment or transfer is subject to the restrictions on assignment or transfer by Licensor contained in this Agreement and subject to the same provisions for the benefit of Licensor contained in this Agreement, including but not limited to the provisions relating to Royalty Payments, Confidentiality and Non-Competition. (d) It is mutually agreed that either Party may terminate this Agreement at the end of the Initial Term by giving the other Party written notice thereof at least six (6) months, but no more than one (1) year prior to the end of the Initial Term. Should either Party fail to give such notice, then this Agreement shall continue in full force and effect upon the same terms and conditions in force immediately prior to the expiration of the Initial Term, for an additional period of Ten (10) years (the "Renewal Term"). During any Renewal Term, either Party may terminate this Agreement at the end of such Renewal Term by giving six (6) months', but no more than one (1) year's written notice of its intention to terminate at any time prior to the expiration of the then current term. Should either Party fail to give such notice, then this Agreement shall continue in full force and effect upon the same terms and conditions in force immediately prior to the expiration of such Renewal Term, for an additional Renewal Term. (e) Notwithstanding the provisions of Paragraph 1(d) of this Agreement, Licensor shall have no right pursuant to Paragraph 1(d) to terminate this Agreement at the end of, or at any time after the Initial Term, if during the Initial Term, Licensee shall have paid to Licensor a minimum of $1,000,000 in royalties pursuant to this Agreement. 2. RESPONSIBILITIES OF LICENSEE:(a) Licensee hereby accepts the right to manufacture, market, sell, distribute and further develop the Product and Report and agrees to do so in accordance with this Agreement. Licensee acknowledges and agrees, except with respect to the Derivative Technology, that Licensor shall retain sole right and title to any further developments of the Product and the Report. (b) Licensee shall manufacture the Product and Report in strict conformity with the specifications and standards provided to Licensee by Licensor. Licensor reserves the right to amend the specifications and standards from time to time. In addition, because of the value in preserving the reputation of Licensor, its principals and its products and inventions, Licensor shall have the right to approve or disapprove (in advance) of any processes, products, or procedures proposed by, used by or associated with Licensee in the sale, lease, rental, licensing and/or manufacture of the Product, the Report or any related product associated with the Product, with Licensor or with Licensor's principals. (c) Licensee shall provide all resources necessary to continue to develop and scientifically validate the Product and the Report. All improvements, additions and/or extensions of the Product and the Report developed by Licensee under the direction of Licensor or any of its additional partners shall remain the sole and exclusive property of Licensor. With the exception of the Derivative Technology, all additions and/or improvements made a part of the Product or any portion thereof shall belong to Licensor at the termination of this Agreement. However, the sole right and title to any and all Derivative Technology resulting from the further development efforts by Licensee shall remain with Licensee subject to the terms of Paragraphs 5 and 17 of this Agreement. 3. INDEPENDENT CONTRACTOR: Licensee is an independent contractor and nothing contained in this Agreement shall be deemed or interpreted to make Licensee the agent or legal representative of Licensor for any purpose whatsoever. Licensee is not granted any right or authority to assume or create any obligation or responsibility, express or implied, on behalf of or in the name of Licensor, or to bind Licensor in any manner or fashion whatsoever. 4. MINIMUM REQUIREMENTS: Commencing with the Effective Date, Licensee shall make its best efforts to market the Product, to manufacture Instruments as required, and to provide all of the resources including funding, materials facilities and personnel to continue to develop the Product. Starting January 1, 1994, Licensee shall sell a minimum of one thousand (1,000) Reports and Five (5) Instruments during each calendar year of this Agreement. Licensor may consider the total units of Reports and Instruments sold in any calendar year of this Agreement over and above the specified volume as cumulative, to be carried forward to the succeeding calendar year. Licensor shall waive the minimum required for sale of Instruments and Reports if Licensee sells in excess of Two Thousand (2,000) Reports in any calendar year of this Agreement. 5. ROYALTY PAYMENTS: Licensee shall pay to Licensor a royalty for the sale, lease or rental of the Product and the preparation of each Report as follows: (a) The lesser of (i) thirty dollars ($30) of the total revenue received by Licensee for each of the rust 10,000 times the Product is used to examine a patient and prepare a Report, or (ii) ten percent (10%) of the total revenue received by Licensee for each of the first 10,000 times the Product is used to examine a patient and prepare a Report. (b) After the first 10,000 times the Product is used to examine a patient and prepare a Report, five percent (5%) of the total revenue received by Licensee for each successive time the Product is used to examine a patient and prepare a Report not to be less than $12.50. (c) Five percent (5%) of the total revenue received by Licensee for each sale, lease, rental, license, transfer or assignment of each Instrument, Software Technology, and other Process to a party not owned or controlled by Licensee, and provided that Licensee has not already paid a royalty on such revenue pursuant to Paragraph 5(a) or (b) of this Agreement. (d) Three percent (3%) of the total revenue received by Licensee from the sale, lease, rental, license, transfer or assignment of any Derivative Technology developed by Licensee, and provided that Licensee has not already paid a royalty on such revenue pursuant to Paragraph 5(a), (b) or (c) of this Agreement. 6. PAYMENT OF ROYALTY: Licensee shall pay Licensor all royalties due under this Agreement, quarterly, on the 15th day of the month following the end of each calendar quarter. Licensee shall also provide quarterly reports to Licensor on the 15th day of the month following the end of each calendar quarter to accompany the royalty payments due at that time. Each such report shall contain basic information relating to the calculation of the royalty payment, including, but not limited to, the quantity and type of Product sold, leased or rented; the quantity and type of Derivative Technology sold, leased or rented; the number of Reports produced; the revenue generated by each of the foregoing; and an itemized calculation of the royalties paid and any deductions. In addition, Licensee shall, within thirty (30) days of the termination of this Agreement, make a full accounting of all royalties due to Licensor and shall pay all such royalties to Licensor. Each royalty payment, that is not received by Licensor by the twenty first (21st) day of the month that such royalty is due, shall bear Interest at a rate which is equal to the lower of 10% per annum or the maximum limit on such interest charges established by law. 7. LICENSOR'S WARRANTIES: Licensor hereby warrants and represents to Licensee that: (a) Licensor is the developer and sole owner of the Product, the Report and of the rights thereto and has full right and authority to take the actions contemplated by this Agreement; (b) Licensor has not and will not grant (without Licensee's prior written approval) any other license in any way relating to the Product, the Reports or any Derivative Technology arising therefrom, unless required by law, to any person or entity other than Licensee during the term of this Agreement; and (c) Licensor owes no obligations and has contracted no liabilities affecting the Product, the Report or the Derivative Technology or any of the rights thereto, that will affect the consummation of the transactions contemplated under this Agreement. 8. LIMIT ON WARRANTIES: Other than representations and warranties contained above, LICENSEE ACKNOWLEDGES AND AGREES THAT THE PRODUCT AS WELL AS THE LICENSE FURNISHED HEREUNDER, AND ANY AND ALL OTHER GOODS, EQUIPMENT, PERSONAL PROPERTY AND RIGHTS ACQUIRED, LEASED, LICENSED OR OTHERWISE OBTAINED PURSUANT TO THIS AGREEMENT ARE TAKEN BY LICENSEE IN "AS IS" CONDITION "WITH ALL FAULTS" AND SPECIFICALLY AND EXPRESSLY WITHOUT ANY WARRANTIES, REPRESENTATIONS OR GUARANTEES, EITHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE OR TYPE WHATSOEVER FROM OR ON BEHALF OF LICENSOR OR ARISING BY OPERATION OF LAW, INCLUDING, BUT IN NO WAY LIMITED TO, ANY WARRANTY OF CONDITION, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OR USE, OR WITH RESPECT TO THE VALUE, PROFITABILITY OR MARKETABILITY OF THE PRODUCT OR THE LICENSE. ANY SUCH WARRANTIES, REPRESENTATIONS, OR GUARANTEES WHETHER EXPRESS OR IMPLIED ARE DISCLAIMED. IN NO EVENT SHALL LICENSOR BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF USE, REVENUE OR PROFIT OR ANY CLAIM, DEMAND OR ACTIONS BY A THIRD PARTY) IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR THE EXISTENCE, FURNISHING, FUNCTIONING OR USE OF THE PRODUCT OR THE LICENSE FURNISHED HEREUNDER. 9. INFRINGEMENT: Each Party agrees to promptly notify the other Party of any potential infringement or misappropriation by a third party relating to the Product, the Reports or the Proprietary Information (as defined below), or any patents or copyrights which may hereinafter be issued relating to the aforementioned subjects. Within fourteen days (14) of such notice, Licensor, at its election, may institute proceedings seeking to enjoin and recover damages from such third party. Licensee, at its own cost and expense, shall have the right to join in any such proceeding in order to protect Licensee's interests. In the event that Licensor does not institute such proceedings, Licensee shall be entitled to seek such relief and remedies against such third party as it deems proper. The failure of Licensor to take action hereunder shall not excuse Licensee from its obligations and commitments under this Agreement. 10. FURTHER DEVELOPMENTS: In the event that during the term of this Agreement, Licensor develops or acquires any improvements, enhancements or information, relating to the Product or to the Report (the "Developments"), Licensor shall make such Developments known and available to Licensee and such Developments shall be automatically included within the scope of this Agreement and within the license granted hereunder with respect to the Product. With the exception that the definition of "Technology" used in this Agreement shall be expanded to include any such Developments, there shall be no change in the Royalty Payment provisions of Paragraph 5 of this Agreement as a result of any such developments. 11. INSPECTION OR PROPERTY, BOOKS AND RECORDS. Licensee covenants to Licensor that (i) it will keep proper books of record and account in which full, true and correct entries in conformity with generally accepted accounting principles shall be made of all dealings and transactions in relation to Its business and activities, and (ii) it will permit any person designated in writing by Licensor to examine Licensee's corporate, financial and operating records and make copies thereof or abstracts therefrom in order to verify that the proper payments have been made by Licensee according to this Agreement, all st such reasonable times, upon reasonable notice and as often as may reasonably be desired. 12. FINANCIAL STATEMENTS AND REPORTS. Licensee covenants that it will also deliver to Licensor from time to time such additional information regarding the financial position, results of operations, business or prospects of Licensee as Licensor or may reasonably request. 13. INDEMNIFICATION BY LICENSEE: Licensee Covenants that it will protect, defend, hold harmless and indemnify Licensor, its partners, officers, employees and agents, from and against any and all expense, claims, actions, liabilities, attorneys' fees, damages and losses of any kind whatsoever (including, without limitation of the foregoing, death of or injury to persons and damage to property), actually or allegedly resulting from or connected with the operation of the Product, the Reports or the Derivative Technology (including, without limitation of the foregoing, goods sold, work done, services rendered or products utilized therein, operation of or defects in any machinery or equipment used in connection with the Product, the Reports, or the Derivative Technology or with Licensee's use of the License granted hereunder or arising out of any actual or alleged infringement of any patent or claim of patent, copyright or trademark, service mark, or trade name) or from the omission or commission of any act, lawful or unlawful, by Licensee or its agents, officers, directors or employees. Licensee hereby agrees that this indemnity shall survive the termination of this Agreement. 14. DEFAULT PROVISION. Notwithstanding any other provision contained In this Agreement, in the event that Licensee shall default in the performance of the terms and conditions of this Agreement on Licensee's part to be kept, performed and observed, including without limiting the generality of the foregoing, prompt payment of all royalties and other obligations incurred under the terms of this Agreement or the occurrence of a default under Paragraph 15 of this Agreement, this Agreement shall be subject to cancellation by Licensor upon fourteen (14) days written notice by Certified Mail, Return Receipt Requested, to Licensee, during which period of fourteen (14) days, Licensee shall have the right to remedy such default. Upon the remedying of such default, the cancellation notice shall have no further force or effect. 15. EVENTS OF DEFAULT. Notwithstanding any other provision contained in this Agreement, the happening of any one or more of the following events for any reason whatsoever (whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise) shall also constitute a default of this Agreement by Licensee: (a) The failure by Licensee to observe or perform any of its covenants, conditions or agreements contained in this Agreement; (b) If Licensee shall become insolvent or shall fail generally to pay its debts as they become due; (c) The assignment by Licensee of Licensee's property for the benefit of Licensee's creditors or the appointment of a receiver for any part of Licensee's property; (d) Any proceedings under any bankruptcy or insolvency law which shall have been commenced by or against Licensee. (e) The sale of the license granted hereunder or any other transaction which shifts the rights or liabilities of Licensee to another controlling interest without the prior written approval of Licensor. 16. PRODUCT LIABILITY. Licensee will maintain, with financially sound and reputable insurers, insurance on all property used, sold, leased, rented or licensed in the operation of its business in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against by companies of established repute engaged in the same or a similar business. Licensee will furnish to Licensor upon written request full information as to the insurance so carried. Notwithstanding, and without limiting the generality of the foregoing, Licensee agrees that, at a minimum, it will obtain and maintain during the Initial Term of this Agreement and during any Renewal Term product liability insurance in the minimum amount of $1,000,000. 17. CONFIDENTIALITY: Licensee and Licensor agree that all information to be made available to Licensee, and to Licensor by Licensee, in connection with this Agreement, together with all data, studies, technical and scientific formulae, processes, methods, secrets, procedures and other know-how, whether or not in tangible form, related to the Product, the Reports and the Derivative Technology is confidential and proprietary information (the "Proprietary Information") and shall be disclosed only to those persons or entities to whom such disclosure is necessary for the proper exercise of that Parties business operations. Each Party further agrees to implement procedures and safeguards reasonably calculated to prevent any unauthorized disclosure by it to by any person or entity to whom proper disclosure has been made, which procedures and safeguards shall include the use of non-disclosure agreements and shall be at least equal to those measures taken by that Party with respect to the protection of its own most proprietary information. The foregoing obligations shall not extend to any information already in the possession of any recipient of such Proprietary Information, as evidenced by prior written records, or to any information subsequently and lawfully disclosed to the any recipient of such Proprietary Information by a party other than Licensor or Licensee, or to any information which is or becomes generally available to the public other than by any act or omission of the Party seeking to disclose such Proprietary Information. 18. NON-COMPETITION. In the event of the termination of this Agreement, whether voluntary or involuntary, Licensee agrees that Licensee will not for a period of three (3) years from the effective date of termination, engage in the manufacture, sale or distribution of the Product, the Report or any product similar to the Product in any country, state, county, or municipality where the Product or Report has been sold and where such a restriction is permitted by law. If at the time of such termination, this restriction is prohibited by the laws of the State of California, Licensee agrees to be bound by this provision in all other territories as outlined above. 19. SOLE AGREEMENT. It is agreed between the Parties that there are no oral or other agreements or understandings between them relating to the selling or servicing of the Product. This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and is intended as a complete and exclusive statement of the full agreement between the Parties, and shall supersede all previous proposals, both oral and written, negotiations, representations, commitments, agreements (including without limitation of the foregoing the Contract and License Agreement by and between the Parties, entered into on February 1, 1993), writings, and all other communication between the Parties. 20. ARBITRATION. Should any dispute arise between the Parties relating to this Agreement, its terms or any or the rights, responsibilities or obligations of any of the Parties under this Agreement, the same shall be settled only by Arbitration in the State of California, under the then pertaining rules, guidelines and regulations of tile American Arbitration Association. The determination of the arbitrators shall be final and binding upon the Parties to any such arbitration and may be enforced in any court of appropriate jurisdiction. 21. ATTORNEY'S FEES: If any arbitration, or any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, or any of the rights, responsibilities or obligations of any of the Parties under this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which it may be entitled. The Parties agree that the provisions contained in this Paragraph shall survive the termination of this Agreement. 22. NOTICES: Unless specifically provided otherwise in this Agreement, any notice to either Party given in relation or pursuant to this Agreement shall be in writing and shall be delivered personally, by messenger or by mail, postage prepaid, addressed as set forth below or by telecopy with receipt confirmed by telephone. Service of any such communication shall be deemed made on the date of actual receipt at such address. Any party may, from time to time, by notice in writing served upon the other party as aforesaid, designate a different address, different person, or reasonable additional persons to whom all communications are thereafter to be made. If To Licensor: Toomim Research Group % Gerald Appel 321 North La Peer Drive Beverly Hills, CA 90211 If To Licensee: Myo Diagnostics, Inc. 3710 S. Robertson Blvd., Suite 212 Culver City, CA 90232 23. RECITALS: The Recitals to this Agreement are incorporated into this Agreement as though set forth in their entirety herein. 24. BINDING EFFECT: All covenants, agreements, warranties, and the provisions of this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns. 25. PARTIAL INVALIDITY: If any provision in this Agreement is held by a court (or arbitrator) of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way. 26. HEADINGS: The paragraph headings in this Agreement are for convenience only and are not to be used in interpreting this Agreement. 27. WAIVER AND AMENDMENT: This Agreement may not be released, discharged, changed or modified except by an Instrument in writing duly signed by both Parties. A waiver of, or failure to enforce any provision contained in this Agreement on any occasion shall not be deemed to be a continuing waiver or a waiver on any other occasion. 28. ENTIRE AGREEMENT: The Parties have read the entire Agreement and agree to the terms and conditions contained herein. IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be executed as of the date first written above. TOOMIM RESEARCH GROUP MYO DIAGNOSTICS, INC. (Licensor) (Licensee) BY:/s/ Hershel Toomim BY:/s/ Gerald D. Appel ----------------------- ----------------------- Hershel Toomim Gerald D. Appel President /s/ Daniel J. Levendowski - -------------------------- Daniel J. Levendowski /s/ Gerald D. Appel - -------------------------- Gerald D. Appel AMENDMENT NO. ONE, WAIVER AND CONSENT This AMENDMENT NO. ONE, WAIVER AND CONSENT (this "Amendment"), is made as of December 23, 1994, by and between Toomim Research Group, a partnership ("Licensor"), and Myo Diagnostics, Inc., a California corporation ("Licensee"). RECITALS A. WHEREAS, Licensor and Licensee are parties to that certain Licensing Agreement, dated as of October 31, 1993 (the "License Agreement"); and B. WHEREAS, the License Agreement was assigned by Licensee to Myo Diagnostics, A Limited Partnership, a California partnership, (the "Partnership") with the consent of Licensor; and C. WHEREAS, the Partnership has dissolved and the License Agreement has been assigned to Licensee; and D. WHEREAS, Licensor and Licensee desire to amend the License Agreement in certain respects, and Licensor is willing to waive compliance with certain provisions of the License and consent to the assignment of the License Agreement to Licensee; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Licensor hereby waives compliance by Licensee or the Partnership, as the case may be, with the minimum sale requirements of Paragraph 4 of the Agreement for all periods prior to January 1, 1995. 2. Licensor hereby consents to the assignment of the License Agreement from the Partnership to the Licensee and waives any requirement of the License Agreement that such consent be obtained prior to such assignment. 3. Paragraph 4 of the Agreement is hereby amended to read in full as follows: "4. MINIMUM REQUIREMENTS: Commencing with the Effective Date, Licensee shall make its best efforts to market the Product, to manufacture Instruments as required, and to provide all of the resources including funding, materials, facilities and personnel to continue to develop the Product. Starting January 1, 1995, Licensee shall sell a minimum of one thousand (1,000) Reports during each calendar year of this Agreement. Licensor may consider the total units of Reports sold in any calendar year of this Agreement over and above the specified volume as cumulative, to be carried forward to the succeeding calendar year. If Licensor sells in excess of two thousand (2,000) Reports in any calendar year of this Agreement, Licensor hereby waives the minimum required for sale of Reports for all subsequent calendar years of this Agreement. 4. Licensor hereby represents and warrants to Licensee that this Amendment has been duly executed and delivered by Licensor and that the License Agreement, as amended or modified by this Amendment constitutes the legal, valid, and binding obligation of Licensor, enforceable against Licensor in accordance with its terms. 5. Licenseer hereby represents and warrants to Licensor that this Amendment has been duly executed and delivered by Licensee and that the License Agreement, as amended or modified by this Amendment constitutes the legal, valid, and binding obligation of Licensee, enforceable against Licensee in accordance with its terms. 6. This Amendment may be executed in two or more counterparts and by different parties in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written. TOOMIM RESEARCH GROUP MYO DIAGNOSTICS, INC. (Licensor) (Licensee) BY:/s/ Hershel Toomim BY:/s/ Gerald D. Appel ----------------------- ----------------------- Hershel Toomim Gerald D. Appel President /s/ Daniel J. Levendowski - -------------------------- Daniel J. Levendowski /s/ Gerald D. Appel - -------------------------- Gerald D. Appel AMENDMENT NO. TWO, WAIVER AND CONSENT This AMENDMENT NO. TWO, WAIVER AND CONSENT (this "Amendment"), is made as of November 30, 1995, by and between Toomim Research Group, a partnership ("Licensor") and Myo Diagnostics, Inc., a California corporation ("Licensee"). RECITALS A. WHEREAS, Licensor and Licensee are parties to that certain Licensing Agreement, dated as of October 31, 1993 (the "Licensing Agreement"); and B. WHEREAS, the Licensing Agreement was assigned by Licensee to Myo Diagnostics Ltd., A Limited Partnership, a California partnership, (the "Partnership"} with the consent of Licensor; and C. WHEREAS, the Partnership has dissolved and the License Agreement has been assigned to the Licensee; and D. WHEREAS, Licensor and Licensee desire to amend the License Agreement in certain respects, and Licensor is willing to waive compliance with certain provisions of the License; NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: 1. Paragraph 4 of the Agreement is hereby deleted. 2. Licensor hereby represents and warrants to Licensee that this Amendment has been duly executed and delivered by Licensor and that the License Agreement, as amended or modified by this Amendment constitutes the legal, valid, and binding obligation of Licensor, enforceable against Licensor accordance with its terms. 3. Licensee hereby represents and warrants to Licensee that this Amendment has been duly executed and delivered by Licensor and that the License Agreement, as amended or modified by this Amendment constitutes the legal, valid, and binding obligation of Licensee, enforceable against Licensee accordance with its terms. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written. TOOMIM RESEARCH GROUP MYO DIAGNOSTICS, INC. (Licensor) (Licensee) BY:/s/ Hershel Toomim BY:/s/ Gerald D. Appel ----------------------- ----------------------- Hershel Toomim Gerald D. Appel President /s/ Daniel J. Levendowski - -------------------------- Daniel J. Levendowski /s/ Gerald D. Appel - -------------------------- Gerald D. Appel EX-10.3 7 EXHIBIT 10.3 SECURITIES PURCHASE AGREEMENT This SECURITIES PURCHASE AGREEMENT, is entered into as of December 23, 1994, by and among MYO DIAGNOSTICS, INC., a California corporation (the "Company") and ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD (THE "Purchaser") and GERALD D. APPEL and HERSHEL TOOMIM (individually a "Stockholder" and collectively, the "Stockholders"). In consideration of the premises and the mutual promises, representations, warranties, covenants and conditions set forth below, the parties hereto agree as follows: ARTICLE 1. CERTAIN DEFINITIONS 1.01 Certain Definitions. For the purposes of this Agreement, the following terms shall have the following meanings: "Affiliate" of a specified Person means any Person who directly or indirectly controls or is controlled by, or is under common control with, such specified person. "Agreement" or this "Agreement" means this Securities Purchase Agreement including any Exhibits hereto. "Blue Sky Laws" means the securities laws and regulations of any political subdivision of the United States. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in Los Angeles, California, USA or Toronto, Ontario, Canada are authorized by law to close. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "Closing" shall have the meaning set forth in Section 2.01. "Closing Date" means 9:00 a.m., Los Angeles time, on December 23, 1994, or such later date as shall be agreed upon by the Company and the Purchaser. "Closing Shares" shall have the meaning set forth in Section 2.01. "Code" means the Internal Revenue Code of 1986, as amended. "Combined Financial Statements" means the combined balance sheet of the Company and the Partnership as at November 30, 1994 and the combined profit and loss report of the Company and the Partnership for the eleven months then ended, copies of which are attached hereto as Exhibit A. "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" means the Common Stock of the Company. "Environmental Damages" means all claims, judgments, damages, losses, penalties, fines, liabilities, encumbrances, taxes, fees, liens, costs and expenses of investigation and defense of any claim, whether or not such claim is ultimately defeated, including without limitation reasonable attorneys' fees and disbursements and consultants' fees, any of which are incurred at any time as a result of the existence or alleged existence of Hazardous Material in, on, under or migrating to or from the Real Property or the existence or alleged existence of a violation or obligation arising under any Environmental Requirements. "Environmental Requirements" means all applicable statutes, laws, regulations, rules, ordinances, codes, licenses, permits, orders, standards, guidelines, policies and similar items of any governmental authority having jurisdiction and all applicable judicial, administrative and regulatory decrees, judgments and orders and common law relating to the protection of human health or the environment including, without limitation, all requirements pertaining to the reporting, licensing, permitting, use, handling, generation, storage, treatment, transportation, disposal, release, discharge, investigation and remediation of Hazardous Material. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person who is a member of the Company's controlled group, or under common control with the Company, within the meaning of Section 414 of the Code and the regulations promulgated and rulings issued thereunder. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar successor federal statute, and the rules and regulations thereunder, all as the same shall be in effect from time to time. "Hazardous Material" means any substance (i) the presence of which requires reporting, investigation or remediation under any applicable statute, regulation, ordinance, order, action, policy or common law; or (ii) which is defined as a "hazardous waste", "hazardous substance", pollutant or contaminant under any statute, regulation, rule, or ordinance of any governmental authority having jurisdiction; or (iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated by any governmental authority having jurisdiction; or (iv) the presence of which on the Real 2 Property causes or threatens to cause a nuisance upon the Real Property or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about the Real Property. "Holder" means the Purchaser and any holder of Registrable Securities to whom the Registration rights conferred by this Agreement have been transferred in compliance with Section 8.11 of this Agreement. "Indemnified Party" shall have the meaning set forth in Section 8.08(c). "Indemnifying Party" shall have the meaning set forth in Section 8.08(c). "Latest Balance Sheet" means the latest combined balance sheet of the Company and the Partnership included in the Combined Financial Statements. "License Agreement" means that certain Licensing Agreement, dated as of October 31, 1993, by and between the Company and the Licensor. "Licensor" means Toomim Research Group, a partnership. "Ontco" means 1020826 Ontario Inc., a corporation incorporated under the laws of the Province of Ontario, Canada. "Ontco Documents" means, the Ontco Revenue Sharing Agreement, the Agreements, each dated as of June 1, 1993, between the Company and each shareholder of Ontco, that certain Agreement, dated as of December 6, 1994, between the Partnership, the Company and Ontco, that certain Exercise Notice, dated as of December 6, 1994, and sent by the Company to each shareholder of Ontco, the form of Acceptance Notice executed or to be executed by each shareholder of Ontco, and the form of Supplement to Acceptance Notice executed or to be executed by each Ontco Shareholder. "Ontco Revenue Sharing Agreement" means that certain Agreement, dated as of June 1, 1993, between the Partnership, the Company and Ontco. "Partnership" means MYO Diagnostics, A Limited Partnership, a California partnership. "Partnership Agreement" means the Partnership's Agreement of Limited Partnership, dated as of September 17, 1991, as amended by Amendment to the Agreement of Limited Partnership, dated as of May 20, 1993, Amendment B to the Agreement of Limited Partnership, dated as of December 30, 1993, and Amendment C to Agreement of Limited Partnership, dated as of November 20, 1994. 3 "Person" means an individual, firm, corporation, division, operation, partnership, joint venture, trust, unincorporated association, government or any agency or political subdivision thereof, or any other entity. "Proprietary Rights" means patents, inventions, shop rights, knowhow, trade secrets, confidentiality agreements and confidential information; registered and unregistered trademarks, service marks, logos, corporate names, trade names, and other trademark rights; registered and unregistered copyrights; and all registrations for, and applications for registration of, any of the foregoing. "Projections" means the Two Year Financial Projections, a copy of which is attached hereto as Exhibit B. "Purchased Securities" means the Closing Shares, the Series A Warrant, the Series B Warrant, the Series A Warrant Shares and the Series B Warrant Shares. "Qualified Public Offering" means a firm commitment underwritten offer and sale by the Company of its Common Stock pursuant to a Registered public offering for an aggregate price to the public of not less than $5,000,000. "RCRA" means the Resource Conservation and Recovery Act of 1976, as amended. "Real Property" means any real property owned or leased by the Company. "Register", "Registered" and "Registration" shall 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. "Registerable Securities" means (i) the Shares and (ii) any Common Stock issued as a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referred to in the foregoing clause (i) provided, however, that Registerable Securities shall not include any shares of Common Stock which have been previously Registered and sold to the public or which have been sold in a private transaction in which the transferor's rights under this Agreement were not transferred. "Registration Expenses" means all expenses incurred in effecting any Registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, fees under Blue Sky Laws, and expenses of any regular or special audits incident to or required by any such Registration, and fees and disbursements of one counsel for the 4 selling Holders, but shall not include Selling Expenses, fees and disbursements of additional counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event by the Company. "Restricted Securities" means any Registrable Securities required to bear the legend set forth in Section 4.06 of this Agreement. "Rule 144" means Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. "Rule 145" means Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. "Securities Act" means the Securities Act of 1933, as amended, and any similar successor federal statute and the rules and regulations thereunder, all as the same may be in effect from time to time. "Selling Expenses" means all underwriting discounts and selling commission applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than fees and disbursements of counsel included in Registration Expenses.) "Series A Warrant" shall have the meaning set forth in Section 5.01 (i). "Series A Warrant Shares" means the shares of Common Stock issued or to be issued upon exercise of the Series A Warrant. "Series B Warrant" shall have the meaning set forth in Section 5.01(i). "Series B Warrant Shares" means the shares of Common Stock issued or to be issued upon exercise of the Series B Warrant. "Shareholders Agreement" means that certain Shareholders Agreement dated as of February 1, 1989 by and among Hershel Toomim, John Kasten and Gerald D. Appel. "Shares" means the Closing Shares, the Series A Warrant Shares and the Series, B Warrant Shares. "Significant Stockholder" means any stockholder (or one of a number of stockholders acting in concert) who beneficially owns, or in the aggregate with other stockholders acting in concert, 5 directly or indirectly, more than 5% of the outstanding Common Stock or rights, options or warrants to acquire the same. "Taxes" means all federal, state, county, local, foreign and other taxes and governmental assessments, including but not limited to, income taxes, estimated taxes, withholding taxes, transfer taxes, excise taxes, real and personal property taxes, ad valorem taxes, payroll-related taxes, employment taxes, franchise taxes and import duties, together with any related liabilities penalties, fines, additions to tax and interest. "Tax Returns" means the Partnership's Form 1065 U.S. Partnership Return of Income and the Company's Form 1120 U.S. Corporation Income Tax Return in each case for each of the years in the three-year period ended December 31, 1993, copies of which are attached hereto as Exhibit C. "Warrants" means the Series A Warrant and the Series B Warrant. ARTICLE 2. PURCHASE AND SALE OF SECURITIES 2.01 CLOSING. On the terms and subject to the conditions set forth in this Agreement, at a closing (the "Closing") to be held on the Closing Date, and in reliance on the representations and warranties contained in this Agreement, the Company shall issue, sell and deliver to the Purchaser, and the Purchaser shall purchase from the Company, 680,741 shares of Common Stock (the "Closing Shares") for an aggregate purchase price of $1,000,000. At the Closing, the Company shall issue and deliver to the Purchaser upon tender of the purchase price therefor, one or more certificates representing the Closing Shares. 2.02 PLACE OF CLOSING. On the terms and subject to the conditions set forth in this Agreement, the Closing shall be held at the offices of Pircher, Nichols & Meeks, 1999 Avenue of the Stars, Los Angeles, California 90067 or at such other place as shall be mutually agreed upon by the Company and the Purchaser. ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND THE COMPANY The Company and each Stockholder, jointly and severally, represents and warrants to the Purchaser as follows: 3.01 ORGANIZATION AND GOOD STANDING, ETC. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has all requisite corporate power and authority to own and lease its properties and to carry on its business as presently conducted and as proposed to be conducted. The Company is duly registered or qualified and in good standing as a foreign corporation in each jurisdiction where 6 the ownership or leasing of its properties or the conduct of its business makes such registration or qualification necessary, the copies of the Company's Articles of Incorporation and Bylaws which have been furnished to Pircher, Nichols & Meeks, special counsel for the Purchaser, include all amendments made thereto at any time prior to the date of this Agreement and are correct and complete. The minute books of the Company made available to Pircher, Nichols & Meeks, special counsel for the Purchaser, contain minutes of all meetings of directors (and any committee of directors) and shareholders of the Company and all actions by written consent without a meeting by the directors (or any committee of directors) and stockholders since the date of incorporation of the Company and accurately reflect all actions by the directors (or any committee of directors) and shareholders of the Company with respect to all transactions referred to in such minutes. Exhibit D hereto sets forth a true and complete list of all the names of all directors of the Company and the names and offices held of all officers of the Company. 3.02 SUBSIDIARIES. The Company does not own, beneficially or of record, any shares or capital stock of, or hold any other equity interest in, any Person, is not committed to purchase or acquire any such interest, and is not a participant in any joint venture, partnership or similar arrangement except that the Company intends to acquire all of the outstanding shares of Ontco pursuant to the Ontco Documents. The Ontco Revenue Sharing Agreement has been terminated. To the best knowledge of the Company or any Stockholder, (1) Ontco is a corporation duly organized, validly existing and in good standing under the laws of the Provence of Ontario, Canada, and has all requisite corporate power and authority to own and lease its properties and to carry on its business; (2) the only business conducted by Ontco was to enter into the Ontco Revenue Sharing Agreement; and (3) Ontco has no assets or liabilities. 3.03 DISSOLUTION OF THE PARTNERSHIP. The Company has purchased all of the Units held by all of the Unit Holders (as such terms are defined in the Partnership Agreement) in consideration of the issuance by the Company to the Unit Holders of an aggregate of 420,000 shares of Common Stock, no distributions or other amounts are due from the Partnership or the Company to the Unit Holders, the Partnership has been dissolved in accordance with the provisions of the Partnership Agreement and/or California law, all of the assets (including, without limitation, the License Agreement) of the Partnership have been distributed to the Company, and the Company has assumed all of the liabilities of the Partnership. 3.04 CAPITALIZATION. The authorized capital stock of the Company consists of 10,000,000 shares of Common Stock, of which 5,106,720 shares are issued and outstanding. The outstanding shares of Common Stock are owned by the stockholders and in the 7 numbers set forth in Exhibit E hereto. Except as set forth in Exhibit F hereto, there are no authorized, issued or outstanding options, warrants, conversion privileges, preemptive rights or other rights, agreements, arrangements or understandings (whether or not presently exercisable) to purchase or otherwise acquire any Common Stock or other securities of the Company or other securities convertible into or evidencing the right to purchase or otherwise acquire any shares of such stock or other securities except for the rights in favor of the Purchaser created by this Agreement. All of the issued and outstanding shares of Common Stock are, and all shares issued upon the exercise of all options and warrants described in Exhibit F hereto for the consideration set forth therein will be, duly authorized, validly issued, fully paid and nonassessable and were, or will be, issued in compliance with the Securities Act and all applicable Blue Sky Laws. Except as provided in this Agreement and as set froth in Exhibit F hereto, (a) there are no shareholders' agreements, voting trusts, irrevocable proxies or similar arrangements by which any Person other than the shareholders of record of the Company in their individual capacities as such have or may acquire authority to vote any Common Stock or other securities of the Company, (b) there are no restrictions upon the sale, voting or transfer of any shares of Common Stock pursuant to the Company's Articles of Incorporation, Bylaws or other governing instruments or any agreement or other instrument to which the Company or any Stockholder is a party or by which it or any of them may be bound, (c) there are no preemptive or similar rights with respect to the Common Stock or any other securities of the Company and (d) the Company is under no obligation to redeem or repurchase any shares of Common Stock or other securities of the Company. 3.05 AUTHORIZATION. The Company has all requisite power and authority to execute and deliver this Agreement, to issue and sell the Shares, to issue and deliver the Warrants, and to perform its obligations hereunder. All corporate action on the part of the Company, its officers, directors and shareholders which is necessary for the authorization, issuance (or reservation for issuance), sale and delivery of the Shares, the issue and delivery of the Warrants, the authorization, execution, delivery and performance of this Agreement, has been taken. Each Stockholder has all requisite power, authority and capacity to execute and deliver this Agreement and to perform his obligations hereunder. 3.06 VALIDITY AND ENFORCEABILITY. This Agreement has been duly executed and delivered by the Company and each Stockholder and constitutes, and the Warrants when executed and delivered by the Company will constitute, legal, valid and binding obligations of the Company and, in the case of this Agreement, each Stockholder, enforceable against the Company and, in the case of this Agreement, each Stockholder in accordance with its terms, except as enforceability (a) may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting 8 the enforcement of creditors' rights generally or by general equitable principles and (b) to the extent the indemnification provisions contained in Article 8 hereof may be limited by applicable federal or state securities laws. 3.07 VALID ISSUANCE OF SHARES. The Closing Shares, the Series A Warrant Shares and the Series B Warrant Shares, when issued, sold and delivered in accordance with the terms of this Agreement, the Series A Warrant or the Series B Warrant, as the case may be, for the consideration set forth herein or therein, will be duly and validly authorized and issued, fully paid, and nonassessable shares of Common Stock, and will be free of restrictions on transfer other than restrictions on transfer contained in this Agreement and under the Securities Act and applicable Blue Sky Laws. The Company has duly and validly reserved 100,000 shares of the Common Stock for issuance upon the exercise of the Series A Warrant and 83,333 shares of Common Stock for issuance upon the exercise of the Series B Warrant. 3.08 NO CONFLICT. The Company is not in violation of or default under its Articles or Incorporation or Bylaws or any provision of any indenture, mortgage, lease, loan agreement or other agreement or instrument to which the Company is a party or by which it is bound or to which any of its properties or assets is subject or any judgment, order writ or decree applicable to the Company. None of the execution and delivery of this Agreement by the Company or any Stockholder, the issuance and sale of the Shares, the issuance and delivery of the Warrants, or the consummation of the transactions contemplated hereunder, will (i) conflict with or result in a breach or violation of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon, any of the properties or assets of the Company pursuant to the Articles of Incorporation or Bylaws of the Company or any indenture, mortgage, lease, loan agreement or other agreement or instrument to which the Company is a party or by which it is bound or to which any of its properties or assets is subject or (ii) violate any law, statute, rule, regulation, judgment or decree applicable to the Company. Except as set forth in Exhibit G hereto, no third party consents are required by the terms of any indenture, mortgage, lease, loan agreement or other agreement or instrument to which the Company is a party or by which it is bound or to which any of its properties or assets is subject for the execution and delivery of this Agreement, the issuance of the Shares, the issuance and delivery of the Warrants, or the consummation of the transactions provided for herein. 3.09 NO CONSENT OR APPROVAL REQUIRED. No consent, approval or authorization of, or declaration to or filing with, any governmental or regulatory authority is required for the valid execution and delivery by the Company or any Stockholder of this Agreement, the issuance and sale of the Shares, the issuance and delivery of the Warrants or the consummation of the transactions 9 provided for herein except the filing of any notice of sale required to be filed under Regulation D adopted by the Commission or such post-closing filings as may be required under applicable Blue Sky Laws, which will be timely filed within the applicable periods provided therefor. 3.10 FINANCIAL STATEMENTS. The Combined Financial Statements were prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, are complete and correct in all material respects, and present fairly the combined financial condition of the Company and the Partnership and their combined results of operations as of the dates and for the periods indicated. 3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent reflected or reserved against in the Latest Balance Sheet or set forth in Schedule 3.11 hereto, at the date of the Latest Balance Sheet, the Company did not have any material obligation or liability of any kind (whether accrued, absolute, contingent, unliquidated, civil, criminal or otherwise and whether due or to become due), whether or not any such liability or obligation would have been required to be disclosed on a balance sheet prepared in accordance with generally accepted accounting principles. 3.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Latest Balance Sheet and except as set forth in Schedule 3.12, the Company has been operated in the ordinary course of business, and there has not been: (a) Any change in the assets, liabilities, obligations, financial condition or results of operations of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, either individually or in the aggregate, materially adverse; (b) Any material change (individually or in the aggregate) in the contingent obligations of the Company by way of guaranty, endorsement, indemnity, warranty, or otherwise; (c) Any change in material standards, principles, policies or practices (including, without limitation, financial or financial reporting and accounting methods and practices) relating to the Company's business; (d) Any sale, assignment, lease or other transfer or disposition of any assets of the Company other than in the ordinary course of business; (e) Any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, prospects or financial condition of the Company; 10 (f) Any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the business, properties, prospects or financial condition of the Company; (g) Any termination, amendment or modification of any material contract or arrangement to which the Company is a party or by which it is bound; (h) Any sale, assignment, license, or other transfer or disposition of any Proprietary Rights; (i) Any resignation or termination of employment of any officer or key employee of the Company or any termination of any consulting arrangement to which the Company is a party; (j) Any mortgage, pledge, grant of a security interest in, or lien, created by the Company with respect to any of its properties or assets, except liens for current property taxes not yet due and payable; (k) Any waiver or compromise by the Company of any valuable right or of a material debt owed to it; (l) Any loans or advances to, guaranties for the benefit of, or investments in, any Person (other than customary travel advances in accordance with past practices); (m) Any general increase in the salary or other compensation of the Company's employees, officers, directors, or consultants, or any specific increase in the salary or other compensation of any such employee, officer, director, or consultant, whose combined salary and other compensation after such increase would be in excess of $30,000; (n) Any adoption of, or change in, any executive compensation plan, bonus plan, incentive compensation plan, deferred compensation agreement or other employee benefit plan or arrangement. (o) Any declaration, setting aside, or payment of any dividend or other distribution in respect of the Common Stock; (p) Any issue or sale by the Company of any shares of Common Stock or other securities or any purchase by the Company of any shares of Common Stock or other securities; (q) Any other event or condition (individually or in the aggregate) of any character that has materially and adversely affected the Company's business or prospects; or 11 (r) Any agreement or commitment by the Company to do any of the things described in this Section 3.12. 3.13 CONTRACTS AND COMMITMENTS. Except as set forth in Schedule 3.13 hereto, the Company is not a party to any contract, agreement, lease, commitment, or proposed transaction, written or oral, other than (1) contracts for the purchase of supplies and services that were entered to in the ordinary course of business and that do not provide for aggregate payments in excess of $25,000, and do not extend for more than one year from the date hereof, (2) sales contracts entered into in the ordinary course of business, and (iii) contracts terminable at will by the Company on no more than 30 days' notice without any cost or liability to the Company and that do not involve any employment or consulting arrangement and are not material to the conduct of the business of the Company. For the purposes of this Section, employment and consulting contracts, collective bargaining agreements, and licensing agreements and other agreements relating to the acquisition of disposition of the Company's Proprietary Rights (other than standard end-user license agreements), shall not be considered to be contracts entered into in the ordinary course of business. The Company has delivered to Pircher, Nichols & Meeks, special counsel to the Purchaser, true and complete copies of all contracts and agreements, including all amendments thereto, listed in Schedule 3.13. All contracts, agreements, leases and commitments referred to in Schedule 3.13 are valid and enforceable in accordance with their respective terms for the periods stated therein, and there is not under any of them any existing breach, default, or event of default by the Company or, to the best knowledge of the Company or any Stockholder, by any other party thereto, or event which with notice or lapse of time would constitute a default nor has any party thereto given notice of or made a claim with respect to any breach or default. Neither the Company nor any Stockholder has any knowledge of any existing laws, regulations or decrees, which materially and adversely affect, or may materially and adversely affect any of such contracts, agreements, leases, or commitments or the business, properties, operations or condition, financial or other, of the Company. 3.14 TITLE TO PROPERTY AND ASSETS; LEASES. The Company does not own any real property. Except (1) as reflected in the Financial Statements, (2) for liens for current taxes not yet delinquent, (3) for liens imposed by law and incurred in the ordinary course of business for obligations not past due to carriers, warehousemen, laborers, materialmen and the like, (4) for minor defects in title, none of which, individually or in the aggregate, materially interferes with the use of such property, the Company owns its assets free and clear of all mortgages, liens, claims, security interests, and encumbrances. The Company's only lease of real property is a month-to-month lease for its premises at 3710 South Robertson Boulevard, Suite 212 and Suite 220, Los 12 Angeles, California 90232 with which lease the Company is in compliance. 3.15 ADEQUACY OF ASSETS. The Company owns or has a valid leasehold interest in all assets, properties, real and personal, contract rights, licenses and Proprietary Rights necessary for the continued operation of the Company in substantially the same manner in which it has been and is now operating. 3.16 LITIGATION. Except as set forth in Schedule 3.16, there is no action, suit, proceeding, or investigation pending or, to the best knowledge of each Stockholder and the Company, threatened, against or affecting the Company that questions the validity of this Agreement or the right of the Company to enter into this Agreement or to consummate the transactions contemplated hereby or that might result, either individually or in the aggregate, in any material adverse change in the assets, business, properties, prospects, financial condition or operating results of the Company, or in any material change in the current equity ownership of the Company. The foregoing includes, without limitation, any action, suit, proceeding or investigation pending or threatened involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employees, their obligations under any agreements with prior employees, or negotiations by the Company with potential backers of, or investors in, the Company or its proposed business. The Company is not a party to or, to the best knowledge of the Company and each Stockholder, named in any order, writ, injunction, judgment or decree of any court, governmental agency, or instrumentality. There is no action, suit or proceeding by the Company currently pending or that the Company currently intends to initiate. 3.17 TAXES. All returns and reports of all Taxes required to be filed by the Company have been filed, and all such returns and reports, including without limitation, the Tax Returns, are true, correct and complete in all material respects, and all Taxes payable pursuant thereto have been paid. No deficiency or adjustment in respect of any Taxes which was assessed against the Company remains unpaid and no such claim or assessment is pending or, to the best knowledge of the Company and each Stockholder, threatened. The Company has made all withholdings of Taxes required to be made under all applicable federal, state and local tax regulations and such withholdings have either been paid to the respective governmental agencies or set side in accounts for such purpose or accrued, reserved against and entered upon the books of the Company. No provision for income taxes payable is required to be reflected on the Latest Balance Sheet. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any tax return or tax liability of the Company, and to the best knowledge of the Company and each Stockholder, there is no proposed liability for any Taxes for which there is not an 13 adequate reserve reflected on the Latest Balance Sheet. The Company has not filed any consent with the Internal Revenue Service described in Section 341(f) of the Code. 3.18 PROPRIETARY RIGHTS. The Company owns or possesses adequate licenses or other rights to all Proprietary Rights necessary for the conduct of the business of the Company as presently conducted and as proposed to be conducted without, to the best knowledge of the Company and each Stockholder, any conflict with or infringement of, the Proprietary Rights of any other Person. Schedule 3.18 contains a complete list of all Proprietary rights of the Company. Except as set forth in Schedule 3.18 and except for standard end-user agreements, there are not outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any option, license or agreement of any kind with respect to its Proprietary Rights or the Proprietary rights of any other Person. Neither the Company nor any Stockholder has received any notice or other communication alleging that the Company has violated, or, by conducting its business as presently conducted and proposed to be conducted, would violate any Proprietary Rights of any other Person. Neither the Company nor any Stockholder is aware that any of the Company's employees or consultants is obligated under any contract (including licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's or consultant's best efforts to promote the interests of the Company or that would conflict with its business as presently conducted and proposed to be conducted. Neither the execution and delivery of this Agreement, nor the carrying on of the business of the Company by its employees and consultants, nor the conduct of the Company's business as presently conducted and proposed to be conducted, will, to the best knowledge of the Company and each Stockholder, conflict with or result in a breach of, or constitute a default under, any contract covenant or agreement under which any of such employees or consultants is now obligated. 3.19 MANUFACTURING AND MARKETING RIGHTS. Except as set forth in Schedule 3.13 and Schedule 3.19, the Company has not granted rights to manufacture, produce, assemble, license, market or sell its products or services to any other Person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products and services. 3.20 EMPLOYEES. Schedule 3.20 sets forth the names and current annual or monthly compensation rates of all employees of the Company. There are no material controversies pending or, to the best knowledge of the Company and each Stockholder, threatened, between the Company and any of its employees, former employees or 14 applicants for employment. The Company has complied in all material respects with all laws relating to the employment of labor, including any provisions thereof relating to wages, hours, equal employment opportunity, collective bargaining, federal immigration law, and the payment of social security and similar taxes and is not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. None of the employees of the Company are covered by any collective bargaining agreement and, to the best knowledge of the Company and each Stockholder, there are no organizational efforts currently being made or threatened involving any employees of the Company. Except as set forth in Schedule 3.20, the Company is not a party to or bound by any currently effective employment agreement, contract, deferred compensation arrangement, bonus plan, incentive compensation plan, profit sharing plan, retirement agreement, stock option agreement, stock option plan, group life, hospitalization or disability insurance, severance policy or other employee compensation agreement or arrangement. The Company is not aware that any officer or key employee intends to terminate his or her employment by the Company, nor does the Company have any present intention to terminate the employment of any such officer or key employee. Subject to general principles relating to wrongful termination of employees, the employment of each officer and employee of the Company is terminable at the will of the Company. 3.21 ERISA. The Company does not maintain or contribute to and is not obligated to contribute to, and has never maintained or contributed to or been obligated to contribute to, (i) any employee plan that is subject to the provisions of Title IV of ERISA or subject to the minimum funding standards of Section 412 of the Code; (ii) any "multi employer plan" as defined in Section 4001(a)(3) of ERISA; or (iii) any "single employer plan" as defined in Section 4001(a)(15) of ERISA, which (a) is maintained for employees of the Company or any ERISA Affiliate and at least one other Person or (b) was so maintained and in respect of which the Company or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. 3.22 TRANSACTIONS WITH MANAGEMENT. Except as set forth in Schedule 3.22, the Company is not a party to any contract, lease, agreement or other commitment with any officer, director or shareholder of the Company or any Affiliate of any such Person, and there are no loans outstanding from the Company to, or to the Company from, any such Person or any Affiliate of any such Person. 3.23 REGISTRATION RIGHTS. Except as set forth in Schedule 3.23 and except as provided in this Agreement, the Company is not obligated to Register under the Securities Act any of its presently outstanding securities or any of its securities that may subsequently be issued. 15 3.24 PERMITS; COMPLIANCE WITH LAWS. The Company holds all permits, licenses, consents and authorizations issued by any government or governmental authority which are material and necessary in connection with the conduct of the business of the Company. The Company is not in default in any material respect under any such permit, license, consent or authorization. The conduct of the business of the Company as presently conducted complies in all material respects with all applicable laws, ordinances, regulations and orders, including, without limitation, all Environmental Requirements. The Company has not received any notice of any violation of any law, ordinance, regulation or order applicable to the Company or the business conducted by it. 3.25 ENVIRONMENTAL MATTERS. There has been no "release or threatened release of a hazardous substance" (as defined in CERCLA) or any other release, emission, disposal or discharge into the environment or any use, storage, transport or handling (collectively, "activities") of Hazardous Material on, under, about or from the Real Property other than those activities which have not resulted and could not reasonably be expected to result in any material liability on the part of the Company. To the best knowledge of the Company and each Stockholder, all "hazardous waste" (as defined in RCRA and the regulations thereunder) generated at the Real Property have been disposed of at sites which maintain valid permits under RCRA and any other applicable Environmental Requirement. To the best knowledge of the Company and each Stockholder, there are no underground tanks, PCBs or asbestos containing materials on the Real Property. The Company has no notice of any pending formal or informal assertion by any governmental agency or other Person that the Company or any predecessor business or owner or operator of the Real Property may be a responsible or potentially responsible party in connection with any violation or obligation arising under any Environmental Requirement at any site or facility (including the Real Property itself.) Schedule 3.25 sets forth a list of all documents pertaining to the environmental conditions (actual, potential or threatened) of any of the Real Property including, without limitation, all environmental reports, assessments and audits and all notices, orders, permits or any other documents from any governmental authority which refer or relate to any environmental condition of the Real Property or any personal property owned or leased by the Company or which relate to any actual or potential liabilities or obligations arising out of such environmental conditions. 3.26 ADVERSE AGREEMENTS. The Company is not a party to or subject to any contract, agreement or commitment or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree, law, rule or regulation which adversely affects, or could reasonably be expected to adversely affect, the business, operations, prospects, properties, assets or condition, financial or other, of the Company. 16 3.27 NO BROKERS OR FINDERS. Neither the Company nor any Stockholder has retained any investment banker, broker or finder in connection with the transactions contemplated by this Agreement except Wayne Cockburn whose entire compensation in connection therewith consists of $100,000 and will be paid by the Company. 3.28 BOOKS AND RECORDS. The books, records and work papers of the Company are complete and correct, have been maintained in accordance with good business practice and accurately reflect the bases for the financial condition and results of operations of the Company set forth in the Financial Statements. 3.29 DISCLOSURE. The Company has provided the Purchaser with all the information reasonably available to it without undue expense that the Purchaser has requested for deciding whether to purchase the Shares and all information that the Company believes is reasonably necessary to enable the Purchaser to make such decision. None of this Agreement, the Company Financial Statements, the Combined Financial Statements, or any other written documents, statements or certificates made or delivered to the Purchaser in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in the light of the circumstances in which they were made, not misleading. Neither the Company nor any Stockholder has knowledge of any liability, contingent or otherwise, not disclosed in the Company Financial Statements, the Combined Financial Statements or other document delivered to the Purchaser in connection herewith that materially affects the financial position or results of operations of the Company or the Projections. 3.30 PROJECTIONS. The Projections were made in good faith based upon assumptions which the Company and each Stockholder believes are reasonable and reflect all assumptions which the Company and each Stockholder believes are necessary under the circumstances. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Company as follows: 4.01 REQUISITE POWER AND AUTHORITY. The Purchaser has all necessary power and authority under all applicable provisions of law to execute, deliver and perform this Agreement; all actions on the Purchaser's part required for the lawful execution, delivery and performance of this Agreement have been or will be duly and effectively taken prior to the Closing Date; and this Agreement constitutes a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms, except as enforceability (a) may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or 17 affecting the enforcement of creditors' rights generally or by general equitable principles and (b) to the extent the indemnification provisions contained in Article 8 hereof may be limited by applicable federal or state securities laws. 4.02 PURCHASE FOR OWN ACCOUNT. This Agreement is made with the Purchaser in reliance upon the Purchaser's representation to the Company, which by its execution of this Agreement the Purchaser hereby confirms, that the Purchased Securities are being acquired by the Purchaser for investment for the Purchaser's own account, not as a nominee or agent, and not with a view to or for sale in connection with any distribution of the Purchased Securities or any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same, but subject nevertheless to any requirement of law that the disposition of the Purchaser's property shall at all times be within its control. By executing this Agreement, the Purchaser further represents that it does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer, or grant participations to such Person, or to any third Person, with respect to the Purchased Securities. 4.03 RELIANCE UPON PURCHASER'S REPRESENTATIONS. The Purchaser understands that the Purchased Securities at the time of issuance may not be: (1) registered under the Securities Act on the ground that the sale provided for in this Agreement and the issuance of securities hereunder is exempt from registration under the Securities Act pursuant to Section 3(b) thereof and Regulation D promulgated thereunder, or (2) qualified with the Commissioner of Corporations of the State of California on the ground that the sale provided for in this Agreement and the issuance of securities is exempt from such qualification pursuant to Section 25102(f) of the California Corporate Securities Law, and that the Company's reliance on such exemptions is predicated in part on the Purchaser's representations set forth herein. 4.04 INVESTOR EXPERIENCE. The Purchaser represents that it is experienced in evaluating and investing in companies in the development stage, is able to fend for itself, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment in the Purchased Securities, and has the ability to bear the economic risks of its investment. 4.05 ACCESS TO INFORMATION. The Purchaser believes that it has had access, during the course of the transaction and prior to its purchase of the Purchased Securities hereunder, to all information as it deems necessary or appropriate (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) and that the Purchaser has had, during the course of the transaction and prior to its purchase of the Purchased Securities hereunder, the opportunity to ask questions 18 of, and receive answers from, the Company concerning the terms and conditions of the offering and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to the Purchaser or to which the Purchaser had access. The foregoing, however, does not limit or modify the representations and warranties of the Company and the Stockholders contained in Article 3 of this Agreement or the right of the Purchaser to rely thereon. 4.05 RESTRICTED SECURITIES. The Purchaser understands that the Purchased Securities, or any portion thereof, may not be sold, transferred, or otherwise disposed of without Registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Purchased Securities or an available exemption from Registration under the Securities Act, the Purchased Securities must be held indefinitely. In particular, the Purchaser is aware that the Purchased Securities may not be sold pursuant to Rule 144 unless all of the conditions of that Rule are met. Among the conditions for use of Rule 144 may be the availability of current information to the public about the Company. Such information is not now available and the Company has no present plans to make such information available. 4.06 RESTRICTIVE LEGEND. Each certificate representing Shares may bear the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL (WHO MAY BE COUNSEL TO THE COMPANY) OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. 4.07 PUBLIC SALE. The Purchaser agrees not to make, without the prior written consent of the Company, any public offering or sale of the Purchased Securities although permitted to do so pursuant to Rule 144(k) promulgated under the Securities Act, until the earlier of (i) the date on which the Company effects its initial registered public offering pursuant to the Securities Act, (ii) the date on which the Company becomes a registered company pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, or (iii) five years after the Closing Date. ARTICLE 5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER 5.01 CLOSING. The obligation of the Purchaser to purchase the Closing Shares is subject to the satisfaction at or prior to the 19 Closing Date of each of the following conditions (compliance with which or the occurrence of which may be waived in whole or in part by the Purchaser): (a) Accuracy of Representations and Warranties. The representations and warranties of the Company and the Stockholders contained herein shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. (b) Performance of Agreements. The Company and each Stockholder shall have performed all obligations and agreements and complied with all covenants and conditions contained in this Agreement to be performed or complied with by them on or prior to the Closing Date. (c) Stockholder Certificates. Each Stockholder shall have furnished the Purchaser with a certificate, dated the Closing Date, to the effect that (i) the representations and warranties of such Stockholder contained herein are true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date and (ii) such Stockholder has performed and complied with all covenants and conditions contained in this Agreement to be performed or complied with by him on or prior to the Closing Date. (d) Company Certificate. The Company shall have furnished the Purchaser with a certificate, dated the Closing Date, of the President of the Company (i) to the effect that the representations and warranties of the Company contained herein are true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date and (ii) to the effect that the Company has performed and complied with all covenants and conditions contained in this Agreement to be performed or complied with by it on or prior to the Closing Date. (e) Charter Documents. There shall have been delivered to the Purchaser (i) a Certificate, dated within ten days of the Closing Date, of the Secretary of State of the State of California listing all charter documents of the Company on file in the office of said Secretary of State and (ii) copies of the Articles of Incorporation of the Company and all amendments thereto, certified as true and correct by the Secretary of State of the State of California within ten days of the Closing Date. (f) Good Standing Certificates. There shall have been delivered to the Purchaser (i) a Certificate, dated within ten days of the Closing Date, of the Secretary of State of the State of California with respect to the incorporation, subsistence and good legal standing of the Company, and (ii) a letter, dated within ten days of the Closing Date, of the California Franchise Tax Board as 20 to the good standing and entitlement to transact business of the Company. (g) Secretary's Certificate of the Company. There shall have been delivered to the Purchaser a Certificate, dated the Closing Date of the Secretary of the Company (i) to the effect that the Articles of Incorporation of the Company have not been amended since the date of the Certificate referred to in Section 5.01(e)(i) above, (ii) attaching a true and complete copy of the Bylaws of the Company as in effect on the Closing Date, (iii) attaching a true and complete copy of the resolutions of the Board of Directors of the Company approving the execution and delivery of this Agreement, the issuance and sale of the Purchased Securities and authorizing the consummation of the transactions contemplated herein. (h) Incumbency Certificate of the Company. There shall have been delivered to the Purchaser a Certificate, dated the Closing Date, with respect to the incumbency and signatures of all officers of the Company signing this Agreement and any other certificate, agreement or instrument delivered on behalf of the Company in connection with this Agreement or the Closing. (i) Warrants. The Company shall have issued and delivered to the Purchaser (1) a warrant, dated the Closing Date and expiring on the first anniversary of the Closing Date, to purchase 100,000 shares of Common Stock at an initial exercise price of $2.50 per share, substantially in the form of Exhibit H hereto (the "Series A Warrant") and (2) a warrant, dated the Closing Date and expiring 30 months following the Closing Date, to purchase 83,333 shares of Common Stock at an initial exercise price of $3.00 per share, substantially in the form of Exhibit I hereto (the "Series B Warrant"). (j) Opinion of Counsel There shall have been delivered to the Purchaser an opinion of Pillsbury Madison & Sutro, special counsel to the Company, dated the Closing Date and in form and substance satisfactory to the Purchaser and its counsel to the following effect: (1) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has all requisite corporate power and authority to own and lease its Properties and to carry on its business as presently conducted. The Company is duly registered or qualified and in good standing in each jurisdiction where the ownership or leasing of its properties or the conduct of its business makes such registration or qualification necessary except for jurisdictions, individually or in the aggregate, where the failure to be so registered or qualified would not have a material adverse effect on the business, properties, operations or condition, financial or other, of the Company. 21 (2) The Partnership has been dissolved in accordance with the provisions of the Partnership Agreement and California law, all of the assets (including, without limitation, the License Agreement) of the Partnership have been distributed to the Company, and the Company has assumed all of the liabilities of the Partnership. (3) The authorized capital stock of the Company consists of 10,000,000 shares of Common Stock, of which 5,106,720 shares are issued and outstanding. The outstanding shares of Common Stock are owned of record by the stockholders and in the numbers set forth in Exhibit E hereto. To the knowledge of such counsel and except as set forth in Exhibit F hereto, there are no authorized, issued or outstanding options, warrants, conversion privileges, preemptive rights or other rights, agreements, arrangements or understandings (whether or not presently exercisable) to purchase or otherwise acquire any Common Stock or other securities of the Company or other securities convertible into or evidencing the right to purchase or otherwise acquire any shares of such stock or other securities except for the rights in favor of the Purchaser created by this Agreement. All of the issued and outstanding shares of Common Stock are, and all shares issued upon the exercise of all options and warrants described in Exhibit F hereto will be, duly authorized, validly issued, fully paid and nonassessable. To the knowledge of such counsel and except as provided in this Agreement and as set forth in Exhibit F hereto, (a) there are no shareholders' agreements, voting trusts, irrevocable proxies or similar arrangements by which any Person other than the shareholders of record of the Company in their individual capacities as such have or may acquire authority to vote any Common Stock or other securities of the Company, (b) there are no restrictions upon the sale, voting or transfer of any shares of Common Stock pursuant to the Company's Articles of Incorporation, Bylaws or other governing instruments or any agreement or other instrument known to such counsel to which the Company or any Stockholder is a party or by which it or any of them may be bound, (c) there are no preemptive or similar rights with respect to the Common Stock or any other securities of the Company and (d) the Company is under no obligation to redeem or repurchase any shares of Common Stock or other securities of the Company. (4) The Company has all requisite corporate power and authority to execute and deliver this Agreement, to issue and sell the Shares, to issue and deliver the Warrants, and to perform its obligations hereunder. All corporate action on the part of the Company, its officers, directors and shareholders which is necessary for the authorization, issuance (or reservation for issuance), sale and delivery of the Shares, the issuance and delivery of the Warrants, the authorization, 22 execution, delivery and performance of this Agreement, has been taken. (5) This Agreement has been duly executed and delivered by the Company and each Stockholder and constitutes a legal, valid and binding obligation of the Company and each Stockholder enforceable against the Company and each Stockholder in accordance with its terms, and the Warrants have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as enforceability (a) may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles and (b) to the extent the indemnification provisions contained in Article 8 hereof may be limited by applicable federal or state securities laws. (6) The Closing Shares constitute, the Series A Warrant Shares, when issued, sold and delivered in accordance with the terms of the Series A Warrant for the consideration set forth therein will constitute, and the Series B Warrant Shares when issued sold and delivered in accordance with the terms of the Series B Warrant for the consideration set forth therein, will constitute, duly and validly authorized and issued, fully paid, and nonassessable shares of Common Stock. The Company has duly and validly reserved 100,000 shares of the Common Stock for issuance upon the exercise of the Series A Warrant and 83,333 shares of Common Stock for issuance upon the exercise of the Series B Warrant. (7) None of the execution and delivery of this Agreement by the Company, the issuance and sale of the Shares, the issuance and delivery of the Warrants, or the consummation of the transactions contemplated hereunder, will (i) conflict with or result in a breach or violation of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon, any of the properties or assets of the Company pursuant to the Articles of Incorporation or Bylaws of the Company or any indenture, mortgage, lease, loan agreement or other agreement or instrument known to such counsel to which the Company is a party or by which it is bound or to which any of its properties or assets is subject or (ii) violate any law, statute, rule, regulation, judgment or decree applicable to the Company. Except as set forth in Exhibit G hereto, no third party consents are required by the terms of any indenture, mortgage, lease, loan agreement or other agreement or instrument known to such counsel to which the Company is a party or by which it is bound or to which any of its properties or assets is subject for the execution and delivery of this Agreement, the issuance of the Shares, the 23 issuance and delivery of the Warrants, or the consummation of the transactions provided for herein. (8) No consent, approval or authorization of, or declaration to or filing with, any governmental or regulatory authority is required for the valid execution and delivery by the Company of this Agreement, the issuance and sale of the Shares, or the issuance and delivery of the Warrants or the consummation of the transactions provided for herein or therein except the filing of any notice of sale required to be filed with under Regulation D adopted by the Commission or such post-closing filings as may be required under applicable Blue Sky Laws. (9) To the knowledge of such counsel and except as set forth in Schedule 3.16, there is no action, suit, proceeding, or investigation pending or threatened, against or affecting the Company that questions the validity of this Agreement or the right of the Company to enter into this Agreement or to consummate the transactions contemplated hereby or that might result, either individually or in the aggregate, in any material adverse change in the assets, business, properties, prospects, financial condition or operating results of the Company, or in any material change in the current equity ownership of the Company. To the knowledge of such counsel, the Company is not a party to or named in any order, writ, injunction, judgment or decree of any court, governmental agency, or instrumentality. To the knowledge of such counsel, there is no action, suit or proceeding by the Company currently pending or that the Company currently intends to initiate. (k) Amendment of License Agreement. The Company and the Licensor shall have executed and delivered an Amendment No. One, Waiver and Consent to the License Agreement, in the form of Exhibit J hereto. (l) Certificate and Estoppel The Licensor shall have executed and delivered to the Purchaser a Licensor's Estoppel Certificate, dated the Closing Date, and in the form of Exhibit K hereto. (m) Consents and Approvals. All consents and approvals of any third parties required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby shall have been obtained and delivered to the Purchaser. (n) No Litigation. No action, suit or proceeding shall be pending or threatened by or before any court or governmental body in which an unfavorable judgment, order or decree would prevent any of the transactions contemplated hereby or cause any such transaction to be declared unlawful or rescinded or which could 24 reasonably be expected to materially and adversely affect the assets, financial condition or results of operations of the Company, and no temporary restraining order or injunction shall have been issued by any such court or governmental authority restraining or prohibiting the performance of this Agreement or the consummation of any of the transactions contemplated hereby. (o) Termination of Shareholders Agreement. There shall have been delivered to the Purchaser the written confirmation of the Stockholders, in form and substance satisfactory to the Purchaser and its counsel, of the termination of the Shareholders Agreement. (p) Cancellation of Indebtedness. There shall have been delivered to the Purchaser evidence in form and substance satisfactory to the Purchaser and its counsel of the cancellation of indebtedness from the Company to Gerald D. Appel in the aggregate principal amount of $212,590 in consideration of the issuance by the Company to Gerald D. Appel of 144,619 shares of Common Stock. (q) Payment of Fees. The Company shall have paid the estimated fees and disbursements of Pircher, Nichols & Meeks, special counsel to the Purchaser, through the Closing Date. (r) Delivery of Certificates. The Company shall have delivered to the Purchaser the certificate(s) representing the Closing Shares in accordance with the provisions of Section 2.01. (s) Proceedings and Documents. All corporate and other proceedings to be taken by the Company or any Stockholders in connection with this Agreement and the consummation of the transactions contemplated hereby and all documents and instruments delivered by the Company or any Stockholder in connection therewith shall be in form and substance reasonably satisfactory to the Purchaser and its counsel, and the Purchaser shall have received such other documents and instruments as it may reasonably request in connection therewith. ARTICLE 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY 6.01 CLOSING. The obligation of the Company to sell the Closing Shares is subject to the satisfaction at or prior to the Closing Date of each of the following conditions (compliance with which or the occurrence of which may be waived in whole or in part by the Company): (a) Accuracy of Representations and Warranties. The representations and warranties of the Purchaser contained herein shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. 25 (b) Consideration. The Purchaser shall have tendered the purchase price for the Closing Shares in accordance with the provisions of Section 2.01. ARTICLE 7. COVENANTS 7.01 AFFIRMATIVE COVENANTS. The Company covenants and agrees that until the earlier of (1) the consummation of a Qualified Public Offering and (2) the date that the Holders of Registrable Securities hold fewer than 250,000 Shares: (a) Corporate Existence. The Company will, and will cause each of its subsidiaries (if any) at all times to maintain, preserve and renew its respective corporate existence, rights and franchises and all licenses and other rights to use patents, processes, licenses, trademarks, trade names, or copyrights owned or possessed by it and deemed by the Company to be necessary to the conduct of its business except that the Company may dissolve Ontco. (b) Financial Statements. (1) as soon as practicable after the end of each fiscal year of the Company, and in any event within 90 days thereafter, (A) a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants selected by the Company and reasonably acceptable to the Purchaser; (B) a comparison of the financial statements for the most recent fiscal year to the financial plan required by Section 7.01(c) hereof and (2) as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year and to the Company's financial plan required by Section 7.01 (c) hereof, subject to changes resulting from normal year-end audit adjustments, all in reasonable detail and certified by the principal financial or accounting officer of the Company, except that such financial statements need not contain the notes required by generally accepted accounting principles; (C) as soon as practicable after the end of each month and in any event within 30 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such month and consolidated statements of income and cash flows for the Company 26 and its subsidiaries, if any, for such month and for the current fiscal year of the Company to date, all subject to year-end audit adjustments, prepared in accordance with generally accepted accounting principles consistently applied and certified by the principal financial or accounting officer of the Company, except that such financial statements need not contain the notes required by generally accepted accounting principles: and (D) with reasonable promptness, such other information and data with respect to the Company and its subsidiaries (if any) as any Holder may from time to time reasonably request. (c) Annual Budget. At least 60 days prior to the beginning of each fiscal year of the Company, the Company shall furnish to each Holder a financial plan of the Company for such fiscal year, which financial plan shall include at least a projection of income and a projected cash flow statement for each fiscal quarter in such fiscal year and a projected balance sheet as of the end of each fiscal quarter in such fiscal year. (d) Inspection. The Company shall permit each Holder and its representatives, counsel and accountants to visit and inspect the Company's and its subsidiaries' (if any) properties, to examine the Company's and its subsidiaries' (if any) books of account and records (including, without limitation, working papers), and to discuss the Company's and its subsidiaries' (if any) affairs, finances and accounts with their respective officers, all at such reasonable times as may be requested by such Holder. The foregoing rights shall be in addition to all shareholder rights conferred by law. (e) Taxes. The Company will, and will cause each subsidiary (if any) to, promptly pay and discharge, or cause to be paid and discharged, when due and payable, all taxes, assessments and governmental charges or levies imposed upon its income, profits, property, or business; provided, however, that any such tax, assessment, charge, or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if adequate reserves are established therefor in accordance with generally accepted accounting principles, and provided further, that the Company or any such subsidiary shall pay all such taxes, assessments, charges, or levies forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. (f) Maintenance of Properties. The Company will, and will cause each of its subsidiaries (if any) to, maintain their respective properties in good repair, working order, and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions, and improvements thereto. The Company will, and will cause each of its subsidiaries (if any) to, at all times comply with the provisions of all material leases to which it is a party or under which it 27 occupied property so as to prevent any loss or forfeiture thereof or thereunder. (g) Insurance. The Company will, and will cause each of its subsidiaries (if any) to, keep its assets that are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, extended coverage, and explosion insurance in amounts customary for companies in similar businesses similarly situated. The Company will, and will cause each of its subsidiaries (if any) to, maintain with financially sound and reputable insurers, insurance against other hazards, risks, and liabilities to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated. (h) Key-person Life Insurance. If requested by the Purchaser, the Company shall obtain from financially sound and reputable insurers term life insurance on the life of Gerald D. Appel in the amount of $1,000,000 and on the life of Daniel J. Levendowski in the amount of $1,000,000 and maintain such insurance unless otherwise agreed by the Purchaser. Such policies shall name the Company as loss payee and shall not be cancellable by the Company without the prior written approval of the Purchaser. (i) Books and Records. The Company will, and will cause each of its subsidiaries (if any) to, keep true records and books of account in which full, true and correct entries will be made of dealings and transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis. (j) Compliance. The Company will, and will cause each of its subsidiaries (if any) to, duly observe and conform to all valid requirements of governmental authorities relating to the conduct of its business or to its property or assets. (k) Use of Proceeds. The proceeds from the sale of the Closing Shares will be used for general corporate purposes. Notwithstanding the foregoing, none of such proceeds will be used (1) to repay indebtedness of the Company to Gerald D. Appel and Daniel J. Levendowski in excess of $68,500 in the aggregate or (2) to pay all or any part of the promissory notes described in Schedule 3.11 hereto. 7.02 NEGATIVE COVENANTS. The Company covenants and agrees that until the earlier of (1) the consummation of a Qualified Public Offering and (2) the date that the Holders of Registrable Securities hold fewer than 250,000 Shares: (a) Amendments. The Company will not amend or permit any amendment of its Articles of Incorporation. The Company will not amend or permit any amendment of its By-Laws in any manner which 28 would be materially adverse to the interests of the Holders of Registerable Securities. (b) Additional Stock. The Company will not authorize or issue any other class or series of stock in addition to Common Stock. (c) Dividends; Purchases. The Company will not, and will not permit any of its subsidiaries (if any) to, redeem, retire, purchase or otherwise acquire any shares of the Common Stock of the Company, and the Company will not declare or pay any dividend or make any other distribution on its Common Stock other than dividends payable solely in Common Stock and cash dividends payable out of retained earnings. (d) Loans and investments. The Company will not make, and will not permit any of its subsidiaries (if any) to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned, directly or indirectly, by the Company. (e) Loans and Advances. The Company will not, and will not permit any of its subsidiaries to, make any loan or advance to any Person, including, without limitation, any employee, officer, director or shareholder of the Company or any of its subsidiaries, except for advances for reimbursable expenses to be incurred by any such employee, officer, or director. (f) Guaranties. The Company will not, and will not permit any of its subsidiaries to, directly or indirectly, guaranty any indebtedness or other obligations of any Person. (g) Merger. The Company will not, and will not permit any of its subsidiaries (if any) to, merge with or into or consolidate with any other corporation or entity except that (i) any wholly-owned subsidiary of the Company may be merged with or consolidated into any other wholly-owned subsidiary and (ii) any wholly-owned subsidiary of the Company may be merged with or consolidated into the Company, provided that the Company shall be the surviving or resulting corporation. (h) Sale of Assets. The Company will not, and will not permit any of its subsidiaries (if any) to, sell, lease or otherwise dispose of, in any one transaction or in a series of related transactions, all or a substantial portion of its assets. (i) Compensation. The Company will not pay any salaries, bonuses, retirement benefits or other remuneration or grant any stock options, stock bonuses, or stock purchase plan rights to any Significant Stockholder of the Company or any subsidiary of the Company or any Affiliate of any of the foregoing except as approved by the unanimous vote of a Compensation Committee consisting of two certified public accountants and Howard Fullman (or if he is unable 29 or unwilling to serve, a successor approved by the Company and the Purchaser). (j) Partnerships, etc. The Company will not and will not permit any subsidiary to enter into any partnership, joint venture or other similar arrangement for the sharing of income, profits or expenses, with any Person except that the foregoing shall not prohibit (1) the payment of commissions or other compensation to sales representatives and agents or (2) other contracts (other than any direct or indirect debt or equity financing) entered into by the Company in the ordinary course of business. (k) Other Investors. The Company will not agree to affirmative or negative covenants more favorable to an equity investor in the Company than those contained in this Article 7. 7.03 Board Representation. The Company covenants and agrees that so long as the Purchaser is the owner of at least 50% of the Shares, upon the request of the Purchaser, the Company will use its best efforts to cause and maintain the election to the Board of Directors of the Company of such person as shall be designated in writing to the Company by the Purchaser from time to time. Each Shareholder agrees that (i) he will vote shares of the Common Stock of the Company (including the cumulation of votes as necessary) to assure the election and the maintenance of the election to the Board of Directors of the person so designated by the Purchaser from time to time and (ii) he will not vote any shares of the Common Stock of the Company owned by him (or give any consent, waiver or ratification with respect thereto) for, or otherwise permit the Company to take, any action which would be inconsistent with or violate any term, condition or provision of this Agreement or any other document or instrument required by this Agreement. ARTICLE 8. REGISTRATION UNDER THE SECURITIES ACT 8.01 NOTICE OF PROPOSED DISPOSITIONS. The Holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 8.01. Prior to any proposed disposition of any Restricted Securities (unless there is in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement) the holder thereof shall give written notice to the Company of such Holder's intention to effect such disposition. Each such notice shall describe the manner and circumstances of the proposed disposition, and shall be accompanied (except in transactions intended to comply with Rule 144) by either (a) a written opinion of legal counsel addressed to the Company and reasonably satisfactory in form and substance to the Company, to the effect that the proposed disposition of Restricted Securities may be effected without Registration of such Restricted Securities or (b) a "no action" letter from the Commission to the effect that 30 such disposition without Registration of such Restricted Securities will not result in a recommendation by the staff of the Commission that enforcement action be taken with respect thereto, whereupon the Holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the Holder to the Company. Each certificate evidencing the Restricted Securities disposed of as above provided shall bear the legend set forth in Section 4.06 of this Agreement, except that such certificate shall not bear such legend if (1) the opinion of counsel referred to above is to the further effect that such legend is not required in order to establish compliance with any provisions of the Securities Act, (2) the transfer is in connection with a transaction intended to comply with Rule 144, or (3) an appropriate registration statement with respect to such Restricted Securities has been filed by the Company with the Commission and has been declared effective by the Commission; in those events, the Company shall cause new unlegended certificates to be issued promptly to the Holder in exchange for outstanding legended certificates. 8.02 COMPANY REGISTRATION. (a) If at any time, or from time to time, the Company shall determine to Register any of its securities either for its own account for the account of any holder of its securities (including a Holder) (other than pursuant to Section 8.03 or 8.05 hereof), other than a Registration relating solely to employee benefit plans, or a Registration relating solely to a Rule 145 transaction or a Registration on any Registration form that does not permit secondary sales, the Company will: (1) promptly give to each Holder written notice thereof; (2) 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 20 days after receipt of such written notice from the Company, by any Holder or Holders, except as set forth in Section 8.02(b) hereof. Any such written request may specify all or a part of a Holder's Registrable Securities. (b) 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 part of the written notice given pursuant to Section 8.02(a) hereof. In such event, the right of a Holder to Registration pursuant to this Section 8.02 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall (together with the Company and the other holders 31 of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Section 8.02, if the underwriter advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the underwriter may limit the amount of Registrable Securities to be included in the Registration and underwriting, and the number of shares to be included in such underwriting or Registration shall be allocated as set forth in Section 13 hereof. 8.03 DEMAND REGISTRATION. (a) At any time following the earlier of (1) the fifth anniversary of the date of this Agreement, and (2) one year after the effective date of the first registration statement filed by the Company covering an underwritten offering of any of its securities to the public, if the Company shall receive a written request (specifying that it is being made pursuant to this Section 8.03) from any Holder or Holders that the Company file a registration statement under the Securities Act covering the Registration of at least 50% of the Registrable Securities, then the Company shall promptly notify all other Holders of such request and shall use its best efforts to cause all Registrable Securities that Holders have requested within 20 days after receipt of the Company's notice to be registered under the Securities Act. The Company shall be obligated to effect no more than two Registrations pursuant to this Section 8.03 and the Company shall not be obligated to effect any Registration pursuant to this Section 8.03 if the written request therefor is made within 12 months following the effective date of any previous registration statement filed by the Company pursuant to this Section 8.03. (b) Notwithstanding the foregoing, the Company shall not be obligated to effect a Registration pursuant to Section 8.03(a) with respect to a proposed distribution of Registrable Securities by a Holder thereof (1) during the period starting with the date 30 days prior to the Company's estimated date of filing of, and ending on a date 90 days following the effective date of, a registration statement pertaining to an underwritten public offering of securities for the account of the Company, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective and that the Company's estimate of the date of filing of such Registration is made in good faith; (2) within a period of 180 days after the effective date of any previous Registration by the Company with respect to which Holders of Registrable Securities were given the opportunity pursuant to this Article 8 of this Agreement, to include therein all Registrable Securities which were requested to be included therein; (3) if the Holders propose to dispose of 32 Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 8.05 hereof; or (4) if (i) in the good faith judgment of the Board of Directors of the Company, such Registration would be seriously detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is essential to defer the filing of a registration statement with respect to such Registration at such time, and (ii) the Company shall furnish to the Holders requesting such Registration a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Director of the Company it would be seriously detrimental to the Company for such registration statement to be filed in the near future, and that it is, therefore essential to defer such filing (except as provided in clause (1) above) for a period of not more than 180 days after the receipt of the such request, and provided further, that the Company may not defer its obligation in the manner provided in this clause (4) more than once in any 12-month period. (c) Any Registration statement filed pursuant to this Section 8.03 may, subject to the provisions of Section 8.13 hereof, include other securities of the Company with respect to which registration rights have been granted. 8.04 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any Registration, qualification or compliance pursuant to Sections 8.02, 8.03 and 8.04 hereof, shall be borne by the Company. All Selling Expenses relating to the Registrable Securities so Registered shall be borne by the Holders of such Registrable Securities pro rata on the basis of the number of shares of Registrable Securities so Registered on their behalf. 8.05 REGISTRATION ON FORM S-3. After its initial public offering, the Company shall use its best efforts to quality for registration on Form S-3 or any comparable or successor form or forms. After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Article 8, the Holders of Registrable Securities shall have the right to request registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Holder or Holders), provided, however, that the Company shall not be obligated to effect any such Registration if (1) the Company shall have delivered to such Holder an opinion of counsel to the Company, addressed to such Holder and reasonably satisfactory in form and substance to such Holder to the effect that such Registrable Securities proposed to be included may lawfully be so disposed of without Registration or (2) within a period of 180 days after the effective date of any previous such Registration. If a request complying with the requirements of this Section 8.04 is delivered to the Company, the provisions of Section 8.03(a) shall apply to such Registration. 33 8.06 REGISTRATION PROCEDURES. In the case of each Registration effected by the Company pursuant to this Article 8, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will: (a) Keep such registration effective for a period of 180 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided, however, that (i) such 180-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such Registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 180-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 145, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment that (1) includes any prospectus required by Section 10(a)(3) of the Securities Act or (2) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (1) and (2) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement; (b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (c) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (d) Register or qualify the securities covered by such registration statement under the Blue Sky Laws of such jurisdictions as shall be reasonably appropriate for the distribution of the securities covered thereby; (e) At the time when any Registration statement pursuant to this Section 8 becomes effective, and at the time when any post-effective amendment thereto becomes effective, furnish to the Holder or Holders of the Registrable Securities being registered under such Registration statement, an opinion of counsel 34 satisfactory to such Holder or Holders to the effect that (1) to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (2) the Registration statement and the prospectus, and each amendment or supplement thereto, as of their respective effective or issue dates, comply as to form in all material respects with the requirements of the Securities Act, (3) such counsel has no reason to believe that the Registration statement, the prospectus, or any amendment or supplement thereto, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (4) the descriptions in the Registration statement, the prospectus and any amendment or supplement thereto of statutes, legal and governmental proceedings, and contracts or other documents are accurate and fairly present the information required to be shown, and such counsel does not know of any legal or governmental proceedings required to be described in the Registration statement, the prospectus or any amendment or supplement thereto which are not described as required, nor of any contracts or documents of a character required to be described in the Registration statement or prospectus or any amendment or supplement thereto, or to be filed as exhibits to the Registration statement which are not described and filed as required, provided that such counsel need not express any opinion as to the financial statements and schedules included in or omitted from any such Registration statement, prospectus or amendment or supplement thereto. (f) Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such statements therein not misleading or incomplete in the light of the circumstances then existing; (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; 35 (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (i) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11 (a) of the Securities Act; and (j) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 8.03 hereof, the Company will enter into an underwriting agreement in form reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains customary underwriting provisions and provided further than if the underwriter so requests the underwriting agreement will contain customary contribution provisions. 8.07 FURNISH INFORMATION. The Holder or Holders of Registrable Securities included in any Registration shall furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be reasonably required in connection with any Registration, qualification or compliance referred to in this Article 8. 8.08 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers, directors and partners, legal counsel, and accountants 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 Article 8; and each underwriter, if any, and each Person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular, or other document (including any related registration statement, notification, or the like) 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 not misleading, or any violation by the Company of the Securities Act or any rule or regulation 36 thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such Registration, qualification, or compliance; and will reimburse each such Holder, each of its officers, directors, partners, legal counsel, and accountants 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 and defending or settling any such claim, loss, damage, liability, or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section 8.08(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent has not been unreasonably withheld). (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such Registration, qualification, or compliance is being effected, indemnify the Company, each of its directors, officers, partners, legal counsel, and accountants and each underwriter, if any, of the Company's securities covered by such a registration statement, each Person who controls the Company of such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder, and each of their officers, directors, and partners, and each person controlling such Holder against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, directors, officers, partners, legal counsel, and accountants, persons, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided that in 37 no event shall any indemnity under this Section 8.08(b) exceed the gross proceeds from the offering received by such Holder. (c) Each party entitled to indemnification under this Section 8.08 (the "Indemnified Party") shall give notice to the party required to provide indemnity (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 such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, 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 Article 8, to the extent such failure is not prejudicial. 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 that 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. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 8.08 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party hereunder as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) The obligations of the parties under this Section 8.08 shall survive the completion of the offering of Registrable Securities under the registration statement and, otherwise. 38 8.09 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of a majority in interest of the Holders, enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are more favorable than the registration rights granted to the Holders hereunder. 8.10 RULE 144 REPORTING. With a view to making available to the Holders the benefits of certain rules and regulations of the Commission that may permit the sale of the Restricted Securities to the public without registration, the Company agrees, so long as any Holder owns Registrable Securities: (a) Make and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after 90 days following the effective date of the first Registration under the Securities Act filed by the Company for a public offering of its securities; (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; (c) Furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following 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 so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 8.11 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights of any Holder under this Agreement including, without limitation, the registration rights under Article 8 and the rights of first refusal under Article 9 may be transferred or assigned by a Holder only to a transferee or assignee of not less than 25,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like), provided that the Company is given written notice at the time of or within a reasonable time after said transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect 39 to which such registration rights are being transferred or assigned. 8.12 LOCKUP AGREEMENT. The Holder of each certificate representing Registrable Securities by acceptance thereof agrees in connection with any Registration of the Company's securities that, upon the request of the Company or the underwriter(s) managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in such Registration) without the prior written consent of the Company or such underwriter(s), as the case may be, for such period of time (not to exceed 180 days) from the effective date of such Registration as the Company or the underwriter(s) may specify, provided that all Holders and officers and directors of the Company are bound by and have entered into similar agreements. The obligations described in this Section 8.12 shall not apply to a Registration relating solely to employee benefit plans on Form S-1 or S-8 or similar forms that may be promulgated in the future or a Registration relating solely to a Rule 145 transaction on Form S-4 or any similar form promulgated in the future. 8.13 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in which all of the Registrable Securities and other shares of Common Stock of the Company (including shares of Common Stock issued or issuable upon conversion of shares of any currently unissued series of Preferred Stock of the Company) with Registration rights (the "Other Shares") requested to be included in a Registration on behalf of the Holders or other selling stockholders cannot be so included as a result of limitations on the aggregate number of shares of Registrable Securities and Other Shares that may be so included, the number of shares of Registrable Securities and Other Shares that may be so included shall be allocated among the Holders and other selling stockholders requesting inclusion of shares pro rata based upon total number of shares requested to be so included. In the event a Holder or other selling stockholder subsequently withdraws or reduces a request for inclusion in such Registration, the number of shares which may be so included shall be re-allocated in the same manner. The Company may not limit the number of Registrable Securities to be included in a Registration pursuant to this Agreement in order to accommodate the request of any Significant Stockholder to include more than 25% (prior to the application of the pro rata allocations provided for above) of the shares of Common Stock held by such Significant Stockholder, or with respect to Registrations under Section 8.03 or 8.06 hereof, in order to include in such Registration securities registered for the Company's own account. 8.14 DELAY OF REGISTRATION. No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Article 8. 40 8.15 SUSPENSION OF REGISTRATION RIGHTS. Except as set forth in subparagraph (b) below, no Holder may request Registration pursuant to Section 8.03 at any time that all Registrable Securities held by such Holder may immediately be sold under Rule 144 during any 90-day period, provided, however, that the foregoing shall not be applicable in the case of any Holder who owns more than 2% of the outstanding Common Stock of the Company. (b) The provisions of subparagraph (a) above shall not apply to any Holder who owns more than 2% of the Company's outstanding Common Stock at the time of determination. ARTICLE 9. RIGHT OF FIRST REFUSAL 9.01 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Holder who owns any Registrable Securities the right of first refusal to purchase a pro rata share of New Securities (as defined in this Section 9.01) which the Company may, from time to time, propose to sell and issue. A Holder's pro rata share, for purposes of this right of first refusal, is the ratio of the number of shares of Common Stock owned by such Holder immediately prior to the issuance of New Securities, assuming full conversion of all outstanding securities convertible into Common Stock and exercise of any option or warrant to purchase Common Stock held by said Holder, to the total number of shares of Common Stock outstanding immediately prior to the issuance of New Securities, assuming full conversion of all securities convertible into Common Stock and exercise of all outstanding rights, options and warrants to acquire Common Stock. Each Holder shall have a right of over-allotment such that if any Holder fails to exercise its right hereunder to purchase its pro rata share of New Securities, the other Holders may purchase the non-purchasing Holder's portion on a pro rata basis within ten days from the date such non-purchasing Holder fails to exercise its right hereunder to purchase its pro rata share of New Securities. This right of first refusal shall be subject to the following provisions: (a) "New Securities" shall mean any capital stock (including Common Stock and/or Preferred Stock) of the Company whether now authorized or not, and rights, options or warrants to purchase such capital stock, and securities of any type whatsoever that are, or may become, convertible into capital stock; provided that the term "New Securities" does not include (1) securities issued upon exercise of the Warrants; (2) securities issued upon the exercise of any warrants or options described in Exhibit F hereto; (3) any borrowings, direct or indirect, from financial institutions or other Persons by the Company, whether or not presently authorized, including any type of loan or payment evidenced by any type of debt instrument, provided such borrowings do not have any equity features including warrants, options or other rights to purchase capital stock and are not convertible into capital stock of the Company; (4) not in excess of an aggregate of 400,000 shares of 41 Common Stock issued to employees, consultants, officers or directors of the Company pursuant to any stock option, stock purchase or stock bonus plan, agreement or arrangement approved by the Board of Directors; (5) securities issued in connection with any stock split, stock dividend or recapitalization of the Company; and (6) any right, option or warrant to acquire any security convertible into the securities excluded from the definition of New Securities pursuant to subsections (1) through (5) above. (b) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Holder written notice of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. Each Holder shall have 20 days after receipt of such notice to agree to purchase such Holder's pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. (c) In the event the Holders fail to exercise the right of first refusal within said 20-day period and after the expiration of the ten-day period for the exercise of the over-allotment provisions of this Section 9.01, the Company shall have 120 days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within 120 days from the date of said agreement) to sell the New Securities respecting which the Holders' right of first refusal option set forth in this Section 9.01 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice to Holders pursuant to subsection (b) above. In the event the Company has not sold within said 120-day period or entered into an agreement to sell the New Securities in accordance with the foregoing within 120 days from the date of said agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Holders in the manner provided in subsection (b) above. (d) The right of first refusal granted under this Agreement shall expire upon, and shall not be applicable to, the first Qualified Public Offering provided that the Holders are offered the opportunity to purchase, in whole or in part, 10% of the Common Stock being sold in such sale. ARTICLE 10. MISCELLANEOUS PROVISIONS 10.01 SURVIVAL. All covenants, agreements, representations and warranties of the Company, the Stockholders and the Purchaser contained in or made pursuant to this Agreement shall survive the Closing and the sale, issuance and delivery of the Purchased Shares notwithstanding any investigation made by or on behalf of the Purchaser, the Company or any Stockholder. 42 10.02 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of 66 2/3% or more of the Registerable Securities, provided that no consent under this Section 10.02 shall alter the provisions of this Agreement to reduce the percentage of the Registrable Securities which is required for any consent to any amendment or waiver without the consent of the Holders of all Registerable Securities. Any amendment or waiver effected in accordance with this Section 10.02 shall be binding upon each Holder of Purchased Securities, each future Holder of Purchased Securities and the Company. 10.03 NON-WAIVER. No failure by or neglect of any party to this Agreement in any instance to exercise any right, power or privilege under this Agreement or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. 10.04 PAYMENT OF EXPENSES. Except as expressly provided in this Agreement to the contrary, whether or not the transactions contemplated by this Agreement are consummated, each party to this Agreement shall pay the fees and expenses of its counsel, accountants and other experts and all other expenses incurred by it, incident to the negotiation, preparation and execution of this Agreement and the performance by it of its obligations hereunder except that the Company shall pay the reasonable fees and disbursements of Pircher, Nichols & Meeks, special counsel to the Purchaser, incurred by the Purchaser in connection with the negotiation, preparation and execution of this Agreement. 10.05 NOTICES. All notices or other communications hereunder shall be in writing and shall be sufficiently given for all purposes when sent by first class United States mail, postage prepaid, registered or certified, or by any national express air courier which courier shall maintain written verification of actual delivery, or by delivering the same in person to any party hereto as follows: If to the Purchaser to: Ontario Municipal Employees Retirement Board One University Avenue, Suite 1000 Toronto, Ontario M5J 2P1 Canada Attention: Peter D. Friend with a copy to: Pircher, Nichols & Meeks 1999 Avenue of the Stars 43 Los Angeles, California 90067 USA Attention: Larry M. Meeks, Esq. If to the Company to: Myo Diagnostics, Inc. 3710 South Robertson Boulevard, Suite 212 Culver City, California 90232 USA Attention: Gerald D. Appel President With a copy to: Pillsbury, Madison & Sutro 725 S. Figueroa Street, Suite 1200 Los Angeles, California 90017 USA Attention: Blase P. Dillingham, Esq. or at such other address of which any such party shall have notified the party giving such notice in writing in accordance with the foregoing requirements. Notice so mailed shall be effective three Business Days following deposit or, if sooner, upon receipt. Notice given in any other manner permitted herein shall be effective only if and when received by the addressee. 10.06 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors, assigns, heirs, executors, and legal representatives but shall not be assignable or delegable by any party without the prior written consent of the other parties hereto except that the Purchaser may assign its rights under this Agreement to any Affiliate of the Purchaser and as provided in Sections 8.11 and 9.01 of this Agreement. This Agreement is not made for the benefit of any Person not a party hereto, and no Person other than the parties hereto or their respective successors, permitted assigns, heirs, or legal representatives shall acquire or have any right, remedy or claim under or by virtue of this Agreement. 10.07 SEVERABILITY. 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. 10.08 ENTIRE AGREEMENT. This Agreement and the documents and instruments referred to herein contain the complete agreement 44 among the parties with respect to the transactions contemplated hereby and supersede all previous negotiations, understandings, agreements, or representations, written or oral, made by or among the parties, relating thereto. 10.09 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into and to be performed within such state. 10.10 HEADINGS. The headings and subheadings used in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 10.11 ATTORNEYS' FEES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and disbursements in addition to any other relief to which such party may be entitled. 10.12 ADJUSTMENTS. In interpreting any provision of this Agreement which refers to a specific number of shares of Purchased Securities, such number shall be appropriately adjusted to account for stock splits, combinations and like events which may occur from time to time. 10.13 COUNTERPARTS. This Agreement may be executed in two or more counterparts and by different parties in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 45 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. MYO DIAGNOSTICS, INC. By/S/ Gerald D. Appel -------------------------------------- Gerald D. Appel President /S/ Gerald D. Appel ---------------------------------------- GERALD D. APPEL /S/ Hershel Toomim ---------------------------------------- HERSHEL TOOMIM ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD By/S/ Peter D. Friend -------------------------------------- Peter D. Friend Portfolio Manager By/S/ Henry A. Rachfalowski -------------------------------------- Henry A. Rachfalowski Vice President 46 EX-10.4 8 EXHIBIT 10.4 SECURITIES PURCHASE AGREEMENT This SECURITIES PURCHASE AGREEMENT, is entered into as of August 18, 1995, by and among MYO DIAGNOSTICS, INC., a California corporation (the "Company") and ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD (the "Purchaser") and GERALD D. APPEL (the "Stockholder"). In consideration of the premises and the mutual promises, representations, warranties, covenants and conditions set forth below, the parties hereto agree as follows: ARTICLE 1. CERTAIN DEFINITIONS 1.01 CERTAIN DEFINITIONS. For the purposes of this Agreement, the following terms shall have the following meanings: "Additional Shares" shall have the meaning set forth in Section 2.03. "Affiliate" of a specified Person means any Person who directly or indirectly controls or is controlled by, or is under common control with, such specified person. "Agreement" or this "Agreement" means this Securities Purchase Agreement including any Exhibits hereto. "Blue Sky Laws" means the securities laws and regulations of any political subdivision of the United States. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in Los Angeles, California, USA or Toronto, Ontario, Canada are authorized by law to close. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "Closing" shall have the meaning set forth in Section 2.01. "Closing Date" means 9:00 a.m., Los Angeles time, on August 18, 1995, or such later date as shall be agreed upon by the Company and the Purchaser. "Closing Shares" shall have the meaning set forth in Section 2.01. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" means the Common Stock of the Company. "Company Financial Statements" means (i) the audited balance sheet of the Company as at December 31, 1994, and the related audited statements of operations, shareholders' deficit and cash flows for the year then ended, together with the notes thereto and the report of Lever, Lippe, Hellie & Kaplan thereon, (ii) the unaudited balance sheets of the Company as at January 31, 1995, February 28, 1995 and March 31, 1995, and the unaudited income statement of the Company for the three months ended March 31, 1995, and (iii) the unaudited balance sheets of the Company as at May 31, 1995, and June 30, 1995, and the unaudited income statements of the Company for the months of May and June, 1995, copies of which are attached hereto as Exhibit A. "Environmental Damages" means all claims, judgments, damages, losses, penalties, fines, liabilities, encumbrances, taxes, fees, liens, costs and expenses of investigation and defense of any claim, whether or not such claim is ultimately defeated, including without limitation reasonable attorneys' fees and disbursements and consultants' fees, any of which are incurred at any time as a result of the existence or alleged existence of Hazardous Material in, on, under or migrating to or from the Real Property or the existence or alleged existence of a violation or obligation arising under any Environmental Requirements. "Environmental Requirements" means all applicable statutes, laws, regulations, rules, ordinances, codes, licenses, permits, orders, standards, guidelines, policies and similar items of any governmental authority having jurisdiction and all applicable judicial, administrative and regulatory decrees, judgments and orders and common law relating to the protection of human health or the environment including, without limitation, all requirements pertaining to the reporting, licensing, permitting, use, handling, generation, storage, treatment, transportation, disposal, release, discharge, investigation and remediation of Hazardous Material. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person who is a member of the Company's controlled group, or under common control with the Company, within the meaning of Section 414 of the Code and the regulations promulgated and rulings issued thereunder. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar successor federal statute, and the rules and regulations thereunder, all as the same shall be in effect from time to time. "Hazardous Material" means any substance (i) the presence of which requires reporting, investigation or remediation under any applicable statute, regulation, ordinance, order, action, policy or common law; or (ii) which is defined as a "hazardous waste", "hazardous substance", pollutant or contaminant under any statute, regulation, rule, or ordinance of any governmental authority having jurisdiction; or (iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated by any governmental authority having jurisdiction; or (iv) the presence of which on the Real Property causes or threatens to cause a nuisance upon the Real Property or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about the Real Property. "Holder" means the Purchaser and any holder of Registrable Securities to whom the Registration rights conferred by this Agreement have been transferred in compliance with Section 8.11 of this Agreement. "Hydra Transaction" means the subscription for, and sale by the Company of, 125,000 shares Common Stock, together with warrants to acquire an additional 200,000 shares of Common Stock pursuant to the terms and provisions of that certain Subscription Agreement, dated as of August 18, 1995, between the Company, Hydra Capital Corporation, and Gerald D. Appel. "Indemnified Party" shall have the meaning set forth in Section 8.08(c). "Indemnifying Party" shall have the meaning set forth in Section 8.08(c). "Latest Balance Sheet" means the latest balance sheet of the Company included in the Company Financial Statements. "License Agreement" means that certain Licensing Agreement, dated as of October 31, 1993, by and between the Company and the Licensor, as amended by Amendment No. One, Waiver & Consent, dated as of December 23, 1994.. "Licensor" means Toomim Research Group, a partnership. "Ontco" means 1020826 Ontario Inc., a corporation incorporated under the laws of the Province of Ontario, Canada. "Ontco Revenue Sharing Agreement" means that certain Agreement, dated as of June 1, 1993, between the Partnership, the Company and Ontco. "Partnership" means MYO Diagnostics, A Limited Partnership, a California partnership. "Partnership Agreement" means the Partnership's Agreement of Limited Partnership, dated as of September 17, 1991, as amended by Amendment to the Agreement of Limited Partnership, dated as of May 20, 1993, Amendment B to the Agreement of Limited Partnership, dated as of December 30, 1993, and Amendment C to Agreement of Limited Partnership, dated as of November 20, 1994. "Person" means an individual, firm, corporation, division, operation, partnership, joint venture, trust, unincorporated association, government or any agency or political subdivision thereof, or any other entity. "PN&M Fees" shall have the meaning set forth in Section 10.04. "Proprietary Rights" means patents, inventions, shop rights, knowhow, trade secrets, confidentiality agreements and confidential information; registered and unregistered trademarks, service marks, logos, corporate names, trade names, and other trademark rights; registered and unregistered copyrights; and all registrations for, and applications for registration of, any of the foregoing. "Prior Agreement" means that certain Securities Purchase Agreement, dated as of December 23, 1994, by and among the Company, the Purchaser, the Stockholder, and Hershel Toomim. "Purchased Securities" means the Closing Shares, the Additional Shares, the Series C Warrant, and the Series C Warrant Shares. "Qualified Public Offering" means a firm commitment underwritten offer and sale by the Company of its Common Stock pursuant to a Registered public offering for an aggregate price to the public of not less than $5,000,000. "RCRA" means the Resource Conservation and Recovery Act of 1976, as amended. "Real Property" means any real property owned or leased by the Company. "Register", "Registered" and "Registration" shall 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, "Registerable Securities" means (i) the 680,741 shares of Common Stock issued and sole by the Company to the Purchaser pursuant to the Prior Agreement, (ii) the Series A Warrant Shares, (iii) the Series B Warrant Shares, (iv) the Shares and (v) any Common Stock issued as a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referred to in the foregoing clause (i), (ii), (iii) and (iv) provided, however, that Registerable Securities shall not include any shares of Common Stock which have been previously Registered and sold to the public or which have been sold in a private transaction in which the transferor's rights under this Agreement were not transferred. "Registration Expenses" means all expenses incurred in effecting any Registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, fees under Blue Sky Laws, and expenses of any regular or special audits incident to or required by any such Registration, and fees and disbursements of one counsel for the selling Holders, but shall not include Selling Expenses, fees and disbursements of additional counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event by the Company. "Restricted Securities" means any Registrable Securities required to bear the legend set forth in Section 4.06 of this Agreement. "Rule 144" means Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. "Rule 145" means Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. "Securities Act" means the Securities Act of 1933, as amended, and any similar successor federal statute and the rules and regulations thereunder, all as the same may be in effect from time to time. "Selling Expenses" means all underwriting discounts and selling commission applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than fees and disbursements of counsel included in Registration Expenses.) "Series A Warrant" means that certain Series A Warrant, dated December 23, 1994, for 100,000 shares of Common Stock, issued by the Company to the Purchaser, as the same may be amended from time to time, and any warrant or warrants issued in exchange therefor or in substitution thereof. "Series A Warrant Shares" means the shares of Common Stock issued or to be issued upon exercise of the Series A Warrant. "Series B Warrant" means that certain Series B Warrant, dated December 23, 1994, for 83,333 shares of Common Stock, issued by the Company to the Purchaser, as the same may be amended from time to time, and any warrant or warrants issued in exchange therefor or in substitution thereof. "Series B Warrant Shares" means the shares of Common Stock issued or to be issued upon exercise of the Series B Warrant. "Series C Warrant" shall have the meaning set forth in Section 5.01(i). "Series C Warrant Shares" means the shares of Common Stock issued or to be issued upon exercise of the Series C Warrant. "Shares" means the Closing Shares, the Additional Shares, and the Series C Warrant Shares. "Significant Stockholder" means any stockholder (or one of a number of stockholders acting in concert) who beneficially owns, or in the aggregate with other stockholders acting in concert, directly or indirectly, more than 5% of the outstanding Common Stock or rights, options or warrants to acquire the same. "Taxes" means all federal, state, county, local, foreign and other taxes and governmental assessments, including but not limited to, income taxes, estimated taxes, withholding taxes, transfer taxes, excise taxes, real and personal property taxes, ad valorem taxes, payroll-related taxes, employment taxes, franchise taxes and import duties, together with any related liabilities penalties, fines, additions to tax and interest. "Tax Returns" means the Partnership's Form 1065 U.S. Partnership Return of Income for the period January 1, 1994, through December 18, 1994, and the Company's Form 1120 U.S. Corporation Income Tax Return for the year ended December 31, 1994, copies of which are attached hereto as Exhibit B. ARTICLE 2. PURCHASE AND SALE OF SECURITIES 2.01 CLOSING. On the terms and subject to the conditions set forth in this Agreement, at a closing (the "Closing") to be held on the Closing Date, and in reliance on the representations and warranties contained in this Agreement, the Company shall issue, sell and deliver to the Purchaser, and the Purchaser shall purchase from the Company, 111,111 shares of Common Stock (the "Closing Shares") for an aggregate purchase price of $200,000. At the Closing, the Company shall issue and deliver to the Purchaser upon tender of the purchase price therefor, one or more certificates representing the Closing Shares. 2.02 ADDITIONAL SHARES. In the event that the PN&M Fees exceed $7,500, provided that the Closing has occurred and in reliance on the representations and warranties contained in this Agreement, the Company shall issue, sell and deliver to the Purchaser, and the Purchaser shall purchase from the Company such number of additional shares of Common Stock (the "Additional Shares") as shall equal the number of shares (rounded to the nearest full share) obtained by dividing the difference between the PN&M Fees and $7,500 by a per share purchase price of $1.80. Such purchase and sale shall occur promptly following the determination of the PN&M Fees, and the Company shall deliver to the Purchaser a certificate representing the Additional Shares against receipt of payment of an amount equal to the number of Additional Shares times $1.80. 2.03 PLACE OF CLOSING. On the terms and subject to the conditions set forth in this Agreement, the Closing shall be held at the offices of Pircher, Nichols & Meeks, 1999 Avenue of the Stars, Los Angeles, California 90067 or at such other place as shall be mutually agreed upon by the Company and the Purchaser. ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER AND THE COMPANY The Company and the Stockholder, jointly and severally, represents and warrants to the Purchaser as follows: 3.01 ORGANIZATION AND GOOD STANDING, ETC. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has all requisite corporate power and authority to own and lease its properties and to carry on its business as presently conducted and as proposed to be conducted. The Company is duly registered or qualified and in good standing as a foreign corporation in each jurisdiction where the ownership or leasing of its properties or the conduct of its business makes such registration or qualification necessary. The copies of the Company's Articles of Incorporation and Bylaws which have been furnished to Pircher, Nichols & Meeks, special counsel for the Purchaser, include all amendments made thereto at any time prior to the date of this Agreement and are correct and complete. Exhibit C hereto sets forth a true and complete list of the names of all directors of the Company and the names and offices held of all officers of the Company. 3.02 SUBSIDIARIES. The Company does not own, beneficially or of record, any shares or capital stock of, or hold any other equity interest in, any Person, is not committed to purchase or acquire any such interest, and is not a participant in any joint venture, partnership or similar arrangement except that the Company is the legal and beneficial owner of all of the outstanding shares of Ontco. To the best knowledge of the Company and the Stockholder, (1) Ontco is a corporation duly organized, validly existing and in good standing under the laws of the Provence of Ontario, Canada, and has all requisite corporate power and authority to own and lease its properties and to carry on its business; (2) the only business conducted by Ontco was to enter into the Ontco Revenue Sharing Agreement, which has been terminated; and (3) Ontco has no assets or liabilities. 3.03 DISSOLUTION OF THE PARTNERSHIP. The Company has purchased all of the Units held by all of the Unit Holders (as such terms are defined in the Partnership Agreement) in consideration of the issuance by the Company to the Unit Holders of an aggregate of 420,000 shares of Common Stock, no distributions or other amounts are due from the Partnership or the Company to the Unit Holders, the Partnership has been dissolved in accordance with the provisions of the Partnership Agreement and/or California law, all of the assets (including, without limitation, the License Agreement) of the Partnership have been distributed to the Company, and the Company has assumed all of the liabilities of the Partnership. 3.04 CAPITALIZATION. The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, of which 6,282,410 shares are issued and outstanding, not including any shares issued or to be issued pursuant to the Hydra Transaction. The outstanding shares of Common Stock are owned by the stockholders and in the numbers set forth in Exhibit D hereto. Except for the Hydra Transaction, the Series A Warrant and the Series B Warrant and except as set forth in Exhibit E hereto, there are no authorized, issued or outstanding options, warrants, conversion privileges, preemptive rights or other rights, agreements, arrangements or understandings (whether or not presently exercisable) to purchase or otherwise acquire any Common Stock or other securities of the Company or other securities convertible into or evidencing the right to purchase or otherwise acquire any shares of such stock or other securities except for the rights in favor of the Purchaser created by this Agreement. All of the issued and outstanding shares of Common Stock are, and all shares issued upon the exercise of the Series A Warrant, the Series B Warrant, and all options and warrants described in Exhibit E hereto for the consideration set forth therein will be, duly authorized, validly issued, fully paid and nonassessable and were, or will be, issued in compliance with the Securities Act and all applicable Blue Sky Laws. Except as provided in this Agreement and the Prior Agreement and except as set forth in Exhibit E hereto, (a) there are no shareholders' agreements, voting trusts, irrevocable proxies or similar arrangements by which any Person other than the shareholders of record of the Company in their individual capacities as such have or may acquire authority to vote any Common Stock or other securities of the Company, (b) there are no restrictions upon the sale, voting or transfer of any shares of Common Stock pursuant to the Company's Articles of Incorporation, Bylaws or other governing instruments or any agreement or other instrument to which the Company or the Stockholder is a party or by which it or any of them may be bound, (c) there are no preemptive or similar rights with respect to the Common Stock or any other securities of the Company and (d) the Company is under no obligation to redeem or repurchase any shares of Common Stock or other securities of the Company. 3.05 AUTHORIZATION. The Company has all requisite power and authority to execute and deliver this Agreement, to issue and sell the Shares, to issue and deliver the Series C Warrant, and to perform its obligations hereunder. All corporate action on the part of the Company, its officers, directors and shareholders which is necessary for the authorization, issuance (or reservation for issuance), sale and delivery of the Shares, the issue and delivery of the Series C Warrant, the authorization, execution, delivery and performance of this Agreement, has been taken. The Stockholder has all requisite power, authority and capacity to execute and deliver this Agreement and to perform his obligations hereunder. 3.06 VALIDITY AND ENFORCEABILITY. This Agreement has been duly executed and delivered by the Company and the Stockholder and constitutes, and the Series C Warrant when executed and delivered by the Company will constitute, legal, valid and binding obligations of the Company and, in the case of this Agreement, the Stockholder, enforceable against the Company and, in the case of this Agreement, the Stockholder in accordance with its terms, except as enforceability (a) may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles and (b) to the extent the indemnification provisions contained in Article 8 hereof may be limited by applicable federal or state securities laws. 3.07 VALID ISSUANCE OF SHARES. The Closing Shares, the Additional Shares, and the Series C Warrant Shares, when issued, sold and delivered in accordance with the terms of this Agreement or the Series C Warrant, as the case may be, for the consideration set forth herein or therein, will be duly and validly authorized and issued, fully paid, and nonassessable shares of Common Stock, and will be free of restrictions on transfer other than restrictions on transfer contained in this Agreement and under the Securities Act and applicable Blue Sky Laws. The Company has duly and validly reserved 1,333,333 shares of the Common Stock for issuance upon the exercise of the Series C Warrant plus such additional number of shares of Common Stock as may from time to time be issuable upon exercise of the Series C Warrant after giving effect to any adjustments in the number of shares issuable thereunder pursuant to the terms thereof. 3.08 NO CONFLICT. The Company is not in violation of or default under its Articles or Incorporation or Bylaws or any provision of any indenture, mortgage, lease, loan agreement or other agreement or instrument to which the Company is a party or by which it is bound or to which any of its properties or assets is subject or any judgment, order writ or decree applicable to the Company. None of the execution and delivery of this Agreement by the Company or the Stockholder, the issuance and sale of the Shares, the issuance and delivery of the Series C Warrant, or the consummation of the transactions contemplated hereunder, will (i) conflict with or result in a breach or violation of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon, any of the properties or assets of the Company pursuant to the Articles of Incorporation or Bylaws of the Company or any indenture, mortgage, lease, loan agreement or other agreement or instrument to which the Company is a party or by which it is bound or to which any of its properties or assets is subject or (ii) violate any law, statute, rule, regulation, judgment or decree applicable to the Company. Except as set forth in Exhibit F hereto, no third party consents are required by the terms of any indenture, mortgage, lease, loan agreement or other agreement or instrument to which the Company is a party or by which it is bound or to which any of its properties or assets is subject for the execution and delivery of this Agreement, the issuance of the Shares, the issuance and delivery of the Series C Warrant, or the consummation of the transactions provided for herein. 3.09 NO CONSENT OR APPROVAL REQUIRED. No consent, approval or authorization of, or declaration to or filing with, any governmental or regulatory authority is required for the valid execution and delivery by the Company or the Stockholder of this Agreement, the issuance and sale of the Shares, the issuance and delivery of the Series C Warrant or the consummation of the transactions provided for herein except the filing of any notice of sale required to be filed under Regulation D adopted by the Commission or such post-closing filings as may be required under applicable Blue Sky Laws, which will be timely filed within the applicable periods provided therefor. 3.10 FINANCIAL STATEMENTS. The Company Financial Statements were prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, are complete and correct in all material respects, and present fairly the financial condition of the Company and its results of operations as of the dates and for the periods indicated. 3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent reflected or reserved against in the Latest Balance Sheet or set forth in Schedule 3.11 hereto, at the date of the Latest Balance Sheet, the Company did not have any material obligation or liability of any kind (whether accrued, absolute, contingent, unliquidated, civil, criminal or otherwise and whether due or to become due), whether or not any such liability or obligation would have been required to be disclosed on a balance sheet prepared in accordance with generally accepted accounting principles. 3.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Latest Balance Sheet and except as set forth in Schedule 3.12, the Company has been operated in the ordinary course of business, and there has not been: (a) Any change in the assets, liabilities, obligations, financial condition or results of operations of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, either individually or in the aggregate, materially adverse; (b) Any material change (individually or in the aggregate) in the contingent obligations of the Company by way of guaranty, endorsement, indemnity, warranty, or otherwise; (c) Any change in material standards, principles, policies or practices (including, without limitation, financial or financial reporting and accounting methods and practices) relating to the Company's business; (d) Any sale, assignment, lease or other transfer or disposition of any assets of the Company other than in the ordinary course of business; (e) Any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, prospects or financial condition of the Company; (f) Any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the business, properties, prospects or financial condition of the Company; (g) Any termination, amendment or modification of any material contract or arrangement to which the Company is a party or by which it is bound; (h) Any sale, assignment, license, or other transfer or disposition of any Proprietary Rights; (i) Any resignation or termination of employment of any officer or key employee of the Company or any termination of any consulting arrangement to which the Company is a party; (j) Any mortgage, pledge, grant of a security interest in, or lien, created by the Company with respect to any of its properties or assets, except liens for current property taxes not yet due and payable; (k) Any waiver or compromise by the Company of any valuable right or of a material debt owed to it; (i) Any loans or advances to, guaranties for the benefit of, or investments in, any Person (other than customary travel advances in accordance with past practices); (m) Any general increase in the salary or other compensation of the Company's employees, officers, directors, or consultants, or any specific increase in the salary or other compensation of any such employee, officer, director, or consultant, whose combined salary and other compensation after such increase would be in excess of $30,000; (n) Any adoption of, or change in, any executive compensation plan, bonus plan, incentive compensation plan, deferred compensation agreement or other employee benefit plan or arrangement. (o) Any declaration, setting aside, or payment of any dividend or other distribution in respect of the Common Stock; (p) Any issue or sale by the Company of any shares of Common Stock or other securities or any purchase by the Company of any shares of Common Stock or other securities; (q) Any other event or condition (individually or in the aggregate) of any character that has materially and adversely affected the Company's business or prospects; or (r) Any agreement or commitment by the Company to do any of the things described in this Section 3.12. 3.13 CONTRACTS AND COMMITMENTS. Except as set forth in Schedule 3.13 hereto, the Company is not a party to any contract, agreement, lease, commitment, or proposed transaction, written or oral, other than (1) contracts for the purchase of supplies and services that were entered to in the ordinary course of business and that do not provide for aggregate payments in excess of $25,000, and do not extend for more than one year from the date hereof, (2) sales contracts entered into in the ordinary course of business, and (iii) contracts terminable at will by the Company on no more than 30 days' notice without any cost or liability to the Company and that do not involve any employment or consulting arrangement and are not material to the conduct of the business of the Company. For the purposes of this Section, employment and consulting contracts, collective bargaining agreements, and licensing agreements and other agreements relating to the acquisition of disposition of the Company's Proprietary Rights (other than standard end-user license agreements), shall not be considered to be contracts entered into in the ordinary course of business. The Company has delivered to Pircher, Nichols & Meeks, special counsel to the Purchaser, true and complete copies of all contracts and agreements, including all amendments thereto, listed in Schedule 3.13. All contracts, agreements, leases and commitments referred to in Schedule 3.13 are valid and enforceable in accordance with their respective terms for the periods stated therein, and there is not under any of them any existing breach, default, or event of default by the Company or, to the best knowledge of the Company and the Stockholder, by any other party thereto, or event which with notice or lapse of time would constitute a default nor has any party thereto given notice of or made a claim with respect to any breach or default. Neither the Company nor the Stockholder has any knowledge of any existing laws, regulations or decrees, which materially and adversely affect, or may materially and adversely affect any of such contracts, agreements, leases, or commitments or the business, properties, operations or condition, financial or other, of the Company. 3.14 TITLE TO PROPERTY AND ASSETS; LEASES. The Company does not own any real property. Except (1) as reflected in the Financial Statements, (2) for liens for current taxes not yet delinquent, (3) for liens imposed by law and incurred in the ordinary course of business for obligations not past due to carriers, warehousemen, laborers, materialmen and the like, (4) for minor defects in title, none of which, individually or in the aggregate, materially interferes with the use of such property, the Company owns its assets free and clear of all mortgages, liens, claims, security interests, and encumbrances. The Company's only lease of real property is the lease (described in Schedule 3.13) for its premises at 3710 South Robertson Boulevard, Suite 212 and Suite 220, Los Angeles, California 90232 with which lease the Company is in compliance. 3.15 ADEQUACY OF ASSETS. The Company owns or has a valid leasehold interest in all assets, properties, real and personal, contract rights, licenses and Proprietary Rights necessary for the continued operation of the Company in substantially the same manner in which it has been and is now operating. 3.16 LITIGATION. Except as set forth in Schedule 3.16, there is no action, suit, proceeding, or investigation pending or, to the best knowledge of the Stockholder and the Company, threatened, against or affecting the Company that questions the validity of this Agreement or the right of the Company to enter into this Agreement or to consummate the transactions contemplated hereby or that might result, either individually or in the aggregate, in any material adverse change in the assets, business, properties, prospects, financial condition or operating results of the Company, or in any material change in the current equity ownership of the Company. The foregoing includes, without limitation, any action, suit, proceeding or investigation pending or threatened involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employees, their obligations under any agreements with prior employees, or negotiations by the Company with potential backers of, or investors in, the Company or its proposed business. The Company is not a party to or, to the best knowledge of the Company and the Stockholder, named in any order, writ, injunction, judgment or decree of any court, governmental agency, or instrumentality. There is no action, suit or proceeding by the Company currently pending or that the Company currently intends to initiate. 3.17 TAXES. All returns and reports of all Taxes required to be filed by the Company have been filed, and all such returns and reports, including without limitation, the Tax Returns, are true, correct and complete in all material respects, and all Taxes payable pursuant thereto have been paid. No deficiency or adjustment in respect of any Taxes which was assessed against the Company remains unpaid and no such claim or assessment is pending or, to the best knowledge of the Company and the Stockholder, threatened. The Company has made all withholdings of Taxes required to be made under all applicable federal, state and local tax regulations and such withholdings have either been paid to the respective governmental agencies or set side in accounts for such purpose or accrued, reserved against and entered upon the books of the Company. No provision for income taxes payable is required to be reflected on the Latest Balance Sheet. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any tax return or tax liability of the Company, and to the best knowledge of the Company and the Stockholder, there is no proposed liability for any Taxes for which there is not an adequate reserve reflected on the Latest Balance Sheet. The Company has not filed any consent with the Internal Revenue Service described in Section 341(f) of the Code. 3.18 PROPRIETARY RIGHTS. The Company owns or possesses adequate licenses or other rights to all Proprietary Rights necessary for the conduct of the business of the Company as presently conducted and as proposed to be conducted without, to the best knowledge of the Company and the Stockholder, any conflict with or infringement of, the Proprietary Rights of any other Person. Schedule 3.18 contains a complete list of all Proprietary rights of the Company. Except as set forth in Schedule 3.18 and except for standard end-user agreements, there are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any option, license or agreement of any kind with respect to its Proprietary Rights or the Proprietary rights of any other Person. Neither the Company nor the Stockholder has received any notice or other communication alleging that the Company has violated, or, by conducting its business as presently conducted and proposed to be conducted, would violate any Proprietary Rights of any other Person. Neither the Company nor the Stockholder is aware that any of the Company's employees or consultants is obligated under any contract (including licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's or consultant's best efforts to promote the interests of the Company or that would conflict with its business as presently conducted and proposed to be conducted. Neither the execution and delivery of this Agreement, nor the carrying on of the business of the Company by its employees and consultants, nor the conduct of the Company's business as presently conducted and proposed to be conducted, will, to the best knowledge of the Company and the Stockholder, conflict with or result in a breach of, or constitute a default under, any contract covenant or agreement under which any of such employees or consultants is now obligated. 3.19 MANUFACTURING AND MARKETING RIGHTS. Except as set forth in Schedule 3.13 and Schedule 3.19, the Company has not granted rights to manufacture, produce, assemble, license, market or sell its products or services to any other Person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products and services. 3.20 EMPLOYEES. Schedule 3.20 sets forth the names and current annual or monthly compensation rates of all employees of the Company. There are no material controversies pending or, to the best knowledge of the Company and the Stockholder, threatened, between the Company and any of its employees, former employees or applicants for employment. The Company has complied in all material respects with all laws relating to the employment of labor, including any provisions thereof relating to wages, hours, equal employment opportunity, collective bargaining, federal immigration law, and the payment of social security and similar taxes and is not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. None of the employees of the Company are covered by any collective bargaining agreement and, to the best knowledge of the Company and the Stockholder, there are no organizational efforts currently being made or threatened involving any employees of the Company. Except as set forth in Schedule 3.20, the Company is not a party to or bound by any currently effective employment agreement, contract, deferred compensation arrangement, bonus plan, incentive compensation plan, profit sharing plan, retirement agreement, stock option agreement, stock option plan, group life, hospitalization or disability insurance, severance policy or other employee compensation agreement or arrangement. The Company is not aware that any officer or key employee intends to terminate his or her employment by the Company, nor does the Company have any present intention to terminate the employment of any such officer or key employee. Subject to general principles relating to wrongful termination of employees, the employment of each officer and employee of the Company is terminable at the will of the Company. 3.21 ERISA. The Company does not maintain or contribute to and is not obligated to contribute to, and has never maintained or contributed to or been obligated to contribute to, (i) any employee plan that is subject to the provisions of Title IV of ERISA or subject to the minimum funding standards of Section 412 of the Code; (ii) any "multi-employer plan" as defined in Section 4001(a)(3) of ERISA; or (iii) any "single employer plan" as defined in Section 4001(a)(15) of ERISA, which (a) is maintained for employees of the Company or any ERISA Affiliate and at least one other Person or (b) was so maintained and in respect of which the Company or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. 3.22 TRANSACTIONS WITH MANAGEMENT. Except as set forth in Schedule 3.22, the Company is not a party to any contract, lease, agreement or other commitment with any officer, director or shareholder of the Company or any Affiliate of any such Person, and there are no loans outstanding from the Company to, or to the Company from, any such Person or any Affiliate of any such Person. 3.23 REGISTRATION RIGHTS. Except as set forth in Schedule 3.23 and except as provided in this Agreement and the Prior Agreement, the Company is not obligated to Register under the Securities Act any of its presently outstanding securities or any of its securities that may subsequently be issued. 3.24 PERMITS, COMPLIANCE WITH LAWS. The Company holds all permits, licenses, consents and authorizations issued by any government or governmental authority which are material and necessary in connection with the conduct of the business of the Company. The Company is not in default in any material respect under any such permit, license, consent or authorization. The conduct of the business of the Company as presently conducted complies in all material respects with all applicable laws, ordinances, regulations and orders, including, without limitation, all Environmental Requirements. The Company has not received any notice of any violation of any law, ordinance, regulation or order applicable to the Company or the business conducted by it. 3.25 ENVIRONMENTAL MATTERS. There has been no "release or threatened release of a hazardous substance" (as defined in CERCLA) or any other release, emission, disposal or discharge into the environment or any use, storage, transport or handling (collectively, "activities") of Hazardous Material on, under, about or from the Real Property other than those activities which have not resulted and could not reasonably be expected to result in any material liability on the part of the Company. To the best knowledge of the Company and the Stockholder, all "hazardous waste" (as defined in RCRA and the regulations thereunder) generated at the Real Property have been disposed of at sites which maintain valid permits under RCRA and any other applicable Environmental Requirement. To the best knowledge of the Company and the Stockholder, there are no underground tanks, PCBs or asbestos containing materials on the Real Property. The Company has no notice of any pending formal or informal assertion by any governmental agency or other Person that the Company or any predecessor business or owner or operator of the Real Property may be a responsible or potentially responsible party in connection with any violation or obligation arising under any Environmental Requirement at any site or facility (including the Real Property itself.) Schedule 3.25 sets forth a list of all documents pertaining to the environmental conditions (actual, potential or threatened) of any of the Real Property including, without limitation, all environmental reports, assessments and audits and all notices, orders, permits or any other documents from any governmental authority which refer or relate to any environmental condition of the Real Property or any personal property owned or leased by the Company or which relate to any actual or potential liabilities or obligations arising out of such environmental conditions. 3.26 ADVERSE AGREEMENTS. The Company is not a party to or subject to any contract, agreement or commitment or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree, law, rule or regulation which adversely affects, or could reasonably be expected to adversely affect, the business, operations, prospects, properties, assets or condition, financial or other, of the Company. 3.27 NO BROKERS OR FINDERS. Neither the Company nor the Stockholder has retained any investment banker, broker or finder in connection with the transactions contemplated by this Agreement. 3.28 BOOKS AND RECORDS. The books, records and work papers of the Company are complete and correct, have been maintained in accordance with good business practice and accurately reflect the bases for the financial condition and results of operations of the Company set forth in the Company Financial Statements. 3.29 DISCLOSURE. The Company has provided the Purchaser with all the information reasonably available to it without undue expense that the Purchaser has requested for deciding whether to purchase the Shares and all information that the Company believes is reasonably necessary to enable the Purchaser to make such decision. None of this Agreement, the Company Financial Statements, or any other written documents, statements or certificates made or delivered to the Purchaser in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in the light of the circumstances in which they were made, not misleading. Neither the Company nor the Stockholder has knowledge of any liability, contingent or otherwise, not disclosed in the Company Financial Statements or other document delivered to the Purchaser in connection herewith that materially affects the financial position or results of operations of the Company or the Projections. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Company as follows: 4.01 REQUISITE POWER AND AUTHORITY. The Purchaser has all necessary power and authority under all applicable provisions of law to execute, deliver and perform this Agreement; all actions on the Purchaser's part required for the lawful execution, delivery and performance of this Agreement have been or will be duly and effectively taken prior to the Closing Date; and this Agreement constitutes a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms, except as enforceability (a) may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles and (b) to the extent the indemnification provisions contained in Article 8 hereof may be limited by applicable federal or state securities laws. 4.02 PURCHASE FOR OWN ACCOUNT. This Agreement is made with the Purchaser in reliance upon the Purchaser's representation to the Company, which by its execution of this Agreement the Purchaser hereby confirms, that the Purchased Securities are being acquired by the Purchaser for investment for the Purchaser's own account, not as a nominee or agent, and not with a view to or for sale in connection with any distribution of the Purchased Securities or any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same, but subject nevertheless to any requirement of law that the disposition of the Purchaser's property shall at all times be within its control. By executing this Agreement, the Purchaser further represents that it does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer, or grant participations to such Person, or to any third Person, with respect to the Purchased Securities. 4.03 RELIANCE UPON PURCHASER'S REPRESENTATIONS. The Purchaser understands that the Purchased Securities at the time of issuance may not be: (1) registered under the Securities Act on the ground that the sale provided for in this Agreement and the issuance of securities hereunder is exempt from registration under the Securities Act pursuant to Section 3(b) thereof and Regulation D promulgated thereunder, or (2) qualified with the Commissioner of Corporations of the State of California on the ground that the sale provided for in this Agreement and the issuance of securities is exempt from such qualification pursuant to Section 25102(f) of the California Corporate Securities Law, and that the Company's reliance on such exemptions is predicated in part on the Purchaser's representations set forth herein. 4.04 INVESTOR EXPERIENCE. The Purchaser represents that it is experienced in evaluating and investing in companies in the development stage, is able to fend for itself, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment in the Purchased Securities, and has the ability to bear the economic risks of its investment. 4.05 ACCESS TO INFORMATION. The Purchaser believes that it has had access, during the course of the transaction and prior to its purchase of the Purchased Securities hereunder, to all information as it deems necessary or appropriate (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) and that the Purchaser has had, during the course of the transaction and prior to its purchase of the Purchased Securities hereunder, the opportunity to ask questions of, and receive answers from, the Company concerning the terms and conditions of the offering and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to the Purchaser or to which the Purchaser had access. The foregoing, however, does not limit or modify the representations and warranties of the Company and the Stockholder contained in Article 3 of this Agreement or the right of the Purchaser to rely thereon. 4.06 RESTRICTED SECURITIES. The Purchaser understands that the Purchased Securities, or any portion thereof, may not be sold, transferred, or otherwise disposed of without Registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Purchased Securities or an available exemption from Registration under the Securities Act, the Purchased Securities must be held indefinitely. In particular, the Purchaser is aware that the Purchased Securities may not be sold pursuant to Rule 144 unless all of the conditions of that Rule are met. Among the conditions for use of Rule 144 may be the availability of current information to the public about the Company. Such information is not now available and the Company has no present plans to make such information available. 4.07 RESTRICTIVE LEGEND. Each certificate representing Shares may bear the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL (WHO MAY BE COUNSEL TO THE COMPANY) OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. 4.08 PUBLIC SALE. The Purchaser agrees not to make, without the prior written consent of the Company, any public offering or sale of the Purchased Securities although permitted to do so pursuant to Rule 144(k) promulgated under the Securities Act, until the earlier of (i) the date on which the Company effects its initial registered public offering pursuant to the Securities Act, (ii) the date on which the Company becomes a registered company pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, or (iii) December 23, 1999. ARTICLE 5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER 5.01 CLOSING. The obligation of the Purchaser to purchase the Closing Shares is subject to the satisfaction at or prior to the Closing Date of each of the following conditions (compliance with which or the occurrence of which may be waived in whole or in part by the Purchaser): (a) Accuracy of Representations and Warranties. The representations and warranties of the Company and the Stockholder contained herein shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. (b) Performance of Agreements. The Company and the Stockholder shall have performed all obligations and agreements and complied with all covenants and conditions contained in this Agreement to be performed or complied with by them on or prior to the Closing Date. (c) Stockholder Certificate. The Stockholder shall have furnished the Purchaser with a certificate, dated the Closing Date, to the effect that (i) the representations and warranties of the Stockholder contained herein are true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date and (ii) the Stockholder has performed and complied with all covenants and conditions contained in this Agreement to be performed or complied with by him on or prior to the Closing Date. (d) Company Certificate. The Company shall have furnished the Purchaser with a certificate, dated the Closing Date, of the President of the Company (i) to the effect that the representations and warranties of the Company contained herein are true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date and (ii) to the effect that the Company has performed and complied with all covenants and conditions contained in this Agreement to be performed or complied with by it on or prior to the Closing Date. (e) Charter Documents. There shall have been delivered to the Purchaser (i) a Certificate, dated within ten days of the Closing Date, of the Secretary of State of the State of California listing all charter documents of the Company on file in the office of said Secretary of State and (ii) copies of all amendments, if any, to the Articles of Incorporation of the Company filed with the Secretary of State of the State of California on or after December 21, 1994, certified as true and correct by the Secretary of State of the State of California within ten days of the Closing Date. (f) Good Standing Certificates. There shall have been delivered to the Purchaser (i) a Certificate, dated within ten days of the Closing Date, of the Secretary of State of the State of California with respect to the incorporation, subsistence and good legal standing of the Company, and (ii) a letter, dated within ten days of the Closing Date, of the California Franchise Tax Board as to the good standing and entitlement to transact business of the Company. (g) Secretary's Certificate of the Company. There shall have been delivered to the Purchaser a Certificate, dated the Closing Date of the Secretary of the Company (i) to the effect that the Articles of Incorporation of the Company have not been amended since the date of the Certificate referred to in Section 5.01(e)(i) above, (ii) attaching a true and complete copy of the Bylaws of the Company as in effect on the Closing Date, (iii) attaching a true and complete copy of the resolutions of the Board of Directors of the Company approving the execution and delivery of this Agreement, the issuance and sale of the Purchased Securities and authorizing the consummation of the transactions contemplated herein. (h) Incumbency Certificate of the Company. There shall have been delivered to the Purchaser a Certificate, dated the Closing Date, with respect to the incumbency and signatures of all officers of the Company signing this Agreement and any other certificate, agreement or instrument delivered on behalf of the Company in connection with this Agreement or the Closing. (i) Series C Warrant. The Company shall have issued and delivered to the Purchaser a warrant, dated the Closing Date and expiring on August 30, 1996, substantially in the form of Exhibit G hereto (the "Series C Warrant"). (j) Amendment to Series A Warrant. The Company shall have executed to the Purchaser an Amendment to Series A Warrant, dated the and substantially in the form of Exhibit H hereto. (k) Amendment to Series B Warrant. The Company shall have executed to the Purchaser an Amendment to Series B Warrant, dated the and substantially in the form of Exhibit I hereto. (l) Hydra Transaction. There shall have been delivered to the Purchaser evidence satisfactory to the Purchaser of the closing and funding of the Hydra Transaction. (m) Certificate and Estoppel The Licensor shall have executed and delivered to the Purchaser a Licensor's Estoppel Certificate, dated the Closing Date, and in the form of Exhibit J hereto. (n) Consents and Approvals. All consents and approvals of any third parties required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby shall have been obtained and delivered to the Purchaser. (o) No Litigation. No action, suit or proceeding shall be pending or threatened by or before any court or governmental body in which an unfavorable judgment, order or decree would prevent any of the transactions contemplated hereby or cause any such transaction to be declared unlawful or rescinded or which could reasonably be expected to materially and adversely affect the assets, financial condition or results of operations of the Company, and no temporary restraining order or injunction shall have been issued by any such court or governmental authority restraining or prohibiting the performance of this Agreement or the consummation of any of the transactions contemplated hereby. (p) Payment of Fees. The Company shall have paid the estimated fees and disbursements of Pircher, Nichols & Meeks, special counsel to the Purchaser, through the Closing Date. (q) Delivery of Certificates. The Company shall have delivered to the Purchaser the certificate(s) representing the Closing Shares in accordance with the provisions of Section 2.01. (r) Proceedings and Documents. All corporate and other proceedings to be taken by the Company or the Stockholder in connection with this Agreement and the consummation of the transactions contemplated hereby and all documents and instruments delivered by the Company or the Stockholder in connection therewith shall be in form and substance reasonably satisfactory to the Purchaser and its counsel, and the Purchaser shall have received such other documents and instruments as it may reasonably request in connection therewith. ARTICLE 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY 6.01 CLOSING. The obligation of the Company to sell the Closing Shares is subject to the satisfaction at or prior to the Closing Date of each of the following conditions (compliance with which or the occurrence of which may be waived in whole or in part by the Company): (a) Accuracy of Representations and Warranties. The representations and warranties of the Purchaser contained herein shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. (b) Consideration. The Purchaser shall have tendered the purchase price for the Closing Shares in accordance with the provisions of Section 2.01. ARTICLE 7. COVENANTS 7.01 AFFIRMATIVE COVENANTS. The Company covenants and agrees that until the earlier of (1) the consummation of a Qualified Public Offering and (2) the date that the Holders of Registrable Securities hold fewer than 250,000 Shares: (a) Corporate Existence. The Company will, and will cause each of its subsidiaries (if any) at all times to maintain, preserve and renew its respective corporate existence, rights and franchises and all licenses and other rights to use patents, processes, licenses, trademarks, trade names, or copyrights owned or possessed by it and deemed by the Company to be necessary to the conduct of its business except that the Company may dissolve Ontco. (b) Financial Statements. (1) as soon as practicable after the end of each fiscal year of the Company, and in any event within 90 days thereafter, (A) a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants selected by the Company and reasonably acceptable to the Purchaser; (B) a comparison of the financial statements for the most recent fiscal year to the financial plan required by Section 7.01 (c) hereof and (2) as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year and to the Company's financial plan required by Section 7.01(c) hereof, subject to changes resulting from normal year-end audit adjustments, all in reasonable detail and certified by the principal financial or accounting officer of the Company, except that such financial statements need not contain the notes required by generally accepted accounting principles; (C) as soon as practicable after the end of each month and in any event within 30 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such month and consolidated statements of income and cash flows for the Company and its subsidiaries, if any, for such month and for the current fiscal year of the Company to date, all subject to year-end audit adjustments, prepared in accordance with generally accepted accounting principles consistently applied and certified by the principal financial or accounting officer of the Company, except that such financial statements need not contain the notes required by generally accepted accounting principles: and (D) with reasonable promptness, such other information and data with respect to the Company and its subsidiaries (if any) as any Holder may from time to time reasonably request. (c) Annual Budget. At least 60 days prior to the beginning of each fiscal year of the Company, the Company shall furnish to each Holder a financial plan of the Company for such fiscal year, which financial plan shall include at least a projection of income and a projected cash flow statement for each fiscal quarter in such fiscal year and a projected balance sheet as of the end of each fiscal quarter in such fiscal year. (d) Inspection. The Company shall permit each Holder and its representatives, counsel and accountants to visit and inspect the Company's and its subsidiaries' (if any) properties, to examine the Company's and its subsidiaries' (if any) books of account and records (including, without limitation, working papers), and to discuss the Company's and its subsidiaries' (if any) affairs, finances and accounts with their respective officers, all at such reasonable times as may be requested by such Holder. The foregoing rights shall be in addition to all shareholder rights conferred by law. (e) Taxes. The Company will, and will cause each subsidiary (if any) to, promptly pay and discharge, or cause to be paid and discharged, when due and payable, all taxes, assessments and governmental charges or levies imposed upon its income, profits, property, or business; provided, however, that any such tax, assessment, charge, or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if adequate reserves are established therefor in accordance with generally accepted accounting principles, and provided further, that the Company or any such subsidiary shall pay all such taxes, assessments, charges, or levies forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. (f) Maintenance of Properties. The Company will, and will cause each of its subsidiaries (if any) to, maintain their respective properties in good repair, working order, and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions, and improvements thereto. The Company will, and will cause each of its subsidiaries (if any) to, at all times comply with the provisions of all material leases to which it is a party or under which it occupied property so as to prevent any loss or forfeiture thereof or thereunder. (g) Insurance. The Company will, and will cause each of its subsidiaries (if any) to, keep its assets that are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, extended coverage, and explosion insurance in amounts customary for companies in similar businesses similarly situated. The Company will, and will cause each of its subsidiaries (if any) to, maintain with financially sound and reputable insurers, insurance against other hazards, risks, and liabilities to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated. (h) Key-person Life Insurance. If requested by the Purchaser, the Company shall obtain from financially sound and reputable insurers term life insurance on the life of Gerald D. Appel in the amount of $1,000,000 and on the life of Daniel J. Levendowski in the amount of $1,000,000 and maintain such insurance unless otherwise agreed by the Purchaser. Such policies shall name the Company as loss payee and shall not be cancellable by the Company without the prior written approval of the Purchaser. (i) Books and Records. The Company will, and will cause each of its subsidiaries (if any) to, keep true records and books of account in which full, true and correct entries will be made of dealings and transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis. (j) Compliance. The Company will, and will cause each of its subsidiaries (if any) to, duly observe and conform to all valid requirements of governmental authorities relating to the conduct of its business or to its property or assets. (k) Use of Proceeds. The proceeds from the sale of the Closing Shares and the Additional Shares will be used for general corporate purposes. Notwithstanding the foregoing, none of such proceeds will be used to pay all or any part of the promissory notes described in Schedule 3.11 hereto. 7.02 Negative Covenants. The Company covenants and agrees that until the earlier of (1) the consummation of a Qualified Public Offering and (2) the date that the Holders of Registrable Securities hold fewer than 250,000 Shares: (a) Amendments. The Company will not amend or permit any amendment of its Articles of Incorporation. The Company will not amend or permit any amendment of its By-Laws in any manner which would be materially adverse to the interests of the Holders of Registerable Securities. (b) Additional Stock. The Company will not authorize or issue any other class or series of stock in addition to Common Stock. (c) Dividends; Purchases. The Company will not, and will not permit any of its subsidiaries (if any) to, redeem, retire, purchase or otherwise acquire any shares of the Common Stock of the Company, and the Company will not declare or pay any dividend or make any other distribution on its Common Stock other than dividends payable solely in Common Stock and cash dividends payable out of retained earnings. (d) Loans and Investments. The Company will not make, and will not permit any of its subsidiaries (if any) to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned, directly or indirectly, by the Company. (e) Loans and Advances. The Company will not, and will not permit any of its subsidiaries to, make any loan or advance to any Person, including, without limitation, any employee, officer, director or shareholder of the Company or any of its subsidiaries, except for advances for reimbursable expenses to be incurred by any such employee, officer, or director. (f) Guaranties. The Company will not, and will not permit any of its subsidiaries to, directly or indirectly, guaranty any indebtedness or other obligations of any Person. (g) Merger. The Company will not, and will not permit any of its subsidiaries (if any) to, merge with or into or consolidate with any other corporation or entity except that (i) any wholly-owned subsidiary of the Company may be merged with or consolidated into any other wholly-owned subsidiary and (ii) any wholly-owned subsidiary of the Company may be merged with or consolidated into the Company, provided that the Company shall be the surviving or resulting corporation. (h) Sale of Assets. The Company will not, and will not permit any of its subsidiaries (if any) to, sell, lease or otherwise dispose of, in any one transaction or in a series of related transactions, all or a substantial portion of its assets. (i) Compensation. The Company will not pay any salaries, bonuses, retirement benefits or other remuneration or grant any stock options, stock bonuses, or stock purchase plan rights to any Significant Stockholder of the Company or any subsidiary of the Company or any Affiliate of any of the foregoing except as approved by the unanimous vote of a Compensation Committee consisting of two certified public accountants and Howard Fullman (or if he is unable or unwilling to serve, a successor approved by the Company and the Purchaser). (j) Partnerships, etc. The Company will not and will not permit any subsidiary to enter into any partnership, joint venture or other similar arrangement for the sharing of income, profits or expenses, with any Person except that the foregoing shall not prohibit (1) the payment of commissions or other compensation to sales representatives and agents or (2) other contracts (other than any direct or indirect debt or equity financing) entered into by the Company in the ordinary course of business. (k) Other Investors. The Company will not agree to affirmative or negative covenants more favorable to an equity investor in the Company than those contained in this Article 7. ARTICLE 8. REGISTRATION UNDER THE SECURITIES ACT 8.01 NOTICE OF PROPOSED DISPOSITIONS. The Holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 8.01. Prior to any proposed disposition of any Restricted Securities (unless there is in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement) the holder thereof shall give written notice to the Company of such Holder's intention to effect such disposition. Each such notice shall describe the manner and circumstances of the proposed disposition, and shall be accompanied (except in transactions intended to comply with Rule 144) by either (a) a written opinion of legal counsel addressed to the Company and reasonably satisfactory in form and substance to the Company, to the effect that the proposed disposition of Restricted Securities may be effected without Registration of such Restricted Securities or (b) a "no action" letter from the Commission to the effect that such disposition without Registration of such Restricted Securities will not result in a recommendation by the staff of the Commission that enforcement action be taken with respect thereto, whereupon the Holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the Holder to the Company. Each certificate evidencing the Restricted Securities disposed of as above provided shall bear the legend set forth in Section 4.06 of this Agreement, except that such certificate shall not bear such legend if (1) the opinion of counsel referred to above is to the further effect that such legend is not required in order to establish compliance with any provisions of the Securities Act, (2) the transfer is in connection with a transaction intended to comply with Rule 144, or (3) an appropriate registration statement with respect to such Restricted Securities has been filed by the Company with the Commission and has been declared effective by the Commission; in those events, the Company shall cause new legended certificates to be issued promptly to the Holder in exchange for outstanding legended certificates. 8.02 COMPANY REGISTRATION. (a) 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 for the account of any holder of its securities (including a Holder) (other than pursuant to Section 8.03 or 8.05 hereof), other than a Registration relating solely to employee benefit plans, or a Registration relating solely to a Rule 145 transaction or a Registration on any Registration form that does not permit secondary sales, the Company will: (1) promptly give to each Holder written notice thereof; (2) 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 20 days after receipt of such written notice from the Company, by any Holder or Holders, except as set forth in Section 8.02(b) hereof. Any such written request may specify all or a part of a Holder's Registrable Securities. (b) 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 part of the written notice given pursuant to Section 8.02(a) hereof. In such event, the right of a Holder to Registration pursuant to this Section 8.02 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall (together with the Company and the other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Section 8.02, if the underwriter advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the underwriter may limit the amount of Registrable Securities to be included in the Registration and underwriting, and the number of shares to be included in such underwriting or Registration shall be allocated as set forth in Section 13 hereof. 8.03 DEMAND REGISTRATION. (a) At any time following the earlier of (1) December 23, 1999, and (2) one year after the effective date of the first registration statement filed by the Company covering an underwritten offering of any of its securities to the public, if the Company shall receive a written request (specifying that it is being made pursuant to this Section 8.03) from any Holder or Holders that the Company file a registration statement under the Securities Act covering the Registration of at least 50% of the Registrable Securities, then the Company shall promptly notify all other Holders of such request and shall use its best efforts to cause all Registrable Securities that Holders have requested within 20 days after receipt of the Company's notice to be registered under the Securities Act. The Company shall be obligated to effect no more than two Registrations pursuant to this Section 8.03 and the Company shall not be obligated to effect any Registration pursuant to this Section 8.03 if the written request therefor is made within 12 months following the effective date of any previous registration statement filed by the Company pursuant to this Section 8.03. (b) Notwithstanding the foregoing, the Company shall not be obligated to effect a Registration pursuant to Section 8.03(a) with respect to a proposed distribution of Registrable Securities by a Holder thereof (1) during the period starting with the date 30 days prior to the Company's estimated date of filing of, and ending on a date 90 days following the effective date of, a registration statement pertaining to an underwritten public offering of securities for the account of the Company, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective and that the Company's estimate of the date of filing of such Registration is made in good faith; (2) within a period of 180 days after the effective date of any previous Registration by the Company with respect to which Holders of Registrable Securities were given the opportunity pursuant to this Article 8 of this Agreement, to include therein all Registrable Securities which were requested to be included therein; (3) if the Holders propose to dispose of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 8.05 hereof; or (4) if (i) in the good faith judgment of the Board of Directors of the Company, such Registration would be seriously detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is essential to defer the filing of a registration statement with respect to such Registration at such time, and (ii) the Company shall furnish to the Holders requesting such Registration a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Director of the Company it would be seriously detrimental to the Company for such registration statement to be filed in the near future, and that it is, therefore essential to defer such filing (except as provided in clause (1) above) for a period of not more than 180 days after the receipt of the such request, and provided further, that the Company may not defer its obligation in the manner provided in this clause (4) more than once in any 12-month period. (c) Any Registration statement filed pursuant to this Section 8.03 may, subject to the provisions of Section 8.13 hereof, include other securities of the Company with respect to which registration rights have been granted. 8.04 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any Registration, qualification or compliance pursuant to Sections 8.02, 8.03 and 8.04 hereof, shall be borne by the Company. All Selling Expenses relating to the Registrable Securities so Registered shall be borne by the Holders of such Registrable Securities pro rata on the basis of the number of shares of Registrable Securities so Registered on their behalf. 8.05 REGISTRATION ON FORM S-3. After its initial public offering, the Company shall use its best efforts to quality for registration on Form S-3 or any comparable or successor form or forms. After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Article 8, the Holders of Registrable Securities shall have the right to request registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Holder or Holders), provided, however, that the Company shall not be obligated to effect any such Registration if (1) the Company shall have delivered to such Holder an opinion of counsel to the Company, addressed to such Holder and reasonably satisfactory in form and substance to such Holder to the effect that such Registrable Securities proposed to be included may lawfully be so disposed of without Registration or (2) within a period of 180 days after the effective date of any previous such Registration. If a request complying with the requirements of this Section 8.04 is delivered to the Company, the provisions of Section 8.03(a) shall apply to such Registration. 8.06 REGISTRATION PROCEDURES. In the case of each Registration effected by the Company pursuant to this Article 8, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will: (a) Keep such registration effective for a period of 180 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided, however, that (i) such 180-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such Registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be. offered on a continuous or delayed basis, such 180-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 145, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment that (1) includes any prospectus required by Section 10(a)(3) of the Securities Act or (2) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (1) and (2) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement; (b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (c) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (d) Register or qualify the securities covered by such registration statement under the Blue Sky Laws of such jurisdictions as shall be reasonably appropriate for the distribution of the securities covered thereby; (e) At the time when any Registration statement pursuant to this Section 8 becomes effective, and at the time when any post-effective amendment thereto becomes effective, furnish to the Holder or Holders of the Registrable Securities being registered under such Registration statement, an opinion of counsel satisfactory to such Holder or Holders to the effect that (1) to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (2) the Registration statement and the prospectus, and each amendment or supplement thereto, as of their respective effective or issue dates, comply as to form in all material respects with the requirements of the Securities Act, (3) such counsel has no reason to believe that the Registration statement, the prospectus, or any amendment or supplement thereto, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (4) the descriptions in the Registration statement, the prospectus and any amendment or supplement thereto of statutes, legal and governmental proceedings, and contracts or other documents are accurate and fairly present the information required to be shown, and such counsel does not know of any legal or governmental proceedings required to be described in the Registration statement, the prospectus or any amendment or supplement thereto which are not described as required, nor of any contracts or documents of a character required to be described in the Registration statement or prospectus or any amendment or supplement thereto, or to be filed as exhibits to the Registration statement which are not described and filed as required, provided that such counsel need not express any opinion as to the financial statements and schedules included in or omitted from any such Registration statement, prospectus or amendment or supplement thereto. (f) Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such statements therein not misleading or incomplete in the light of the circumstances then existing; (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (i) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the registration statement, which earnings statement shall satisfy the provisions. of Section 11(a) of the Securities Act; and (j) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 8.03 hereof, the Company will enter into an underwriting agreement in form reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains customary underwriting provisions and provided further than if the underwriter so requests the underwriting agreement will contain customary contribution provisions. 8.07 FURNISH INFORMATION. The Holder or Holders of Registrable Securities included in any Registration shall furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be reasonably required in connection with any Registration, qualification or compliance referred to in this Article 8. 8.08 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers, directors and partners, legal counsel, and accountants 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 Article 8; and each underwriter, if any, and each Person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular, or other document (including any related registration statement, notification, or the like) 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 not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such Registration, qualification, or compliance, and will reimburse each such Holder, each of its officers, directors, partners, legal counsel, and accountants 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 and defending or settling any such claim, loss, damage, liability, or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section 8.08(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent has not been unreasonably withheld). (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such Registration, qualification, or compliance is being effected, indemnify the Company, each of its directors, officers, partners, legal counsel, and accountants and each underwriter, if any, of the Company's securities covered by such a registration statement, each Person who controls the Company of such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder, and each of their officers, directors, and partners, and each person controlling such Holder against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, directors, officers, partners, legal counsel, and accountants, persons, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided that in no event shall any indemnity under this Section 8.08(b) exceed the gross proceeds from the offering received by such Holder. (c) Each party entitled to indemnification under this Section 8.08 (the "Indemnified Party") shall give notice to the party required to provide indemnity (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 such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, 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 Article 8, to the extent such failure is not prejudicial. 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 that 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. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 8.08 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party hereunder as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) The obligations of the parties under this Section 8.08 shall survive the completion of the offering of Registrable Securities under the registration statement and otherwise. 8.09 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of a majority in interest of the Holders, enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are more favorable than the registration rights granted to the Holders hereunder. 8.10 RULE 144 REPORTING. With a view to making available to the Holders the benefits of certain rules and regulations of the Commission that may permit the sale of the Restricted Securities to the public without registration, the Company agrees, so long as any Holder owns Registrable Securities: (a) Make and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after 90 days following the effective date of the first Registration under the Securities Act filed by the Company for a public offering of its securities; (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; (c) Furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after 90 days following 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 so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 8.11 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights of any Holder under this Agreement including, without limitation, the registration rights under Article 8 and the rights of first refusal under Article 9 may be transferred or assigned by a Holder only to a transferee or assignee of not less than 25,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like), provided that the Company is given written notice at the time of or within a reasonable time after said transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned. 8.12 LOCKUP AGREEMENT. The Holder of each certificate representing Registrable Securities by acceptance thereof agrees in connection with any Registration of the Company's securities that, upon the request of the Company or the underwriter(s) managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in such Registration) without the prior written consent of the Company or such underwriter(s), as the case may be, for such period of time (not to exceed 180 days) from the effective date of such Registration as the Company or the underwriter(s) may specify, provided that all Holders and officers and directors of the Company are bound by and have entered into similar agreements. The obligations described in this Section 8.12 shall not apply to a Registration relating solely to employee benefit plans on Form S-1 or S-8 or similar forms that may be promulgated in the future or a Registration relating solely to a Rule 145 transaction on Form S-4 or any similar form promulgated in the future. 8.13 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in which all of the Registrable Securities and other shares of Common Stock of the Company (including shares of Common Stock issued or issuable upon conversion of shares of any currently unissued series of Preferred Stock of the Company) with Registration rights (the "Other Shares") requested to be included in a Registration on behalf of the Holders or other selling stockholders cannot be so included as a result of limitations on the aggregate number of shares of Registrable Securities and Other Shares that may be so included, the number of shares of Registrable Securities and Other Shares that may be so included shall be allocated among the Holders and other selling stockholders requesting inclusion of shares pro rata based upon total number of shares requested to be so included. In the event a Holder or other selling stockholder subsequently withdraws or reduces a request for inclusion in such Registration, the number of shares which may be so included shall be re-allocated in the same manner. The Company may not limit the number of Registrable Securities to be included in a Registration pursuant to this Agreement in order to accommodate the request of any Significant Stockholder to include more than 25% (prior to the application of the pro rata allocations provided for above) of the shares of Common Stock held by such Significant Stockholder, or with respect to Registrations under Section 8.03 or 8.06 hereof, in order to include in such Registration securities registered for the Company's own account. 8.14 DELAY OF REGISTRATION. No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Article 8. 8.15 SUSPENSION OF REGISTRATION RIGHTS. Except as set forth in subparagraph (b) below, no Holder may request Registration pursuant to Section 8.03 at any time that all Registrable Securities held by such Holder may immediately be sold under Rule 144 during any 90-day period, provided, however, that the foregoing shall not be applicable in the case of any Holder who owns more than 2% of the outstanding Common Stock of the Company. (b) The provisions of subparagraph (a) above shall not apply to any Holder who owns more than 2% of the Company's outstanding Common Stock at the time of determination. 8.14 PRIOR AGREEMENT. If the Closing occurs, effective from and after the Closing Date, the provisions of this Article 8 shall supersede the provisions of Article 8 of the Prior Agreement. ARTICLE 9. RIGHT OF FIRST REFUSAL 9.01 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Holder who owns any Registrable Securities the right of first refusal to purchase a pro rata share of New Securities (as defined in this Section 9.O1) which the Company may, from time to time, propose to sell and issue. A Holder's pro rata share, for purposes of this right of first refusal, is the ratio of the number of shares of Common Stock owned by such Holder immediately prior to the issuance of New Securities, assuming full conversion of all outstanding securities convertible into Common Stock and exercise of any option or warrant to purchase Common Stock held by said Holder, to the total number of shares of Common Stock outstanding immediately prior to the issuance of New Securities, assuming full conversion of all securities convertible into Common Stock and exercise of all outstanding rights, options and warrants to acquire Common Stock. Each Holder shall have a right of over-allotment such that if any Holder fails to exercise its right hereunder to purchase its pro rata share of New Securities, the other Holders may purchase the non-purchasing Holder's portion on a pro rata basis within ten days from the date such non-purchasing Holder fails to exercise its right hereunder to purchase its pro rata share of New Securities. This right of first refusal shall be subject to the following provisions: (a) "New Securities" shall mean any capital stock (including Common Stock and/or Preferred Stock) of the Company whether now authorized or not, and rights, options or warrants to purchase such capital stock, and securities of any type whatsoever that are, or may become, convertible into capital stock; provides that the term "New Securities" does not include (1) securities issued upon exercise of the Series A Warrant, the Series B Warrant or the Series C Warrant; (2) securities issued upon the exercise of any warrants or options described in Exhibit E hereto; (3) any borrowings, direct or indirect, from financial institutions or other Persons by the Company, whether or not presently authorized, including any type of loan or payment evidenced by any type of debt instrument, provided such borrowings do not have any equity features including warrants, options or other rights to purchase capital stock and are not convertible into capital stock of the Company; (4) not in excess of an aggregate of 400,000 shares of Common Stock issued to employees, consultants, officers or directors of the Company pursuant to any stock option, stock purchase or stock bonus plan, agreement or arrangement approved by the Board of Directors; (5) securities issued in connection with any stock split, stock dividend or recapitalization of the Company; and (6) any right, option or warrant to acquire any security convertible into the securities excluded from the definition of New Securities pursuant to subsections (1) through (5) above. (b) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Holder written notice of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. Each Holder shall have 20 days after receipt of such notice to agree to purchase such Holder's pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. (c) In the event the Holders fail to exercise the right of first refusal within said 20-day period and after the expiration of the ten-day period for the exercise of the over-allotment provisions of this Section 9.01, the Company shall have 120 days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within 120 days from the date of said agreement) to sell the New Securities respecting which the Holders' right of first refusal option set forth in this Section 9.01 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice to Holders pursuant to subsection (b) above. In the event the Company has not sold within said 120-day period or entered into an agreement to sell the New Securities in accordance with the foregoing within 120 days from the date of said agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Holders in the manner provided in subsection (b) above. (d) The right of first refusal granted under this Agreement shall expire upon, and shall not be applicable to, the first Qualified Public Offering provided that the Holders are offered the opportunity to purchase, in whole or in part, 10% of the Common Stock being sold in such sale. 9.02 PRIOR AGREEMENT. If the Closing occurs, effective from and after the Closing Date, the provisions of this Article 9 shall supersede the provisions of Article 9 of the Prior Agreement. ARTICLE 10. MISCELLANEOUS PROVISIONS 10.01 SURVIVAL. All covenants, agreements, representations and warranties of the Company, the Stockholder and the Purchaser contained in or made pursuant to this Agreement shall survive the Closing and the sale, issuance and delivery of the Purchased Shares notwithstanding any investigation made by or on behalf of the Purchaser, the Company or the Stockholder. 10.02. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of 662/3% or more of the Registerable Securities, provided that no consent under this Section 10.02 shall alter the provisions of this Agreement to reduce the percentage of the Registrable Securities which is required for any consent to any amendment or waiver without the consent of the Holders of all Registerable Securities. Any amendment or waiver effected in accordance with this Section 10.02 shall be binding upon each Holder of Purchased Securities, each future Holder of Purchased Securities and the Company. 10.03 NON-WAIVER. No failure by or neglect of any party to this Agreement in any instance to exercise any right, power or privilege under this Agreement or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. 10.04 PAYMENT OF EXPENSES. Except as expressly provided in this Agreement to the contrary, whether or not the transactions contemplated by this Agreement are consummated, each party to this Agreement shall pay the fees and expenses of its counsel, accountants and other experts and all other expenses incurred by it, incident to the negotiation, preparation and execution of this Agreement and the performance by it of its obligations hereunder except that the Company shall pay the reasonable fees and disbursements of Pircher, Nichols & Meeks (the "PN&M Fees"), special counsel to the Purchaser, incurred by the Purchaser in connection with the negotiation, preparation and execution of this Agreement. 10.05 NOTICES. All notices or other communications hereunder shall be in writing and shall be sufficiently given for all purposes when sent by first class United States mail, postage prepaid, registered or certified, or by any national express air courier which courier shall maintain written verification of actual delivery, or by delivering the same in person to any party hereto as follows: If to the Purchaser to: Ontario Municipal Employees Retirement Board One University Avenue, Suite 1000 Toronto, Ontario M5J 2P1 Canada Attention: Peter D. Friend with a copy to: Pircher, Nichols & Meeks 1999 Avenue of the Stars Los Angeles, California 90067 USA Attention: Larry M. Meeks, Esq. If to the Company to: Myo Diagnostics, Inc. 3710 South Robertson Boulevard, Suite 212 Culver City, California 90232 USA Attention: Gerald D. Appel President or at such other address of which any such party shall have notified the party giving such notice in writing in accordance with the foregoing requirements. Notice so mailed shall be effective three Business Days following deposit or, if sooner, upon receipt. Notice given in any other manner permitted herein shall be effective only if and when received by the addressee. 10.06 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors, assigns, heirs, executors, and legal representatives but shall not be assignable or delegable by any party without the prior written consent of the other parties hereto except that the Purchaser may assign its rights under this Agreement to any Affiliate of the Purchaser and as provided in Sections 8.11 and 9.01 of this Agreement. This Agreement is not made for the benefit of any Person not a party hereto, and no Person other than the parties hereto or their respective successors, permitted assigns, heirs, or legal representatives shall acquire or have any right, remedy or claim under or by virtue of this Agreement. 10.07 SEVERABILITY. 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. 10.08 ENTIRE AGREEMENT. This Agreement and the documents and instruments referred to herein contain the complete agreement among the parties with respect to the transactions contemplated hereby and supersede all previous negotiations, understandings, agreements, or representations, written or oral, made by or among the parties, relating thereto. 10.09 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into and to be performed within such state. 10.10 HEADINGS. The headings and subheadings used in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 10.11 ATTORNEYS' FEES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and disbursements in addition to any other relief to which such party may be entitled. 10.12 ADJUSTMENTS. In interpreting any provision of this Agreement which refers to a specific number of shares of Purchased Securities, such number shall be appropriately adjusted to account for stock splits, combinations and like events which may occur from time to time. 10.13 WAIVER. The Purchaser (a) hereby waives its right of first refusal under Article 9 of the Prior Agreement with respect to the sale of Common Stock of the Company pursuant to the Hydra Transaction, (b) agrees and confirms that the reduction in the exercise price under the Series A Warrants to be effected by the Amendment to Series A Warrant substantially in the form of Exhibit H to this Agreement shall be in lieu of any adjustment of the exercise price under the Series A Warrant in accordance with its terms in connection with the Hydra Transaction and (c) agrees and confirms that the reduction in the exercise price under the Series B Warrants to be effected by the Amendment to Series B Warrant substantially in the form of Exhibit I to this Agreement shall be in lieu of any adjustment of the exercise price under the Series B Warrant in accordance with its terms in connection with the Hydra Transaction. 10.14 Counterparts. This Agreement may be executed in two or more counterparts and by different parties in separate counterparts, each in which shall be deemed an original, but all of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. MYO DIAGNOSTICS, INC. By /S/ GERALD D. APPEL ---------------------------- Gerald D. Appel President /S/ GERALD D. APPEL ------------------------------- GERALD D. APPEL ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD By /S/ PETER D. FRIEND ---------------------------- Peter D. Friend Portfolio Manager By /S/ HENRY A. RACHFALOWSKI ---------------------------- Henry A. Rachfalowski Vice President CONSENT The undersigned hereby consents and agrees to the execution and delivery of the foregoing Stock Purchase Agreement including, without limitation, any and all provisions thereof which amend, modify, supplement or supersede any provisions of that certain Securities Purchase Agreement, dated as of December 23, 1994, by and among Myo Diagnostics, Inc., Ontario Municipal Employees Retirement Board, Gerald D. Appel and the undersigned. /S/ HERSHEL TOOMIM -------------------------------- Hershel Toomim EX-10.5 9 EXHIBIT 10.5 THESE WARRANTS AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THESE WARRANTS HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND THESE WARRANTS AND THE UNDERLYING COMMON STOCK MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR LAWS. MYO DIAGNOSTICS, INC. SERIES A WARRANT 100,000 Shares of Common Stock No. A-1 Dated: December 23, 1994 THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the "Company") 100,000 fully paid and nonassessable shares of the Common Stock of the Company at the price of $2.50 per share at any time during the period from the date hereof to 5:00 P.M., Los Angeles time, on December 23, 1995 (the "Expiration Date"), at which time this Warrant shall expire and become void. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock shall be adjusted from time to time as hereinafter set forth. As used herein, "Common Stock" shall mean the Company's currently authorized Common Stock and any stock into which such Common Stock may be exchanged, and the exercise price for a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price". Unless the context otherwise requires, the term "Warrant", as used herein, includes this Warrant and any other Warrant or Warrants which may be issued pursuant to the provisions of this Warrant, whether upon transfer, assignment, partial exercise, divisions, combinations, exchange or otherwise, and the term "Holder" includes any transferee or transferees or assignee or assignees of the Holder named above, all of whom shall be subject to the provisions of this Warrant. 1. METHOD OF EXERCISE. This Warrant may be exercised in whole or in part at any time or from time to time after the date hereof but not after the Expiration Date by presentation and surrender hereof to the Company at 3710 South Robertson Blvd., Suite 212, Culver City, California 90232 or at such other office as may be designated by the Company, with the Purchase Form attached hereto duly executed and accompanied by payment to the Company by cash or check or bank draft payable to the order of the Company, of an amount equal to the then applicable Exercise Price multiplied by the number of shares of Common Stock specified in such Form. If this Warrant should be exercised in part only, the Company shall, upon presentation of this Warrant upon such exercise, execute and deliver a new Warrant evidencing the right of the Holder hereof to purchase the balance of the shares of Common Stock purchasable hereunder upon the same terms and conditions as herein set forth. The Company agrees that the shares so purchased shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. Certificates for the shares of Common Stock so purchased shall be dated the date of exercise and delivered to the Holder hereof within a reasonable time, not exceeding 10 Trading Days (as hereinafter defined), after the rights represented by this Warrant shall have been exercised. 2. RESERVATION AND LISTING OF SHARES; ISSUE TAXES. The Company hereby agrees that at all times prior to the Expiration Date it will have authorized, and reserved for the purpose of issue upon exercise of this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant in full and that, upon issuance, such shares will be listed on each national securities exchange, if any, on which the other shares of the outstanding Common Stock of the Company are then listed. The Company hereby agrees that all shares of Common Stock issuable upon exercise of this Warrant will, upon issuance, be fully paid and nonassessable. The Company hereby agrees that it will pay all documentary, stamp or similar taxes and other governmental charges which may be imposed with respect to the issuance or delivery of any shares of Common Stock upon exercise of this Warrant; provided, however, that if the shares of Common Stock are to be issued in a name other than the name of the Holder of this Warrant, then no such issuance or delivery shall be made unless the person requesting the same has paid to the Company any necessary transfer tax or other governmental charge incident thereto. 3. FRACTIONAL SHARES. If the number of shares of Common Stock purchasable upon the exercise of this Warrant is adjusted pursuant to the provisions of Section 6 hereof, the Company shall nevertheless not be required to issue any fractional shares or scrip representing fractional shares upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the Current Market Price (determined as hereinafter provided) of one share of Common Stock on the last Trading Day prior to the date of exercise of this Warrant. The Current Market Price of a share of Common Stock for any day shall be determined as follows: (a) If the Common Stock is listed on one or more national securities exchanges or admitted to unlisted trading privileges on any such exchange, the Current Market Price shall be the last sale price of the Common Stock reported by the principal exchange on which the Common Stock is traded on such day; or (b) If the Common Stock is not so listed or admitted to unlisted trading privileges, the Current Market Price shall be the mean of the last reported bid and asked prices on such day, as reported by the National Association of Securities Dealers Automated Quotation System, or if not so reported, as furnished by the National Quotation Bureau, Inc., or, if such firm at the time is not engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business as selected by the Company, or if there is no such firm, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Company; or (c) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the Current Market Price shall be an amount determined in good faith and in a reasonable manner by the Board of Directors of the Company. "Trading Day" means any day on which trades in the Common Stock of the Company are reported by a national securities exchange or if such Common Stock is not listed or admitted to trading privileges on any such exchange, any day such Common Stock is traded in the over-the-counter market, provided that if Current Market Price is being determined pursuant to clause (c) of Section 3, "Trading Day" shall mean any day on which the New York Stock Exchange is open for trading. 4. TRANSFER AND EXCHANGE. Subject to the provisions of Section 8 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, on the books of the Company by the Holder hereof in person or by duly authorized attorney, upon presentation and surrender of this Warrant at the principal office of the Company with the Assignment Form attached hereto duly executed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer of this Warrant, the Company will issue and deliver to the Holder an appropriate new Warrant or Warrants. Each taker and Holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant when endorsed in blank shall be deemed negotiable and that when this Warrant shall have been so endorsed, the Holder hereof may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered Holder hereof as the owner for all purposes. This Warrant is exchangeable at the principal office of the Company for Warrants for the purchase of the same aggregate number of shares of Common Stock, each new Warrant to represent the right to purchase such number of shares of Common Stock as the Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the date hereof and shall be identical to this Warrant except as to the number of shares of Common Stock issuable pursuant thereto. 5. LOSS OR MUTILATION. Upon receipt by the Company of evidence satisfactory to it of the ownership of and loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of indemnity satisfactory to the Company and, in the case of mutilation, upon surrender and cancellation thereof, the Company shall (in the absence of notice to the Company that this Warrant has been acquired by a bona fide purchaser) execute and deliver to the Holder hereof in lieu hereof, a new Warrant of like tenor and date and any such lost, stolen or destroyed Warrant shall thereupon become void. 6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any reclassification or change of outstanding securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), the Company, or such successor, as the case may be, shall, without payment of additional consideration therefor, execute a new Warrant, providing that the Holder of this Warrant shall have the right to exercise such new Warrant and procure upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation, or merger, by a holder of one share of Common Stock issuable upon exercise of this Warrant, had this Warrant been exercised immediately prior to the record date for determining the holders of Common Stock to receive such shares of stock, other securities, money and property in connection with any such reclassification, change, consolidation, or merger. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The provisions of this Section 6(a) shall similarly apply to successive reclassifications, changes, consolidations and mergers. (b) SUBDIVISION OR COMBINATION OF SHARES. If the Company, at any time while this Warrant remains outstanding and unexpired, shall subdivide or combine its Common Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision or increased in the case of a combination at the effective time of such subdivision or combination, or if the Company shall set a record date for the purpose of determining the Common Stock initially affected by such subdivision or combination, if earlier, as of such record date. (c) STOCK DIVIDENDS. If the Company at any time while this Warrant is outstanding and unexpired shall pay a dividend or make any other distribution (except any distribution specifically provided for in Section 6(a) or 6(b) hereof) on the Common Stock in shares of Common Stock, then the Exercise Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution (plus, in the event that the Company pays cash for fractional shares, the number of additional shares which would have been outstanding had the Company issued fractional shares in connection with such dividend). (d) RIGHTS OFFERINGS. If the Company shall issue rights, options, or warrants to all holders of its outstanding shares of Common Stock, entitling them (for a period expiring within 45 days after the record date for the determination of shareholders entitled to receive such rights, options or warrants) to subscribe for or purchase shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) at a price per share of Common Stock (or having an exchange or conversion price per share of Common Stock, with respect to a security exchangeable for or convertible into shares of Common Stock) that is less than the Exercise Price in effect, immediately prior to such record date, then such Exercise Price shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock that the aggregate offering price of the total number of shares of Common Stock so to be offered (or,the aggregate initial exchange or conversion price of the exchangeable or convertible securities so to be offered) would purchase at such Exercise Price and the denominator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the exchangeable or convertible securities so to be offered are initially exchangeable or convertible). Such adjustment shall become effective at the close of business on such record date; however, to the extent that shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) are not delivered after the expiration of such rights, options, or warrants, the Exercise Price shall be readjusted (but only to the extent this Warrant is unexercised after such expiration) to the Exercise Price that would then be in effect had the adjustment made upon the issuance of such rights, options, or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) actually issued. In case any subscription price may be paid in a consideration, part or all of which shall be in a form other than cash, the value of such consideration shall be as determined by the Board of Directors in good faith and in a reasonable manner. (e) DISTRIBUTIONS OF ASSETS AND INDEBTEDNESS. If the Company shall distribute to all holders of its shares of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) evidences of its indebtedness or assets, then in each case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date for the determination of shareholders entitled to receive such distribution by a fraction, the numerator of which shall be such Exercise Price, less the fair market value (as determined by the Board of Directors of the Company acting in good faith and in a reasonable manner) of the portion of the evidences of indebtedness or assets so to be distributed applicable to one share of Common Stock and the denominator of which shall be such Exercise Price. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for the determination of shareholders entitled to receive such distribution. This Section 6(e) does not apply to (i) cash dividends payable out of consolidated retained earnings, (ii) dividends or distributions payable in shares of stock referred to in Section 6(c) above or (iii) rights, options or warrants referred to in Section 6(d) above. (f) COMMON STOCK ISSUE, OPTIONS, WARRANTS, CONVERTIBLE SECURITIES, ETC. If the Company shall sell or issue shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock for a consideration per share of Common Stock (determined, in the case of such rights, options, warrants or convertible or exchangeable securities, by dividing (i) the total amount received or receivable by the Company in consideration of the sale and issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Company upon exercise or conversion or exchange thereof, by (ii) the total number of shares of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities) lower than the Exercise Price in effect on the date the Company fixes the offering price (or exercise price, option price or conversion price, as the case may be) per share of such Common Stock, then the Exercise Price shall be reduced to a price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be an amount equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to such sale and issuance plus (B) the number of shares of Common Stock which the aggregate consideration received (determined as provided below) for such sale or issuance would purchase at such Exercise Price, and the denominator of which shall be the total number of shares of Common Stock to be outstanding immediately after such sale and issuance. Such adjustment shall be made successively whenever such an issuance is made. For the purposes of such adjustments, the shares of Common Stock which the holder of any such rights, options, warrants, or convertible or exchangeable securities shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale and issuance and the consideration received by the Company therefor shall be deemed to be the consideration received by the Company for such rights, options, warrants or convertible or exchangeable securities, plus the consideration or premiums stated in such rights, options, warrants or convertible or exchangeable securities to be paid for the shares of Common Stock covered thereby. For the purposes of determining "consideration per share of Common Stock" or "consideration received by the Company" for the purposes of the first sentence of this Section 6(f), no deduction shall be made for commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith. In case the Company shall sell and issue shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "consideration per share of Common Stock" and the "consideration received by the Company" for purposes of the first sentence of this Section 6(f), the Board of Directors shall determine the fair value of such property, acting in good faith and in a reasonable manner. This Section 6(f) does not apply to (i) shares, rights, options, warrants or convertible or exchangeable securities issued in any of the transactions described in Sections 6(a) through 6(e), (ii) Common Stock issued upon the exercise of rights, options, or warrants (including this Warrant) or upon the conversion or exchange of convertible or exchangeable securities, (iii) options to purchase not in excess of 400,000 shares of Common Stock issued or to be issued pursuant to that certain Agreement, dated December 13, 1994, between the Company and Donald Patterson, Ronald Goldsack, James Connacher, Chris Skillen, Richard Reid and James Black, or (iv) options to purchase not in excess of 400,000 shares of Common Stock issued after the date hereof to employees, consultants, officers or directors of the Company (other than Gerald D, Appel). (g) OTHER ADJUSTMENTS. If any event occurs as to which in the opinion of the Board of Directors of the Company, the other provisions of this Section 6 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Exercise Price as otherwise determined pursuant to this Section 6. (h) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Exercise Price, the number of shares of Common Stock purchasable hereunder shall be adjusted to the product obtained by multiplying such number of shares purchasable immediately prior to such adjustment in the Exercise Price by a fraction, the numerator of which shalt be the Exercise Price in effect immediately prior to such adjustment and the denominator of which shall be the Exercise Price in effect immediately thereafter. (i) MINIMUM ADJUSTMENT. No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least $.05 in the Exercise Price; provided, however, that any adjustments which by reason of this Section 6(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6 shall be made to the nearest one-tenth of one cent or to the nearest one-tenth of a share, as the case may be. (j) SECURITIES OTHER THAN COMMON STOCK. In the event that at any time, as a result of an adjustment made pursuant to this Section 6, the Holders of this Warrant shall become entitled to purchase any shares or securities of the Company other than shares of Common Stock, thereafter the number of such other shares or securities so purchasable upon exercise of this Warrant and the Exercise Price for such shares or securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in Section 6(a) through 6(h), inclusive, of this Section 6 and the other provisions hereof with respect to the shares of Common Stock shall apply on like terms to any such other shares. (k) DEFERMENT OF ADJUSTMENT. In any case in which this Section 6 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event issuing to the Holder of any Warrant exercised after such record date the shares of Common Stock, if any, issuable upon such exercise over and above the shares of Common Stock, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment. (l) VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at its option, at any time during the term of this Warrant, reduce the then current Exercise Price for any period of time to any amount deemed appropriate by the Board of Directors of the Company. 7. NOTICE OF ADJUSTMENTS. Whenever any Exercise Price shall be adjusted pursuant to Section 6 hereof, the Company shall promptly prepare a certificate of its chief financial officer setting forth, in reasonable detail the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Exercise Price after giving effect to such adjustment, and shall promptly cause copies of such certificate to be made (by first class mail, postage prepaid) to the Holder of this Warrant. 8. RESTRICTIONS ON TRANSFER; LEGENDS. This Warrant was issued pursuant to that certain Securities Purchase Agreement dated as of December 23, 1994, among the Company, Ontario Municipal Employees Retirement Board, Gerald D. Appel and Hershel Toomim (the "Purchase Agreement"), a copy of which will be furnished, without charge, to the Holder hereof upon written request to the Company. Each taker and Holder of this Warrant, by taking and holding the same, represents, acknowledges and agrees that (a) this Warrant was, and any shares of Common Stock acquired upon exercise hereof will be (unless then registered under the Securities Act of 1933 or an exemption from such registration not requiring such representation is available for the sale of the Common Stock), acquired for investment and not with a view to or for sale in connection with any distribution thereof, (b) this Warrant has not been, and the shares of Common Stock issuable upon exercise hereof may not be, registered under the Securities Act of 1933 (the "1933 Act"), may not be transferred in violation of the 1933 Act, and must be held indefinitely unless they are subsequently registered thereunder or an exemption from such registration is available, and (c) this Warrant and the shares of Common Stock issuable upon exercise hereof are subject to other restrictions on transfer by the provisions of the Purchase Agreement, including, without limitation, Sections 8.01 and 8.12 thereof. Each taker and Holder of this Warrant, by taking and holding the same, also agrees that all certificates representing Common Stock issued upon exercise of this Warrant may bear the restrictive legend set forth in Section 4.06 of the Purchase Agreement and may bear such other legends and endorsements as shall be required to comply with any law or with any rule or regulation of any stock exchange on which such securities may be listed. 9. EXTENSION OF EXPIRATION DATE. In addition, and notwithstanding any provision contained herein to the contrary, in the event that (a) at the Expiration Date the Company is required, pursuant to an effective request therefor received by the Company from the Holder pursuant to the provisions of Section 8.03 of the Purchase Agreement at least 90 days prior to the Expiration Date, to effect a Registration under the Securities Act of 1933 with respect to any shares of Common Stock subject to this Warrant or (b) at the Expiration Date the Company is in the process of effecting a registration under the Securities Act of 1933 for an underwritten public offering in which shares of Common Stock subject to this Warrant are entitled to be included pursuant an effective request therefor received by the Company from the Holder pursuant to the provisions of Section 8.02 of the Purchase Agreement on or prior to the Expiration Date, the Expiration Date shall be extended to 5:00 P.M., Los Angeles time, on the 30th day following the date on which such Registration shall have become effective but in no event longer than 180 days after the date this Warrant would otherwise have expired. In the event that the Expiration Date is extended in accordance with the provisions of this Section 9, all references contained in this Warrant to the "Expiration Date" shall be deemed to be references to the Expiration Date as so extended. 10. NO STOCKHOLDER RIGHTS. Nothing contained in this Warrant shall be construed as conferring upon the Holders or their transferees the right to vote or to receive dividends or to consent to or receive notice as shareholders in respect of any meeting of shareholders for the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company. If, however, at any time prior to the expiration of this Warrant and prior to its exercise in full, any of the following events shall occur: (a) the Company shall declare any dividend payable in any securities upon its shares of Common Stock or make any distribution to the holders of its shares of Common Stock (other than a cash dividend or a dividend payable in additional shares of Common Stock); (b) the Company shall offer to the holders of its shares of Common Stock any additional shares of Common Stock or securities convertible into shares of Common Stock or any right to subscribe to shares of Common Stock or securities convertible or exchangeable into shares of Common Stock; (c) any reclassification of the capital stock of the Company (other than a subdivision or combination of Common Stock), or any consolidation or merger to which the Company is a party or any sale of all or substantially all of the assets of the Company shall be proposed, and in each case shareholder approval is required; or (d) a dissolution, liquidation or winding up of the Company shall be proposed; then in any one or more of such events, the Company shall give notice in writing of such event to the Holders of this Warrant at least 20 days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, or subscription rights, or for the determination of shareholders entitled to vote on any such proposed transactions. Such notice shall specify such record date or date of the closing of the transfer books, as the case may be. 11. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of California. MYO DIAGNOSTICS, INC. By /s/ Gerald D. Appel -------------------------------- Name: Gerald D. Appel Title: President PURCHASE FORM Dated: , 199 --------------- -- The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing shares of Common Stock and hereby makes payment of $ in payment of the actual exercise price thereof. INSTRUCTIONS FOR REGISTRATION OF STOCK Name ------------------------------------------- (Please typewrite or print in block letters) Address ---------------------------------- ---------------------------------- Signature: ------------------------- ASSIGNMENT FORM FOR VALUE RECEIVED, hereby sells, assigns and transfers unto Name --------------------------------------------- (Please typewrite or print in block letters) Address the right to purchase Common Stock represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint , attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Signature: ------------------------- Dated: , 199 ------- -- AMENDMENT TO SERIES A WARRANT This AMENDMENT TO SERIES A WARRANT (this "Amendment"), is made as of August 18, 1995, by and between Myo Diagnostics, Inc., a California corporation (the "Company") and Ontario Municipal Employees Retirement Board ("OMERB") RECITALS A. WHEREAS, OMERB is the holder of that certain Series A Warrant, No. A-l, dated December 23, 1994, for 100,000 shares of the Common Stock of the Company (the "Warrant"); and B. WHEREAS, the Company, OMERB, and Gerald D. Appel are parties to that certain Securities Purchase Agreement, dated as of August 18, 1995, providing, INTER ALIA, for the purchase by OMERB from the Company of 111,111 shares (the "Closing Shares") of the Common Stock of the Company; and C. WHEREAS, the execution and delivery of this Amendment is a condition precedent to the obligation of OMERB to purchaser the Closing Shares pursuant to the Purchase Agreement NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. The first sentence of the introductory paragraph of the Warrant is hereby amended to read in its entirety as follows: THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the "Company") 100,000 fully paid and nonassessable shares of the Common Stock of the Company at the price of $1.90 per share at any time during the period from the date hereof to 5:00 P.M., Los Angeles time, on December 23, 1995 (the "Expiration Date"), at which time this Warrant shall expire and become void. 2. The Company hereby represents and warrants to OMERB that this Amendment has been duly executed and delivered by the Company and that the Warrant, as amended by this Amendment constitutes the legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms. 3. OMERB hereby represents and warrants to the Company that this Amendment has been duly executed and delivered by OMERB. 4. This Amendment may be executed in two or more counterparts and by different parties in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written. MYO DIAGNOSTICS, INC. By /s/ Gerald D. Appel -------------------------------- Gerald D. Appel President ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD By /s/ Peter F. Friend -------------------------------- Peter D. Friend Portfolio Manager By /s/ Henry A. Rachfalowski -------------------------------- Henry A. Rachfalowski Vice President SECOND AMENDMENT TO SERIES A WARRANT This SECOND AMENDMENT TO SERIES A WARRANT (this "Amendment"), is made as of December 22, 1995, by and between Myo Diagnostics, Inc,, a California corporation (the "Company") and Ontario Municipal Employees Retirement Board ("OMERB") RECITALS A. WHEREAS, OMERB is the holder of that certain Series A Warrant, No. A-l, dated December 23, 1994, for 100,000 shares of the Common Stock of the Company, as amended by that certain Amendment to Series A Warrant, dated as of August 18, 1995 (as so amended, the "Warrant"); and B. WHEREAS, the Company and OMERB desire to further amend the Warrant as hereinafter provided NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. The first sentence of the introductory paragraph of the Warrant is hereby amended to read in its entirety as follows: THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the "Company") 100,000 fully paid and nonassessable shares of the Common Stock of the Company at the price of $1.50 per share at any time during the period from the date hereof to 5:00 P.M., Los Angeles time, on December 23, 1997 (the "Expiration Date"), at which time this Warrant shall expire and become void. 2. The Company hereby represents and warrants to OMERB that this Amendment has been duly executed and delivered by the Company and that the Warrant, as amended by this Amendment constitutes the legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms. 3. OMERB hereby represents and warrants to the Company that this Amendment has been duly executed and delivered by OMERB. 4. This Amendment may be executed in two or more counterparts and by different parties in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written. MYO DIAGNOSTICS, INC. By /s/ Gerald D. Appel -------------------------------- Gerald D. Appel President ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD By /s/ Peter F. Friend -------------------------------- Peter D. Friend Portfolio Manager By /s/ Henry A. Rachfalowski -------------------------------- Henry A. Rachfalowski Vice President EX-10.6 10 EXHIBIT 10.6 THESE WARRANTS AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THESE WARRANTS HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND THESE WARRANTS AND THE UNDERLYING COMMON STOCK MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR LAWS. MYO DIAGNOSTICS, INC. SERIES B WARRANT 83,333 Shares of Common Stock No. B-1 Dated: December 23, 1994 THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the "Company") 83,333 fully paid and nonassessable shares of the Common Stock of the Company at the price of $3.00 per share at any time during the period from the date hereof to 5:00 P.M., Los Angeles time, on June 23, 1997 (the "Expiration Date"), at which time this Warrant shall expire and become void. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock shall be adjusted from time to time as hereinafter set forth. As used herein, "Common Stock" shall mean the Company's currently authorized Common Stock and any stock into which such Common Stock may be exchanged, and the exercise price for a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price". Unless the context otherwise requires, the term "Warrant", as used herein, includes this Warrant and any other Warrant or Warrants which may be issued pursuant to the provisions of this Warrant, whether upon transfer, assignment, partial exercise, divisions, combinations, exchange or otherwise, and the term "Holder" includes any transferee or transferees or assignee or assignees of the Holder named above, all of whom shall be subject to the provisions of this Warrant. 1. METHOD OF EXERCISE. This Warrant may be exercised in whole or in part at any time or from time to time after the date hereof but not after the Expiration Date by presentation and surrender hereof to the Company at 3710 South Robertson Blvd., Suite 212, Culver City, California 90232 or at such other office as may be designated by the Company, with the Purchase Form attached hereto duly executed and accompanied by payment to the Company by cash or check or bank draft payable to the order of the Company, of an amount equal to the then applicable Exercise Price multiplied by the number of shares of Common Stock specified in such Form. If this Warrant should be exercised in part only, the Company shall, upon presentation of this Warrant upon such exercise, execute and deliver a new Warrant evidencing the right of the Holder hereof to purchase the balance of the shares of Common Stock purchasable hereunder upon the same terms and conditions as herein set forth. The Company agrees that the shares so purchased shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. Certificates for the shares of Common Stock so purchased shall be dated the date of exercise and delivered to the Holder hereof within a reasonable time, not exceeding 10 Trading Days (as hereinafter defined), after the rights represented by this Warrant shall have been exercised. 2. RESERVATION AND LISTING OF SHARES; ISSUE TAXES. The Company hereby agrees that at all times prior to the Expiration Date it will have authorized, and reserved for the purpose of issue upon exercise of this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant, in full and that, upon issuance, such shares will be listed on each national securities exchange, if any, on which the other shares of the outstanding Common Stock of the Company are then listed. The Company hereby agrees that all shares of Common Stock issuable upon exercise of this Warrant will, upon issuance, be fully paid and nonassessable. The Company hereby agrees that it will pay all documentary, stamp or similar taxes and other governmental charges which may be imposed with respect to the issuance or delivery of any shares of Common Stock upon exercise of this Warrant; provided, however, that if the shares of Common Stock are to be issued in a name other than the name of the Holder of this Warrant, then no such issuance or delivery shall be made unless the person requesting the same has paid to the Company any necessary transfer tax or other governmental charge incident thereto. 3. FRACTIONAL SHARES. If the number of shares of Common Stock purchasable upon the exercise of this Warrant is adjusted pursuant to the provisions of Section 6 hereof, the Company shall nevertheless not be required to issue any fractional shares or scrip representing fractional shares upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the Current Market Price (determined as hereinafter provided) of one share of Common Stock on the last Trading Day prior to the date of exercise of this Warrant. The Current Market Price of a share of Common Stock for any day shall be determined as follows: (a) If the Common Stock is listed on one or more national securities exchanges or admitted to unlisted trading privileges on any such exchange, the Current Market Price shall be the last sale price of the Common Stock reported by the principal exchange on which the Common Stock is traded on such day; or (b) If the Common Stock is not so listed or admitted to unlisted trading privileges, the Current Market Price shall be the mean of the last reported bid and asked prices on such day, as reported by the National Association of Securities Dealers Automated Quotation System, or if not so reported, as furnished by the National Quotation Bureau, Inc., or, if such firm at the time is not engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business as selected by the Company, or if there is no such firm, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Company; or (c) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the Current Market Price shall be an amount determined in good faith and in a reasonable manner by the Board of Directors of the Company. "Trading Day" means any day on which trades in the Common Stock of the Company are reported by a national securities exchange or if such Common Stock is not listed or admitted to trading privileges on any such exchange, any day such Common Stock is traded in the over-the-counter market, provided that if Current Market Price is being determined pursuant to clause (c) of Section 3, "Trading Day" shall mean any day on which the New York Stock Exchange is open for trading. 4. TRANSFER AND EXCHANGE. Subject to the provisions of Section 8 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, on the books of the Company by the Holder hereof in person or by duly authorized attorney, upon presentation and surrender of this Warrant at the principal office of the Company with the Assignment Form attached hereto duly executed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer of this Warrant, the Company will issue and deliver to the Holder an appropriate new Warrant or Warrants. Each taker and Holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant when endorsed in blank shall be deemed negotiable and that when this Warrant shall have been so endorsed, the Holder hereof may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered Holder hereof as the owner for all purposes. This Warrant is exchangeable at the principal office of the Company for Warrants for the purchase of the same aggregate number of shares of Common Stock, each new Warrant to represent the right to purchase such number of shares of Common Stock as the Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the date hereof and shall be identical to this Warrant except as to the number of shares of Common Stock issuable pursuant thereto. 5. LOSS OR MUTILATION. Upon receipt by the Company of evidence satisfactory to it of the ownership of and loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of indemnity satisfactory to the Company and, in the case of mutilation, upon surrender and cancellation thereof, the Company shall (in the absence of notice to the Company that this Warrant has been acquired by a bona fide purchaser) execute and deliver to the Holder hereof in lieu hereof, a new Warrant of like tenor and date and any such lost, stolen or destroyed Warrant shall thereupon become void. 6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any reclassification or change of outstanding securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), the Company, or such successor, as the case may be, shall, without payment of additional consideration therefor, execute a new Warrant, providing that the Holder of this Warrant shall have the right to exercise such new Warrant and procure upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation, or merger, by a holder of one share of Common Stock issuable upon exercise of this Warrant, had this Warrant been exercised immediately prior to the record date for determining the holders of Common Stock to receive such shares of stock, other securities, money and property in connection with any such reclassification, change, consolidation, or merger. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The provisions of this Section 6(a) shall similarly apply to successive reclassifications, changes, consolidations and mergers. (b) SUBDIVISION OR COMBINATION OF SHARES. If the Company, at any time while this Warrant remains outstanding and unexpired, shall subdivide or combine its Common Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision or increased in the case of a combination at the effective time of such subdivision or combination, or if the Company shall set a record date for the purpose of determining the Common Stock initially affected by such subdivision or combination, if earlier, as of such record date. (c) STOCK DIVIDENDS. If the Company at any time while this Warrant is outstanding and unexpired shall pay a dividend or make any other distribution (except any distribution specifically provided for in Section 6(a) or 6(b) hereof) on the Common Stock in shares of Common Stock, then the Exercise Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution (plus, in the event the Company pays cash for fractional shares, the number of additional shares which would have been outstanding had the Company issued fractional shares in connection with such dividend). (d) RIGHTS OFFERINGS. If the Company shall issue rights, options, or warrants to all holders of its outstanding shares of Common Stock, entitling them (for a period expiring within 45 days after the record date for the determination of shareholders entitled to receive such rights, options or warrants) to subscribe for or purchase shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) at a price per share of Common Stock (or having an exchange or conversion price per share of Common Stock, with respect to a security exchangeable for or convertible into shares of Common Stock) that is less than the Exercise Price in effect, immediately prior to such record date, then such Exercise Price shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock that the aggregate offering price of the total number of shares of Common Stock so to be offered (or,the aggregate initial exchange or conversion price of the exchangeable or convertible securities so to be offered) would purchase at such Exercise Price and the denominator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the exchangeable or convertible securities so to be offered are initially exchangeable or convertible). Such adjustment shall become effective at the close of business on such record date; however, to the extent that shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) are not delivered after the expiration of such rights, options, or warrants, the Exercise Price shall be readjusted (but only to the extent this Warrant is unexercised after such expiration) to the Exercise Price that would then be in effect had the adjustment made upon the issuance of such rights, options, or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) actually issued. In case any subscription price may be paid in a consideration, part or all of which shall be in a form other than cash, the value of such consideration shall be as determined by the Board of Directors in good faith and in a reasonable manner. (e) DISTRIBUTIONS OF ASSETS AND INDEBTEDNESS. If the Company shall distribute to all holders of its shares of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) evidences of its indebtedness or assets, then in each case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date for the determination of shareholders entitled to receive such distribution by a fraction, the numerator of which shall be such Exercise Price, less the fair market value (as determined by the Board of Directors of the Company acting in good faith and in a reasonable manner) of the portion of the evidences of indebtedness or assets so to be distributed applicable to one share of Common Stock and the denominator of which shall be such Exercise Price. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for the determination of shareholders entitled to receive such distribution. This Section 6(e) does not apply to (i) cash dividends payable out of consolidated retained earnings, (ii) dividends or distributions payable in shares of stock referred to in Section 6(c) above or (iii) rights, options or warrants referred to in Section 6(d) above. (f) COMMON STOCK ISSUE, OPTIONS, WARRANTS, CONVERTIBLE SECURITIES, ETC. If the Company shall sell or issue shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock for a consideration per share of Common Stock (determined, in the case of such rights, options, warrants or convertible or exchangeable securities, by dividing (i) the total amount received or receivable by the Company in consideration of the sale and issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Company upon exercise or conversion or exchange thereof, by (ii) the total number of shares of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities) lower than the Exercise Price in effect on the date the Company fixes the offering price (or exercise price, option price or conversion price, as the case may be) per share of such Common Stock, then the Exercise Price shall be reduced to a price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be an amount equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to such sale and issuance plus (B) the number of shares of Common Stock which the aggregate consideration received (determined as provided below) for such sale or issuance would purchase at such Exercise Price, and the denominator of which shall be the total number of shares of Common Stock to be outstanding immediately after such sale and issuance. Such adjustment shall be made successively whenever such an issuance is made. For the purposes of such adjustments, the shares of Common Stock which the holder of any such rights, options, warrants, or convertible or exchangeable securities shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale and issuance and the consideration received by the Company therefor shall be deemed to be the consideration received by the Company for such rights, options, warrants or convertible or exchangeable securities, plus the consideration or premiums stated in such rights, options, warrants or convertible or exchangeable securities to be paid for the shares of Common Stock covered thereby. For the purposes of determining "consideration per share of Common Stock" or "consideration received by the Company" for the purposes of the first sentence of this Section 6(f), no deduction shall be made for commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith. In case the Company shall sell and issue shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "consideration per share of Common Stock" and the "consideration received by the Company" for purposes of the first sentence of this Section 6(f), the Board of Directors shall determine the fair value of such property, acting in good faith and in a reasonable manner. This Section 6(f) does not apply to (i) shares, rights, options, warrants or convertible or exchangeable securities issued in any of the transactions described in Sections 6(a) through 6(e), (ii) Common Stock issued upon the exercise of rights, options, or warrants (including this Warrant) or upon the conversion or exchange of convertible or exchangeable securities, (iii) options to purchase not in excess of 400,000 shares of Common Stock issued or to be issued pursuant to that certain Agreement, dated December 13, 1994, between the Company and Donald Patterson, Ronald Goldsack, James Connacher, Chris Skillen, Richard Reid and James Black, or (iv) options to purchase not in excess of 400,000 shares of Common Stock issued after the date hereof to employees, consultants, officers or directors of the Company (other than Gerald D. Appel). (g) OTHER ADJUSTMENTS. If any event occurs as to which in the opinion of the Board of Directors of the Company, the other provisions of this Section 6 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Exercise Price as otherwise determined pursuant to this Section 6. (h) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Exercise Price, the number of shares of Common Stock purchasable hereunder shall be adjusted to the product obtained by multiplying such number of shares purchasable immediately prior to such adjustment in the Exercise Price by a fraction, the numerator of which shalt be the Exercise Price in effect immediately prior to such adjustment and the denominator of which shall be the Exercise Price in effect immediately thereafter. (i) MINIMUM ADJUSTMENT. No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least $.05 in the Exercise Price; provided, however, that any adjustments which by reason of this Section 6(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6 shall be made to the nearest one-tenth of one cent or to the nearest one-tenth of a share, as the case may be. (j) SECURITIES OTHER THAN COMMON STOCK. In the event that at any time, as a result of an adjustment made pursuant to this Section 6, the Holders of this Warrant shall become entitled to purchase any shares or securities of the Company other than shares of Common Stock, thereafter the number of such other shares or securities so purchasable upon exercise of this Warrant and the Exercise Price for such shares or securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in Section 6(a) through 6(h), inclusive, of this Section 6 and the other provisions hereof with respect to the shares of Common Stock shall apply on like terms to any such other shares. (k) DEFERMENT OF ADJUSTMENT. In any case in which this Section 6 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event issuing to the Holder of any Warrant exercised after such record date the shares of Common Stock, if any, issuable upon such exercise over and above the shares of Common Stock, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment. (l) VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at its option, at any time during the term of this Warrant, reduce the then current Exercise Price for any period of time to any amount deemed appropriate by the Board of Directors of the Company. 7. NOTICE OF ADJUSTMENTS. Whenever any Exercise Price shall be adjusted pursuant to Section 6 hereof, the Company shall promptly prepare a certificate of its chief financial officer setting forth, in reasonable detail the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Exercise Price after giving effect to such adjustment, and shall promptly cause copies of such certificate to be made (by first class mail, postage prepaid) to the Holder of this Warrant. 8. RESTRICTIONS ON TRANSFER; LEGENDS. This Warrant was issued pursuant to that certain Securities Purchase Agreement dated as of December 23, 1994, among the Company, Ontario Municipal Employees Retirement Board, Gerald D. Appel and Hershel Toomim (the "Purchase Agreement"), a copy of which will be furnished, without charge, to the Holder hereof upon written request to the Company. Each taker and Holder of this Warrant, by taking and holding the same, represents, acknowledges and agrees that (a) this Warrant was, and any shares of Common Stock acquired upon exercise hereof will be (unless then registered under the Securities Act of 1933 or an exemption from such registration not requiring such representation is available for the sale of the Common Stock), acquired for investment and not with a view to or for sale in connection with any distribution thereof, (b) this Warrant has not been, and the shares of Common Stock issuable upon exercise hereof may not be, registered under the Securities Act of 1933 (the "1933 Act"), may not be transferred in violation of the 1933 Act, and must be held indefinitely unless they are subsequently registered thereunder or an exemption from such registration is available, and (c) this Warrant and the shares of Common Stock issuable upon exercise hereof are subject to other restrictions on transfer by the provisions of the Purchase Agreement, including, without limitation, Sections 8.01 and 8.12 thereof. Each taker and Holder of this Warrant, by taking and holding the same, also agrees that all certificates representing Common Stock issued upon exercise of this Warrant may bear the restrictive legend set forth in Section 4.06 of the Purchase Agreement and may bear such other legends and endorsements as shall be required to comply with any law or with any rule or regulation of any stock exchange on which such securities may be listed. 9. EXTENSION OF EXPIRATION DATE. In addition, and notwithstanding any provision contained herein to the contrary, in the event that (a) at the Expiration Date the Company is required, pursuant to an effective request therefor received by the Company from the Holder pursuant to the provisions of Section 8.03 of the Purchase Agreement at least 90 days prior to the Expiration Date, to effect a Registration under the Securities Act of 1933 with respect to any shares of Common Stock subject to this Warrant or (b) at the Expiration Date the Company is in the process of effecting a registration under the Securities Act of 1933 for an underwritten public offering in which shares of Common Stock subject to this Warrant are entitled to be included pursuant an effective request therefor received by the Company from the Holder pursuant to the provisions of Section 8.02 of the Purchase Agreement on or prior to the Expiration Date, the Expiration Date shall be extended to 5:00 P.M., Los Angeles time, on the 30th day following the date on which such Registration shall have become effective but in no event longer than 180 days after the date this Warrant would otherwise have expired. In the event that the Expiration Date is extended in accordance with the provisions of this Section 9, all references contained in this Warrant to the "Expiration Date" shall be deemed to be references to the Expiration Date as so extended. 10. NO STOCKHOLDER RIGHTS. Nothing contained in this Warrant shall be construed as conferring upon the Holders or their transferees the right to vote or to receive dividends or to consent to or receive notice as shareholders in respect of any meeting of shareholders for the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company. If, however, at any time prior to the expiration of this Warrant and prior to its exercise in full, any of the following events shall occur: (a) the Company shall declare any dividend payable in any securities upon its shares of Common Stock or make any distribution to the holders of its shares of Common Stock (other than a cash dividend or a dividend payable in additional shares of Common Stock); (b) the Company shall offer to the holders of its shares of Common Stock any additional shares of Common Stock or securities convertible into shares of Common Stock or any right to subscribe to shares of Common Stock or securities convertible or exchangeable into shares of Common Stock; (c) any reclassification of the capital stock of the Company (other than a subdivision or combination of Common Stock), or any consolidation or merger to which the Company is a party or any sale of all or substantially all of the assets of the Company shall be proposed, and in each case shareholder approval is required; or (d) a dissolution, liquidation or winding up of the Company shall be proposed; then in any one or more of such events, the Company shall give notice in writing of such event to the Holders of this Warrant at least 20 days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, or subscription rights, or for the determination of shareholders entitled to vote on any such proposed transactions. Such notice shall specify such record date or date of the closing of the transfer books, as the case may be. 11. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of California. MYO DIAGNOSTICS, INC. By: /s/ Gerald D. Appel ------------------------------ Name: GERALD APPEL Title: President PURCHASE FORM Dated: , 199 --------- -- The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing ________ shares of Common Stock and hereby makes payment of $_____________ in payment of the actual exercise price thereof. INSTRUCTIONS FOR REGISTRATION OF STOCK Name ----------------------------------------------- (Please typewrite or print in block letters) Address ------------------------------------------ ------------------------------------------ Signature: ------------------------------ ASSIGNMENT FORM FOR VALUE RECEIVED, ________________________________ hereby sells, assigns and transfers unto Name ------------------------------------------- (Please typewrite or print in block letters) Address ________________________________________________ the right to purchase Common Stock represented by this Warrant to the extent of ______ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ____________________________, attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Signature: ------------------------------ Dated: , 199 -------------- -- AMENDMENT TO SERIES B WARRANT This AMENDMENT TO SERIES B WARRANT (this "Amendment"), is made as of August 18, 1995, by and between Myo Diagnostics, Inc., a California corporation (the "Company") and Ontario Municipal Employees Retirement Board ("OMERB") RECITALS A. WHEREAS, OMERB is the holder of that certain Series B Warrant, No. B-l, dated December 23, 1994, for 83,333 shares of the Common Stock of the Company (the "Warrant"); and B. WHEREAS, the Company, OMERB, Gerald D. and Appel are parties to that certain Securities Purchase Agreement, dated as of August 18, 1995, providing, INTER ALIA, for the purchase by OMERB from the Company of 111,111 shares (the "Closing Shares") of the Common Stock of the Company; and C. WHEREAS, the execution and delivery of this Amendment is a condition precedent to the obligation of OMERB to purchaser the Closing Shares pursuant to the Purchase Agreement NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. The first sentence of the introductory paragraph of the Warrant is hereby amended to read in its entirety as follows: THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the "Company") 83,333 fully paid and nonassessable shares of the Common Stock of the Company at the price of $2.25 per share at any time during the period from the date hereof to 5:00 P.M., Los Angeles time, on June 23, 1997 (the "Expiration Date"), at which time this Warrant shall expire and become void. 2. The Company hereby represents and warrants to OMERB that this Amendment has been duly executed and delivered by the Company and that the Warrant, as amended by this Amendment constitutes the legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms. 3. OMERB hereby represents and warrants to the Company that this Amendment has been duly executed and delivered by OMERB. 4. This Amendment may be executed in two or more counterparts and by different parties in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written. MYO DIAGNOSTICS, INC. By /s/ Gerald D. Appel -------------------------------- Gerald D. Appel President ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD By /s/ Peter F. Friend -------------------------------- Peter D. Friend Portfolio Manager By /s/ Henry A. Rachfalowski -------------------------------- Henry A. Rachfalowski Vice President SECOND AMENDMENT TO SERIES B WARRANT This SECOND AMENDMENT TO SERIES B WARRANT (this "Amendment"), is made as of December 22, 1995, by and between Myo Diagnostics, Inc,, a California corporation (the "Company") and Ontario Municipal Employees Retirement Board ("OMERB") RECITALS A. WHEREAS, OMERB is the holder of that certain Series B Warrant, No. B-l, dated December 23, 1994, for 83,333 shares of the Common Stock of the Company, as amended by that certain Amendment to Series B Warrant dated as of August 18, 1995 (as so amended, the "Warrant"); and B. WHEREAS, the Company and OMERB desire to further amend the Warrant as hereinafter provided NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. The first sentence of the introductory paragraph of the Warrant is hereby amended to read in its entirety as follows: THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the "Company") 83,333 fully paid and nonassessable shares of the Common Stock of the Company at the price of $1.75 per share at any time during the period from the date hereof to 5:00 P.M., Los Angeles time, on June 23, 1998 (the "Expiration Date"), at which time this Warrant shall expire and become void. 2. The Company hereby represents and warrants to OMERB that this Amendment has been duly executed and delivered by the Company and that the Warrant, as amended by this Amendment constitutes the legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms. 3. OMERB hereby represents and warrants to the Company that this Amendment has been duly executed and delivered by OMERB. 4. This Amendment may be executed in two or more counterparts and by different parties in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written. MYO DIAGNOSTICS, INC. By /s/ Gerald D. Appel -------------------------------- Gerald D. Appel President ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD By /s/ Peter F. Friend -------------------------------- Peter D. Friend Portfolio Manager By /s/ Henry A. Rachfalowski -------------------------------- Henry A. Rachfalowski Vice President EX-10.7 11 EXHIBIT 10.7 THESE WARRANTS AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THESE WARRANTS HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND THESE WARRANTS AND THE UNDERLYING COMMON STOCK MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR LAWS. MYO DIAGNOSTICS, INC. SERIES C WARRANT To Purchase Shares of Common Stock No. C-1 Dated: August 18, 1995 THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the "Company") the number of fully paid and nonassessable shares of the Common Stock of the Company specified below at the price per share specified below at any time during the period from the Initial Exercise Date (as hereinafter defined) to 5:00 P.M., Los Angeles time, on August 30, 1996 (the "Expiration Date"), at which time this Warrant shall expire and become void. "Initial Exercise Date" means January 31, 1996, provided, however, that if on January 31, 1996, the Company has a firm written commitment from a person which is not an Affiliate of the Company (as hereinafter defined) for Gross Proceeds (as hereinafter defined), which together with all Gross Proceeds previously realized by the Company exceeds $500,000, then the Initial Exercise Date shall mean February 28, 1996, or if earlier, the date on which such firm written commitment is terminated. "Gross Proceeds" shall mean the aggregate proceeds realized by the Company subsequent to August 18, 1995, and prior to the Initial Exercise Date from the sale of its Common Stock or other equity securities to any person who is not an Affiliate of the Company in a transaction not involving a public offering. Gross Proceeds shall not include proceeds realized by the Company from (a) the subscription for and sale of securities of the Company pursuant to that certain Subscription Agreement, dated as of August 18, 1995 between the Company and Hydra Capital Corporation and Gerald D. Appel or the subscription for and sale of securities of the Company pursuant to the Share Purchase Warrant issued or to be issued in accordance with the terms thereof, (b) the sale of securities of the Company pursuant to that certain Securities Purchase Agreement, dated as of August 18, 1995, by and among the Company, Holder and Gerald D. Appel or upon the exercise of this Warrant, (c) the sale of securities of the Company upon the exercise of that certain Series A Warrant, dated December 23, 1994, and issued to Holder, as amended, or (d) the sale of securities of the Company upon the exercise of that certain Series B Warrant, dated December 23, 1994, and issued to Holder, as amended. "Affiliate of the Company" means Gerald D. Appel, any person who controls, is controlled by or is under common control with Mr. Appel or any relative by blood or marriage (not more remote than first cousin) of Mr. Appel. The number of shares of Common Stock initially issuable upon exercise of this Warrant and the initial price to be paid for each share of Common Stock shall be determined on the Initial Exercise Date as follows: If Gross Proceeds are greater than $1,500,000, such number of shares shall be 222,222 and such price shall be $2.30; If Gross Proceeds are greater than $1,400,000 but not greater than $1,500,000, such number of shares shall be 222,222 and such price shall be $2.20; If Gross Proceeds are greater than $1,300,000 but not greater than $1,400,000, such number of shares shall be 222,222 and such price shall be $2.10; If Gross Proceeds are greater than $1,200,000 but not greater than $1,300,000, such number of shares shall be 222,222 and such price shall be $2.00; If Gross Proceeds are greater than $1,100,000 but not greater than $1,200,000, such number of shares shall be 222,222 and such price shall be $1.90; If Gross Proceeds are greater than $1,000,000 but not greater than $1,100,000, such number of shares shall be 222,222 and such price shall be $1.80; If Gross Proceeds are greater than $900,000 but not greater than $1,000,000, such number of shares shall be 444,444 and such price shall be $1.50; If Gross Proceeds are greater than $800,000 but not greater than $900,000, such number of shares shall be 666,667 and such price shall be $1.00; If Gross Proceeds are greater than $700,000 but not greater than $800,000, such number of shares shall be 888,889 and such price shall be $0.25; If Gross Proceeds are greater than $600,000 but not greater than $700,000, such number of shares shall be 1,111,111 and such price shall be $0.10; If Gross Proceeds are greater than $500,000 but not greater than $600,000, such number of shares shall be 1,333,333 and such price shall be $0.05; and If Gross Proceeds are $500,000 or less, such number of shares shall be such number as would be equal 50.1% of the total number of outstanding shares Common Stock of the Company after giving effect to the issuance thereof and such price shall be $0.001. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock shall be adjusted from time to time as hereinafter set forth. As used herein, "Common Stock" shall mean the Company's currently authorized Common Stock and any stock into which such Common Stock may be exchanged, and the exercise price for a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price". Unless the context otherwise requires, the term "Warrant", as used herein, includes this Warrant and any other Warrant or Warrants which may be issued pursuant to the provisions of this Warrant, whether upon transfer, assignment, partial exercise, divisions, combinations, exchange or otherwise, and the term "Holder" includes any transferee or transferees or assignee or assignees of the Holder named above, all of whom shall be subject to the provisions of this Warrant. If Gross Proceeds are greater than $700,000 but not greater than $800,000, such number of shares shall be 888,889 and such price shall be $0.25; If Gross Proceeds are greater than $600,000 but not greater than $700,000, such number of shares shall be 1,111,111 and such price shall be $0.10; If Gross Proceeds are greater than $500,000 but not greater than $600,000, such number of shares shall be 1,333,333 and such price shall be $0.05; and If Gross Proceeds are $500,000 or less, such number of shares shall be such number as would be equal 50.1% of the total number of outstanding shares Common Stock of the Company after giving effect to the issuance thereof and such price shall be $0.001. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock shall be adjusted from time to time as hereinafter set forth. As used herein, "Common Stock" shall mean the Company's currently authorized Common Stock and any stock into which such Common Stock may be exchanged, and the exercise price for a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price". Unless the context otherwise requires, the term "Warrant", as used herein, includes this Warrant and any other Warrant or Warrants which may be issued pursuant to the provisions of this Warrant, whether upon transfer, assignment, partial exercise, divisions, combinations, exchange or otherwise, and the term "Holder" includes any transferee or transferees or assignee or assignees of the Holder named above, all of whom shall be subject to the provisions of this Warrant. 1. METHOD OF EXERCISE. This Warrant may be exercised in whole or in part at any time or from time to time after the date hereof but not after the Expiration Date by presentation and surrender hereof to the Company at 3710 South Robertson Blvd., Suite 212, Culver City, California 90232 or at such other office as may be designated by the Company, with the Purchase Form attached hereto duly executed and accompanied by payment to the Company by cash or check or bank draft payable to the order of the Company, of an amount equal to the then applicable Exercise Price multiplied by the number of shares of Common Stock specified in such Form. If this Warrant should be exercised in part only, the Company shall, upon presentation of this Warrant upon such exercise, execute and deliver a new Warrant evidencing the right of the Holder hereof to purchase the balance of the shares of Common Stock purchasable hereunder upon the same terms and conditions as herein set forth. The Company agrees that the shares so purchased shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. Certificates for the shares of Common Stock so purchased shall be dated the date of exercise and delivered to the Holder hereof within a reasonable time, not exceeding 10 Trading Days (as hereinafter defined), after the rights represented by this Warrant shall have been exercised. 2. RESERVATION AND LISTING OF SHARES; ISSUE TAXES. The Company hereby agrees that at all times prior to the Expiration Date it will have authorized, and reserved for the purpose of issue upon exercise of this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant in full and that, upon issuance, such shares will be listed on each national securities exchange, if any, on which the other shares of the outstanding Common Stock of the Company are then listed. The Company hereby agrees that all shares of Common Stock issuable upon exercise of this Warrant will, upon issuance, be fully paid and nonassessable. The Company hereby agrees that it will pay all documentary, stamp or similar taxes and other governmental charges which may be imposed with respect to the issuance or delivery of any shares of Common Stock upon exercise of this Warrant; provided, however, that if the shares of Common Stock are to be issued in a name other than the name of the Holder of this Warrant, then no such issuance or delivery shall be made unless the person requesting the same has paid to the Company any necessary transfer tax or other governmental charge incident thereto. 3. FRACTIONAL SHARES. If the number of shares of Common Stock purchasable upon the exercise of this Warrant is adjusted pursuant to the provisions of Section 6 hereof, the Company shall nevertheless not be required to issue any fractional shares or scrip representing fractional shares upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the Current Market Price (determined as hereinafter provided) of one share of Common Stock on the last Trading Day prior to the date of exercise of this Warrant. The Current Market Price of a share of Common Stock for any day shall be determined as follows: (a) If the Common Stock is listed on one or more national securities exchanges or admitted to unlisted trading privileges on any such exchange, the Current Market Price shall be the last sale price of the Common Stock reported by the principal exchange on which the Common Stock is traded on such day; or (b) If the Common Stock is not so listed or admitted to unlisted trading privileges, the Current Market Price shall be the mean of the last reported bid and asked prices on such day, as reported by the National Association of Securities Dealers Automated Quotation System, or if not so reported, as furnished by the National Quotation Bureau, Inc., or, if such firm at the time is not engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business as selected by the Company, or if there is no such firm, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Company; or (c) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the Current Market Price shall be an amount determined in good faith and in a reasonable manner by the Board of Directors of the Company. "Trading Day" means any day on which trades in the Common Stock of the Company are reported by a national securities exchange or if such Common Stock is not listed or admitted to trading privileges on any such exchange, any day such Common Stock is traded in the over-the-counter market, provided that if Current Market Price is being determined pursuant to clause (c) of Section 3, "Trading Day" shall mean any day on which the New York Stock Exchange is open for trading. 4. TRANSFER AND EXCHANGE. Subject to the provisions of Section 8 hereof this Warrant and all rights hereunder are transferable, in whole or in part, on the books of the Company by the Holder hereof in person or by duly authorized attorney, upon presentation and surrender of this Warrant at the principal office of the Company with the Assignment Form attached hereto duly executed and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer of this Warrant, the Company will issue and deliver to the Holder an appropriate new Warrant or Warrants. Each taker and Holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant when endorsed in blank shall be deemed negotiable and that when this Warrant shall have been so endorsed, the Holder hereof may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered Holder hereof as the owner for all purposes. This Warrant is exchangeable at the principal office of the Company for Warrants for the purchase of the same aggregate number of shares of Common Stock, each new Warrant to represent the right to purchase such number of shares of Common Stock as the Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the date hereof and shall be identical to this Warrant except as to the number of shares of Common Stock issuable pursuant thereto. 5. LOSS OR MUTILATION. Upon receipt by the Company of evidence satisfactory to it of the ownership of and loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of indemnity satisfactory to the Company and, in the case of mutilation, upon surrender and cancellation thereof, the Company shall (in the absence of notice to the Company that this Warrant has been acquired by a bona fide purchaser) execute and deliver to the Holder hereof in lieu hereof, a new Warrant of like tenor and date and any such lost, stolen or destroyed Warrant shall thereupon become void. 6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any reclassification or change of outstanding securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), the Company, or such successor, as the case may be, shall, without payment of additional consideration therefor, execute a new Warrant, providing that the Holder of this Warrant shall have the right to exercise such new Warrant and procure upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation, or merger, by a holder of one share of Common Stock issuable upon exercise of this Warrant, had this Warrant been exercised immediately prior to the record date for determining the holders of Common Stock to receive such shares of stock, other securities, money and property in connection with any such reclassification, change, consolidation, or merger. Such new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The provisions of this Section 6(a) shall similarly apply to successive reclassifications, changes, consolidations and mergers. (b) SUBDIVISION OR COMBINATION OF SHARES. If the Company, at any time while this Warrant remains outstanding and unexpired, shall subdivide or combine its Common Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision or increased in the case of a combination at the effective time of such subdivision or combination, or if the Company shall set a record date for the purpose of determining the Common Stock initially affected by such subdivision or combination, if earlier, as of such record date. (c) STOCK DIVIDENDS. If the Company at any time while this Warrant is outstanding and unexpired shall pay a dividend or make any other distribution (except any distribution specifically provided for in Section 6(a) or 6(b) hereof) on the Common Stock in shares of Common Stock, then the Exercise Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution (plus, in the event that the Company pays cash for fractional shares, the number of additional shares which would have been outstanding had the Company issued fractional shares in connection with such dividend). (d) RIGHTS OFFERINGS. If the Company shall issue rights, options, or warrants to all holders of its outstanding shares of Common Stock, entitling them (for a period expiring within 45 days after the record date for the determination of shareholders entitled to receive such rights, options or warrants) to subscribe for or purchase shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) at a price per share of Common Stock (or having an exchange or conversion price per share of Common Stock, with respect to a security exchangeable for or convertible into shares of Common Stock) that is less than the Exercise Price in effect, immediately prior to such record date, then such Exercise Price shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock that the aggregate offering price of the total number of shares of Common Stock so to be offered (or,the aggregate initial exchange or conversion price of the exchangeable or convertible securities so to be offered) would purchase at such Exercise Price and the denominator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the exchangeable or convertible securities so to be offered are initially exchangeable or convertible). Such adjustment shall become effective at the close of business on such record date; however, to the extent that shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) are not delivered after the expiration of such rights, options, or warrants, the Exercise Price shall be readjusted (but only to the extent this Warrant is unexercised after such expiration) to the Exercise Price that would then be in effect had the adjustment made upon the issuance of such rights, options, or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) actually issued. In case any subscription price may be paid in a consideration, part or all of which shall be in a form other than cash, the value of such consideration shall be as determined by the Board of Directors in good faith and in a reasonable manner. (e) DISTRIBUTIONS OF ASSETS AND INDEBTEDNESS. If the Company shall distribute to all holders of its shares of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) evidences of its indebtedness or assets, then in each case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date for the determination of shareholders entitled to receive such distribution by a fraction, the numerator of which shall be such Exercise Price, less the fair market value (as determined by the Board of Directors of the Company acting in good faith and in a reasonable manner) of the portion of the evidences of indebtedness or assets so to be distributed applicable to one share of Common Stock and the denominator of which shall be such Exercise Price. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for the determination of shareholders entitled to receive such distribution. This Section 6(e) does not apply to (i) cash dividends payable out of consolidated retained earnings, (ii) dividends or distributions payable in shares of stock referred to in Section 6(c) above or (iii) rights, options or warrants referred to in Section 6(d) above. (f) COMMON STOCK ISSUE, OPTIONS, WARRANTS, CONVERTIBLE SECURITIES, ETC. If the Company shall sell or issue shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock for a consideration per share of Common Stock (determined, in the case of such rights, options, warrants or convertible or exchangeable securities, by dividing (i) the total amount received or receivable by the Company in consideration of the sale and issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Company upon exercise or conversion or exchange thereof, by (ii) the total number of shares of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities) lower than the Exercise Price in effect on the date the Company fixes the offering price (or exercise price, option price or conversion price, as the case may be) per share of such Common Stock, then the Exercise Price shall be reduced to a price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be an amount equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to such sale and issuance plus (B) the number of shares of Common Stock which the aggregate consideration received (determined as provided below) for such sale or issuance would purchase at such Exercise Price, and the denominator of which shall be the total number of shares of Common Stock to be outstanding immediately after such sale and issuance. Such adjustment shall be made successively whenever such an issuance is made. For the purposes of such adjustments, the shares of Common Stock which the holder of any such rights, options, warrants, or convertible or exchangeable securities shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale and issuance and the consideration received by the Company therefor shall be deemed to be the consideration received by the Company for such rights, options, warrants or convertible or exchangeable securities, plus the consideration or premiums stated in such rights, options, warrants or convertible or exchangeable securities to be paid for the shares of Common Stock covered thereby. For the purposes of determining "consideration per share of Common Stock" or "consideration received by the Company" for the purposes of the first sentence of this Section 6(f), no deduction shall be made for commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith. In case the Company shall sell and issue shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "consideration per share of Common Stock" and the "consideration received by the Company" for purposes of the first sentence of this Section 6(f), the Board of Directors shall determine the fair value of such property, acting in good faith and in a reasonable manner. This Section 6(f) does not apply to (i) shares, rights, options, warrants or convertible or exchangeable securities issued in any of the transactions described in Sections 6(a) through 6(e), (ii) Common Stock issued upon the exercise of rights, options, or warrants (including this Warrant) or upon the conversion or exchange of convertible or exchangeable securities, (iii) options to purchase not in excess of 400,000 shares of Common Stock issued pursuant to that certain Agreement, dated December 13, 1994, between the Company and Donald Patterson, Ronald Goldsack, James Connacher, Chris Skillen, Richard Reid and James Black, or (iv) options to purchase not in excess of 400,000 shares of Common Stock issued after the date hereof to employees, consultants, officers or directors of the Company (other than Gerald D. Appel). (g) OTHER ADJUSTMENTS. If any event occurs as to which in the opinion of the Board of Directors of the Company, the other provisions of this Section 6 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Exercise Price as otherwise determined pursuant to this Section 6. (h) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Exercise Price, the number of shares of Common Stock purchasable hereunder shall be adjusted to the product obtained by multiplying such number of shares purchasable immediately prior to such adjustment in the Exercise Price by a fraction, the numerator of which shalt be the Exercise Price in effect immediately prior to such adjustment and the denominator of which shall be the Exercise Price in effect immediately thereafter. (i) MINIMUM ADJUSTMENT. No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least $.05 in the Exercise Price; provided, however, that any adjustments which by reason of this Section 6(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6 shall be made to the nearest one-tenth of one cent or to the nearest one-tenth of a share, as the case may be. (j) SECURITIES OTHER THAN COMMON STOCK. In the event that at any time, as a result of an adjustment made pursuant to this Section 6, the Holders of this Warrant shall become entitled to purchase any shares or securities of the Company other than shares of Common Stock, thereafter the number of such other shares or securities so purchasable upon exercise of this Warrant and the Exercise Price for such shares or securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in Section 6(a) through 6(h), inclusive, of this Section 6 and the other provisions hereof with respect to the shares of Common Stock shall apply on like terms to any such other shares. (k) DEFERMENT OF ADJUSTMENT. In any case in which this Section 6 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event issuing to the Holder of any Warrant exercised after such record date the shares of Common Stock, if any, issuable upon such exercise over and above the shares of Common Stock, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment. (l) Voluntary Adjustment by the Company. The Company may at its option, at any time during the term of this Warrant, reduce the then current Exercise Price for any period of time to any amount deemed appropriate by the Board of Directors of the Company. 7. NOTICE OF ADJUSTMENTS. Whenever any Exercise Price shall be adjusted pursuant to Section 6 hereof, the Company shall promptly prepare a certificate of its chief financial officer setting forth, in reasonable detail the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Exercise Price after giving effect to such adjustment, and shall promptly cause copies of such certificate to be made (by first class mail, postage prepaid) to the Holder of this Warrant. 8. RESTRICTIONS ON TRANSFER; LEGENDS. This Warrant was issued pursuant to that certain Securities Purchase Agreement dated as of August 18, 1995, among the Company, Ontario Municipal Employees Retirement Board, and Gerald D. Appel (the "Purchase Agreement"), a copy of which will be furnished, without charge, to the Holder hereof upon written request to the Company. Each taker and Holder of this Warrant, by taking and holding the same, represents, acknowledges and agrees that (a) this Warrant was, and any shares of Common Stock acquired upon exercise hereof will be (unless then registered under the Securities Act of 1933 or an exemption from such registration not requiring such representation is available for the sale of the Common Stock), acquired for investment and not with a view to or for sale in connection with any distribution thereof, (b) this Warrant has not been, and the shares of Common Stock issuable upon exercise hereof may not be, registered under the Securities Act of 1933 (the 1933 Act ), may not be transferred in violation of the 1933 Act, and must be held indefinitely unless they are subsequently registered thereunder or an exemption from such registration is available, and (c) this Warrant and the shares of Common Stock issuable upon exercise hereof are subject to other restrictions on transfer by the provisions of the Purchase Agreement, including, without limitation, Sections 8.01 and 8.12 thereof. Each taker and Holder of this Warrant, by taking and holding the same, also agrees that all certificates representing Common Stock issued upon exercise of this Warrant may bear the restrictive legend set forth in Section 4.06 of the Purchase Agreement and may bear such other legends and endorsements as shall be required to comply with any law or with any rule or regulation of any stock exchange on which such securities may be listed. 9. EXTENSION OF EXPIRATION DATE. In addition, and notwithstanding any provision contained herein to the contrary, in the event that (a) at the Expiration Date the Company is required, pursuant to an effective request therefor received by the Company from the Holder pursuant to the provisions of Section 8.03 of the Purchase Agreement at least 90 days prior to the Expiration Date, to effect a Registration under the Securities Act of 1933 with respect to any shares of Common Stock subject to this Warrant or (b) at the Expiration Date the Company is in the process of effecting a registration under the Securities Act of 1933 for an underwritten public offering in which shares of Common Stock subject to this Warrant are entitled to be included pursuant an effective request therefor received by the Company from the Holder pursuant to the provisions of Section 8.02 of the Purchase Agreement on or prior to the Expiration Date, the Expiration Date shall be extended to 5:00 P.M., Los Angeles time, on the 30th day following the date on which such Registration shall have become effective but in no event longer than 180 days after the date this Warrant would otherwise have expired. In the event that the Expiration Date is extended in accordance with the provisions of this Section 9, all references contained in this Warrant to the "Expiration Date" shall be deemed to be references to the Expiration Date as so extended. 10. NO STOCKHOLDER RIGHTS. Nothing contained in this Warrant shall be construed as conferring upon the Holders or their transferees the right to vote or to receive dividends or to consent to or receive notice as shareholders in respect of any meeting of shareholders for the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company. If, however, at any time prior to the expiration of this Warrant and prior to its exercise in full, any of the following events shall occur: (a) the Company shall declare any dividend payable in any securities upon its shares of Common Stock or make any distribution to the holders of its shares of Common Stock (other than a cash dividend or a dividend payable in additional shares of Common Stock); (b) the Company shall offer to the holders of its shares of Common Stock any additional shares of Common Stock or securities convertible into shares of Common Stock or any right to subscribe to shares of Common Stock or securities convertible or exchangeable into shares of Common Stock; (c) any reclassification of the capital stock of the Company (other than a subdivision or combination of Common Stock), or any consolidation or merger to which the Company is a party or any sale of all or substantially all of the assets of the Company shall be proposed, and in each case shareholder approval is required; or (d) a dissolution, liquidation or winding up of the Company shall be proposed; then in any one or more of such events, the Company shall give notice in writing of such event to the Holders of this Warrant at least 20 days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, or subscription rights, or for the determination of shareholders entitled to vote on any such proposed transactions. Such notice shall specify such record date or date of the closing of the transfer books, as the case may be. 11. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of California. MYO DIAGNOSTICS, INC. /s/ By___________________________ Name: Title: PURCHASE FORM Dated: ____________, 199__ The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _________ shares of Common Stock and hereby makes payment of $______ in payment of the actual exercise price thereof. INSTRUCTIONS FOR REGISTRATION OF STOCK Name ______________________________________________ (please typewrite or print in block letters) Address ______________________________________ ______________________________________ Signature: --------------------------- ASSIGNMENT FORM FOR VALUE RECEIVED, _______________________________ hereby sells, assigns and transfers unto Name ___________________________________________________________ (Please typewrite or print in block letters) Address _________________________________________ the right to purchase Common Stock represented by this Warrant to the extent of ____________ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ___________________, attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Signature: ----------------------------- Dated: ____________, 199__ AMENDMENT TO SERIES C WARRANT This AMENDMENT TO SERIES C WARRANT (this "Amendment"), is made as of December 22, 1995, by and between Myo Diagnostics, Inc,, a California corporation (the "Company") and Ontario Municipal Employees Retirement Board ("OMERB") RECITALS A. WHEREAS, OMERB is the holder of that certain Series C Warrant, No. C-1, dated August 18, 1995 for shares of the Common Stock of the Company (the "Warrant"); and B. WHEREAS, the Company and OMERB, and Gerald D. Appel desire to amend the Warrant as hereinafter provided NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. The introductory paragraph of the Warrant is hereby amended to read in its entirety as follows: THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS, INC., a California corporation (the "Company") the number of fully paid and nonassessable shares of the Common Stock of the Company specified below at the price per share specified below at any time during the period from the Initial Exercise Date (as hereinafter defined) to 5:00 P.M., Los Angeles time, on December 31, 1998 (the "Expiration Date"), at which time this Warrant shall expire and become void. "Initial Exercise Date" means March 31, 1996, provided, however, that if on March 31, 1996, the Company has a firm written commitment from a person which is not an Affiliate of the Company (as hereinafter defined) for Gross Proceeds (as hereinafter defined), which together with all Gross Proceeds previously realized by the Company exceeds $500,000, then the Initial Exercise Date shall mean April 30, 1996, or if earlier, the date on which such firm written commitment is terminated. "Gross Proceeds" shall mean the aggregate proceeds realized by the Company subsequent to August 18, 1995, and prior to the Initial Exercise Date from the sale of its Common Stock or other equity securities to any person who is not an Affiliate of the Company in a transaction not involving a public offering. Gross Proceeds shall not include proceeds realized by the Company from (a) the subscription for and sale of securities of the Company pursuant to that certain Subscription Agreement, dated as of August 18, 1995 between the Company and Hydra Capital Corporation and Gerald D. Appel or the subscription for and sale of securities of the Company pursuant to the Share Purchase Warrant issued or to be issued in accordance with the terms thereof, (b) the sale of securities of the Company pursuant to that certain Securities Purchase Agreement, dated as of August 18, 1995, by and among the Company, Holder and Gerald D. Appel or upon the exercise of this Warrant, (c) the sale of securities of the Company upon the exercise of that certain Series A Warrant, dated December 23, 1994, and issued to Holder, as amended, or (d) the sale of securities of the Company upon the exercise of that certain Series B Warrant, dated December 23, 1994, and issued to Holder, as amended. "Affiliate of the Company" means Gerald D. Appel, any person who controls, is controlled by or is under common control with Mr. Appel or any relative by blood or marriage (not more remote than first cousin) of Mr. Appel. The number of shares of Common Stock initially issuable upon exercise of this Warrant and the initial price to be paid for each share of Common Stock shall be determined on the Initial Exercise Date as follows: If Gross Proceeds are greater than $1,200,000, such number of shares shall be 222,222 and such price shall be $2.00; If Gross Proceeds are greater than $1,100,000 but not greater than $1,200,000, such number of shares shall be 222,222 and such price shall be $1.90; If Gross Proceeds are greater than $1,000,000 but not greater than $1,100,000, such number of shares shall be 222,222 and such price shall be $1.80; If Gross Proceeds are greater than $900,000 but not greater than $1,000,000, such number of shares shall be 444,444 and such price shall be $1.50; If Gross Proceeds are greater than $800,000 but not greater than $900,000, such number of shares shall be 666,667 and such price shall be $1.00; If Gross Proceeds are greater than $700,000 but not greater than $800,000, such number of shares shall be 888,889 and such price shall be $0.25; 4. This Amendment may be executed in two or more counterparts and by different parties in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written. MYO DIAGNOSTICS, INC. By: /s/ Gerald D. Appel ---------------------------- Gerald D. Appel President ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD By: /s/ Peter D.Friend ----------------------------- Peter D. Friend Portfolio Manager By: /s/ Henry A. Rachfalowski ---------------------------- Henry A. Rachfalowski Vice President SECOND AMENDMENT TO SERIES C WARRANT This SECOND AMENDMENT TO SERIES C WARRANT (this "Amendment") is made as of July 8, 1996, by and between Myo Diagnostics, Inc., a California corporation (the "Company") and Ontario Municipal Employees Retirement Board ("OMERB"). RECITALS A. WHEREAS, OMERB is the holder of that certain Series C Warrant No. C-1, dated August 18, 1995 for shares of the Common Stock of the Company, as amended by that certain Amendment to Series C Warrant, dated as of December 22, 1995 (as so amended, the "Warrant"); and B. WHEREAS, the Company and OMERB desire to further amend the Warrant as hereinafter provided. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. The introductory paragraph of the Warrant is hereby amended to read in its entirety as follows: THIS CERTIFIES THAT, FOR VALUE RECEIVED, ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD, or registered assigns ("Holder") is entitled to purchase, upon the terms and subject to the provisions of this Warrant, from MYO DIAGNOSTICS. INC., a California corporation (the "Company"), 222,222 fully paid and nonassessable shares of the Common Stock of the Company at the price of $2.00 per share at any time during the period from December 22, 1995 to 5:00 P.M., Los Angeles time, on December 31, 1998 (the "Expiration Date"), at which time this Warrant shall expire and become void. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock shall be adjusted from time to time as hereinafter set forth. As used herein, "Common Stock" shall mean the Company's currently authorized Common Stock and any stock into which such Common Stock may be exchanged, and the exercise price for a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price". Unless the context otherwise requires, the term "Warrant", as used herein, includes this Warrant and any other Warrant or Warrants which may be issued pursuant to the provisions of this Warrant. whether upon transfer, assignment, partial exercise, divisions, combinations, exchange or otherwise, and the term "Holder" includes any transferee or transferees or assignee or assignees of the Holder named above, all of whom shall be subject to the provisions of this Warrant. 2. The Company hereby represents and warrants to OMERB that this Amendment has been duly executed and delivered by the Company and that the Warrant, as amended by this Amendment, constitutes the legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms. 3. OMERB hereby represents and warrants to the Company that this Amendment has been duly executed and delivered by OMERB. 4. This Amendment may be executed in two or more counterparts and by different parties in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written. MYO DIAGNOSTICS. INC. By /s/ Gerald D. Appel ------------------------- Gerald D. Appel President ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD By /s/ Peter D. Friend -------------------------- Peter D. Friend Portfolio Manager by /s/ Tom Gunn -------------------------- Tom Gunn Senior Vice President, Investments EX-10.8 12 EXHIBIT 10.8 [Letterhead of Ontario Municipal Employees Retirement Board] December 8, 1995 Myo Diagnostics, Inc. 3710 South Robertson Blvd., Suite 212 Culver City, California 90232 Attn: Mr. Gerald D. Appel Re: Waiver of Rights ---------------- Ladies and Gentlemen: Reference is made to (1) that certain Securities Purchase Agreement, dated as of December 23, 1994 (the "First Purchase Agreement"), by and among Myo Diagnostics, Inc. (the "Company"), Ontario Municipal Employees Retirement Board ("OMERB"), Gerald D. Appel and Hershel Toomim and (2) that certain Securities Purchase Agreement, dated as of August 18, 1995 (the "Second Purchase Agreement"), by and among the Company, OMERB and Gerald D. Appel OMERB is the Holder of 100% of the Registrable Securities (as deemed in the First and Second Purchase Agreements). OMERB understands that the Company wishes to sell and issue not less than 300,000 nor more than 750,000 shares of cumulative convertible redeemable preferred stock at a purchase price of $5.00 per share (the "Proposed Offering"), such convertible preferred stock (the "Preferred Stock") to have the rights and preferences described in that certain Confidential Offering Memorandum of the Company dated as of December 8, 1995 a copy of which is attached hereto as Exhibit A (the "Memorandum"). In connection with the Proposed Offering, the Company has requested OMERB to waive its rights of first refusal under Section 9.01 of the First Purchase Agreement and Section 9.01 of the Second Purchase Agreement and to waive compliance by the Company with certain covenants contained in the First Purchase Agreement and the Second Purchase Agreement in connection with the Proposed Offering. Accordingly, pursuant to Section 10.02 of the First Purchase Agreement and Section 10.02 of the Second Purchase Agreement, the undersigned hereby (1) waives its rights of first refusal set forth in Section 9.01 of the First Purchase Agreement and Section 9.01, of the Second Purchase Agreement in connection with the sale and issuance by the Company of not less titan 300,000 shares nor more than 750,000 shares of Preferred Stock in accordance with the terms of the Proposed Offering; (2) waives its rights under Section 9.01(b) of the First Purchase Agreement and Section 9.01(b) of the Second Purchase Agreement to notice of the Proposed Offering, any subsequent conversion of the Preferred Stock into Common Stock or any subsequent exercise of any warrants issuable upon conversion of the Preferred Stock; (3) waives compliance by the Company with the provisions of Sections 7.02(a), 7.02(b), and 7.02(c) of the First Purchase Agreement and Sections 7.02(a), 7.02(b) and 7.02(c) of the Second Purchase Agreement insofar as required to permit the consummation of the sale and issuance of the Preferred Stock pursuant to the Proposed Offering, the subsequent conversion of the Preferred Stock Into Common Stock, the payment of cumulative annual dividends on the Preferred Stock at the rate of $.50 per share, and the performance by the Company of the other covenants and agreements in the terms of the Preferred Stock described in the Memorandum; and (4) waives compliance by the Company with the provisions of Section 7.02(k) of the First Purchase Agreement and Section 7.02(k) of the Second Purchase Agreement insofar as the terms of the Preferred Stock described in the Memorandum may be deemed to be "affirmative or negative covenants more favorable to an equity investor in the Company" than those contained in the two Purchase Agreements. This waiver is conditioned upon the consummation of the Proposed Offering on or before August 13, 1996 and in the event that the Proposed Offering is not consummated on or before such date, this waiver shall be of no further force of effect. ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD By: /s/ Peter D. Friend ------------------------------------- Peter D. Friend Portfolio Manager By: /s/ Henry A. Rachfalowski ------------------------------------- Henry A. Rachfalowski Vice President 2 EX-10.9 13 EXHIBIT 10.9 [Letterhead of MYO Diagnostics, Inc.] July 8, 1996 Ontario Municipal Employees Retirement Board One University Avenue, Suite 1000 Toronto, Ontario MSJ2P1 Canada Attn: Peter D. Friend Re: Securities Purchase Agreements; Warrants ---------------------------------------- Ladies and Gentlemen: Reference is made to (1) that certain Securities Purchase Agreement, dated as of December 23, 1994 (the "1994 Agreement"), by and among Myo Diagnostics, Inc. (the "Company), Ontario Municipal Employees Retirement Board ("OMERB"), Gerald D. Appel and Hershel Toomim, (2) that certain Securities Purchase Agreement, dated as of August 18, 1995 (the "1995 Agreement" and, collectively with the 1994 Agreement, the "Purchase Agreements"), by and among the Company, OMERB and Gerald D. Appel, (3) that certain Series A Warrant, No. A-l, dated December 23, 1994, entitling OMERB to purchase 100,000 shares of the common stock (the "Common Stock") of the Company, as amended (the "Series A Warrant"), (4) that certain Series B Warrant, No. B-l, dated December 23, 1994, entitling OMERB to purchase 83,333 shares of the Common Stock of the Company, as amended (the "Series B Warrant"), and (5) that certain Series C Warrant, No. C-l, dated August 18, 1995, entitling OMERB to purchase 222,222 shares of the Common Stock of the Company, as amended (the "Series C Warrant" and, collectively with the Series A Warrant and the Series B Warrant, the "Warrants"). OMERB is the Holder of 100% of the Registrable Securities (as defined in both the 1994 Agreement and the 1995 Agreement). In connection with a number of past and pending issuances of securities by the Company, the Company is interested in obtaining from OMERB the waiver of certain rights provided to OMERB in the Purchase Agreements and the Warrants, as well as the waiver of compliance by the Company with respect to certain covenants contained in the Purchase Agreements. In addition, to facilitate one such proposed issuance, the Company is interested in obtaining from OMERB an agreement to terminate certain affirmative and negative covenants contained in the Purchase Agreements, with such termination to be contingent upon OMERB receiving from the Company, or a successor corporation, in a merger involving the Company, securities registered under the Securities Act of 1933, as amended (the "1933 Act"). THE FIRST OFFERING In May 1996, the Company issued and sold 500,000 shares of Common Stock (the "First Offering Stock") at a purchase price of $2.00 per share (the "First Offering") to Canadian investors in a private placement. The Company requests that OMERB, pursuant to Section 10.02 of the 1995 Agreement, (1) waive its rights of first refusal set forth in Section 9.01 of the 1995 Agreement in connection with the sale and issuance by the Company of the First Offering Stock in accordance with the First Offering; and (2) waive its rights under Section 9.01(b) of the 1995 Agreement to notice of the First Offering. THE SECOND OFFERING The Company proposes to sell and issue up to 2,000,000 units (each a "Unit" and collectively the "Units") at a purchase price of $2.50 per Unit for an aggregate purchase price of $5,000,000. Each Unit consists of one share of Common Stock and one-quarter warrant. Each whole warrant will entitle the holder thereof to acquire one share of Common Stock at a price of $3.00 per share for a period of one year after the closing of the offering. In connection with this offer, the Company proposes to issue to the agents selling the Units up to 180,000 compensation warrants (the "Compensation Warrants"). Each Compensation Warrant will entitle the holder thereof to acquire one share of Common Stock at a price of $2.50 per share for a period of two years after the closing of the offering. The Units, the shares and warrants included in the Units, the Compensation Warrants, and the shares issuable upon exercise of the warrants and the Compensation Warrants, are referred to herein as the "Securities". The sale and/or issuance of the Securities is referred to herein as the "Second Offering". The Second Offering is described more fully in that certain Confidential Private Placement Offering Memorandum, dated as of May 10, 1996, a copy of which has been separately provided to you (the "Offering Memorandum") (Note: the Offering Memorandum relates to 1,600,000 Units offered outside of the United States; a separate memorandum will be prepared for the offer of 400,000 Units in the United States on substantially the same terms and conditions). The closing of the Second Offering is subject to a number of conditions, including that the Company complete a reverse take-over with a company trading through the NASDAQ trading system within no later than six months after the date proceeds for the purchase of the Units are deposited with the agent in such offering, which occurred in early June. The Company will make certain affirmative and negative covenants to the Unit purchasers which will remain in effect until completion of the Second Offering. The Company requests that OMERB, pursuant to Section 10.02 of the 1994 Agreement and Section 10.02 of the 1995 Agreement, (1) waive its rights of first refusal set forth in Section 9.01 of the 1995 Agreement in connection with the sale and/or issuance by the Company of the Securities in accordance with the terms of the Offering Memorandum; (2) waive its rights under Section 9.01(b) of the 1995 Agreement to notice of the Second Offering; and (3) waive compliance by the Company with the provisions of Section 7.02(k) of the 1994 Agreement and Section 7.02(k) of the 1995 Agreement insofar as the terms of the Offering Memorandum, or the affirmative or negative covenants contained in any agency agreement or subscription agreement executed or issued in connection with the Second Offering, may be deemed to be "affirmative or negative covenants more favorable to an equity investor in the Company" than those contained in the Purchase Agreements. THE REVERSE TAKE-OVER As a condition to the closing of the Second Offering, the Company must complete a reverse take-over with a company trading through the NASDAQ trading system, or a subsidiary of such company (the "Reverse Take-Over"). Upon consummation of the Reverse Take-Over, the holders of Common Stock immediately preceding the Reverse Take-Over must hold at least 97% of the outstanding equity voting shares (the "Successor Shares") of the successor company (the "Successor Company"). The Successor Shares must be registered under the 1933 Act. The Company requests that OMERB, pursuant to Section 10.02 of the 1994 Agreement and Section 10.02 of the 1995 Agreement, (1) waive compliance by the Company with the provisions of Sections 7.01(a) and 7.02(g) of the 1994 Agreement and Sections 7.01(a) and 7.02(g) of the 1995 Agreement insofar as required to permit the Reverse Take-Over; and (2) waive compliance by the Company with the provisions of Section 7.02(k) of the 1994 Agreement and Section 7.02(k) of the 1995 Agreement insofar as the terms of the Reverse Take-Over may be deemed to be "affirmative or negative covenants more favorable to an equity investor in the Company" than those contained in the Purchase Agreements. TERMINATION OF RIGHTS AND COVENANTS To facilitate the Reverse Take-Over, the Company requests, in addition to the waiver by OMERB of the rights and covenants as provided for above, that OMERB terminate the following rights and affirmative and negative covenants: (a) The rights and affirmative and negative covenants contained in Article 7 of the 1994 Agreement and Articles 7 and 9 of the 1995 Agreement, with such terminations to take effect, and be contingent, upon consummation of the Reverse Take-Over and issuance to OMERB of Successor Shares registered under the 1933 Act in exchange for the shares of Common Stock held by OMERB immediately prior to the Reverse Take-Over; and (b) The rights contained in Article 8 of the 1995 Agreement with respect to any Successor Shares registered under the 1933 Act which OMERB receives in exchange for Common Stock of the Company or upon exercise of the Warrants. OMERB will continue to have registration rights with respect to any unregistered securities it receives in exchange for Common Stock of the Company or upon exercise of the Warrants. In the event that the Reverse Take-Over does not occur by December 31, 1996, the waiver granted with respect to the Reverse Take-Over shall be deemed to be withdrawn and the above provisions shall continue in full force and effect. Upon the request of the Company or OMERB, the Company and OMERB shall execute formal amendments to the Purchase Agreements to reflect the agreements contained herein. THE LOCK-UP AGREEMENT It is anticipated that the agents involved in the Reverse Take-Over and/or the Second Offering will require all significant stockholders of the Company (those owning beneficially or of record 5% or more of the Common Stock) to enter into an agreement precluding the sale, short sale, loan, grant of options for the purchase of, or other disposition of any of the Successor Shares without the prior written consent of the agents, for a period of up to 180 days from the closing of the Reverse Take-Over (the "Lock-Up Agreement"). The Company requests that OMERB agree that, upon request of the agents involved in the Reverse Take-Over and/or the Second Offering, it will enter into such a Lock-Up Agreement; provided that the period of any such Lock-Up Agreement will not exceed the shortest period of any other Lock-Up Agreement required of the Company's other 5% stockholders or directors in connection with the Reverse Take-Over. THE PARTNERSHIP NOTES In connection with the transaction in which Myo Diagnostics, Ltd. (the "Partnership") transferred all of its assets and liabilities to the Company in December 1994, the limited partners of the Partnership (other than the Company) received, among other things, notes of the Company in the aggregate amount of $175,000 (the "Partnership Notes"). One-half of the Partnership Notes has been paid, but the balance, which was due in September 1995, has not been paid. Pursuant to the terms of the Partnership Notes, because of this default, the noteholders are entitled to receive, for no additional consideration, 42,000 shares (the "Default Shares") of the Common Stock. The Company believes that the issuance of the Default Shares was known and contemplated by the Company and OMERB at the time of negotiation and execution of the 1995 Agreement, and that it was not intended by the Company or OMERB that the Default Shares would be subject to either (i) OMERB's right of first refusal set forth in Section 9.01 of the 1995 Agreement, or (ii) OMERB's rights under Article 6 of each of the Warrants to have the Exercise Price (as defined in the Warrants) of, and the aggregate number of shares purchasable under, each of the Series A Warrant, the Series B Warrant and the Series C Warrant adjusted due to the issuance of the Default Shares. The Company requests that OMERB confirm the Company's understanding with respect to the foregoing. Please acknowledge OMERB's (A) agreement to (i) waive its rights, and to waive compliance by the Company, with respect to the First Offering, the Second Offering and the Reverse Take-Over, (ii) terminate the provisions of the Purchase Agreements and, if requested by the Company, to enter into formal amendments to the Purchase Agreements providing for the termination of such provisions, and (iii) enter into a Lock-Up Agreement in connection with the Reverse Take-Over if and when requested by the agents involved in the Reverse Take-Over and/or the Second Offering, and (B) confirmation of the Company's understanding with respect to the Default Shares, each as provided for above, by signing the acknowledgement below. MYO DIAGNOSTICS, INC. By: /s/ Gerald D. Appel -------------------------------- Gerald D. Appel President, CEO and Chairman of the Board ACKNOWLEDGEMENT The undersigned hereby (A) agrees to (i) waive its rights, and to waive compliance by the Company, with respect to the First Offering, the Second Offering and the Reverse Take-Over, (ii) terminate the provisions of the Purchase Agreements and, if requested by the Company, to enter into formal amendments to the Purchase Agreements providing for the termination of such provisions, and (iii) enter into a Lock-Up Agreement in connection with the Reverse Take-Over if and when requested by the agents involved in the Reverse Take-Over and/or the Second Offering, and (B) confirms the Company's understanding with respect to the Default Shares, each as provided for above, subject to the terms and conditions as provided for above. ONTARIO MUNICIPAL EMPLOYEES RETIREMENT BOARD By: /s/ Peter D. Friend By: /s/ Tom Gunn --------------------------- ----------------------------- Peter D. Friend Tom Gunn Portfolio Manager Senior Vice President, Investment EX-10.10 14 EXHIBIT 10.10 December 13, 1994 Donald Patterson et al. 24 Elgin Avenue Toronto Ontario Canada M5R 1G6 Dear Don: This letter shall serve as an Agreement made between Myo Diagnostics Inc. ("Myo") and Donald Patterson, Ronald Goldsack, James Connacher, Chris Skillen, Richard Reid and James Black ("Guarantors"). 1. PREVIOUS LETTER Myo and Guarantor hereby cancel the letter agreement between us dated March 23, 1994 (the "Previous Agreement")and replace it with the following agreement. 2. PROVISIONS OF THE LETTER OF CREDIT The Guarantors have furnished a series of irrevocable Letters of Credit (the "L.C.s") in favor of the Wells Fargo Bank, Century City branch for the account of Myo Diagnostics Ltd. The L. C.s are in the aggregate amount of $400,000 (U.S.). The Letters of Credit were issued according to the following schedule: Date Issued Amount Guarantor ----------- ------ --------- May 27, 1994 - $75,000 Donald Patterson July 7, 1994 - $65,000 Ronald Goldsack July 7, 1994 - $65,000 James Connacher August 8, 1994 - $65,000 Chris Skillen September 15, 1994- $65,000 Richard Reid October 17, 1994 - $65,000 James Black Each L.C. expires one year from the date of issue. Myo has assumed all costs associated with the issuance of the L.C.s. 3. ENTITLEMENT TO STOCK OPTIONS As consideration for providing the guarantee for the L.C.s, Myo shall issue to the Guarantors, Options (the "Options") each substantially in the form of Exhibit A hereto, to purchase an aggregate of 400,000 shares of the Common Stock of Myo. Each Guarantor's option shall be for an aggregate number of shares equal to one share of Myo Common stock for each dollar guaranteed by such Guarantor as set forth opposite his name in the foregoing schedule. Myo proposes to enter into a Securities Purchase Agreement (the "Purchase Agreement") with Ontario Municipal Employees Retirement Board ("OMERB") providing, among other things, for the purchase by OMERB of shares of Myo Common Stock for an aggregate purchase price of $1,000,000. In the event that this transaction is consummated, the options shall be executed and delivered to the Guarantors as soon as is practicable following such consummation, ant the per share purchase price of each Option shall be equal to 75% of the per share purchase price paid by OMERB. In the event that such transaction is not consummated, the Options shall be issuable at the time of the completion of Myo's next private placement of Common Stock with aggregate purchase price in excess of $500,000, and the per share exercise price shall be equal to 75% of the per share purchase price paid in such a private placement. Each Guarantor's option shall become exercisable nine months following the issuance date of the corresponding Letter of Credit as set forth opposite his name in the foregoing schedule or pursuant to the provisions of Section 3 (a) or 5 (b) thereof. Each option shall expire on the first anniversary of the completion of an initial public offering by Myo of shares of its Common Stock unless sooner terminated in accordance with the provisions of Section 4 or Section 5(a) thereof. In the event that the options are exercised in part or in full, the Guarantors shall have the same "piggyback" registration rights and be subject to the same limitations as are provided to OMERB in the Purchase Agreement. 4. GENERAL TERMS AND CONDITIONS At the date of the closing of the OMERS transaction, Myo will provide to the Guarantors a copy of Myo's latest financials, a copy of the resolution of the Board of Directors authorizing the issuance of the Options on these terms and conditions agreed upon, and a copy of the resolution of the Board of Directors authorizing the use of proceeds of any offering of shares subsequent to the OMERB transaction to repay and cancel the letters of credit. Audited financial statements for Myo for the fiscal year ending December 31, 1994 shall be provided to Guarantors when available. Myo agrees to indemnify and hold harmless the Guarantors, their servants, agents or employees, against claims of, or liability to, any third person resulting from negligence or misconduct of Myo or its against, servants or employees. 5. REPRESENTATIONS OF GUARANTORS The Guarantors represent and warrant to Myo that they constitute all persons having any rights as "Guarantor" under the previous Agreement. This is the complete agreement between the parties with respect to the transactions contemplated hereby and supersedes all previous negotiations, understandings agreements, or representations, written or oral, made by or among the parties, relating thereto. AGREED on this _____ day of December, 1994. GUARANTORS MYO DIAGNOSTICS, INC. By /s/ Donald Paterson By /s/ Gerald D. Appel ------------------------- ----------------------- Donald Paterson Gerald D. Appel, President By /s/ Ronald Goldsack ------------------------- Ronald Goldsack By /s/ James Connacher ------------------------- James Connacher By /s/ Chris Skillen ------------------------- Chris Skillen By /s/ Richard Reid ------------------------- Richard Reid By /s/ James Black ------------------------- James Black THIS OPTION AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THIS OPTION HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND THIS OPTION AND THE UNDERLYING COMMON STOCK MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR LAWS. MYO DIAGNOSTICS, INC. STOCK OPTION AGREEMENT OPTION AGREEMENT made as of the 19th day of December, 1994 between Myo Diagnostics, Inc., a California corporation (the "Company"), and ______________ (the "Optionee"). 1. GRANT OF OPTION. The Company hereby irrevocably grants to the Optionee the right and option to purchase all or any part of an aggregate of sixty-five thousand (65,000) shares of its common stock (the "Shares") on the terms and conditions herein set forth. 2. EXERCISE PRICE. The exercise price of each of the Shares covered by the Option shall be $1.13. 3. TIME AND MANNER OF EXERCISE OF OPTION. (a) This Option shall become exercisable on July 17, 1995. Notwithstanding the foregoing, in the event that any person or entity, including a "group" as contemplated by Section 13(d) (3) of the Securities Exchange Act of 1934, as amended, acquires more than 50% of the outstanding Common Stock of the Company, this Option shall become exercisable immediately prior to the occurrence of any such acquisition (a "Change in Control"). This Option shall also become exercisable pursuant to the provisions of Section 5(b) hereof. (b) To the extent that this Option has become exercisable and prior to its termination, this Option may be exercised by giving written notice, signed by the person or persons exercising the Option, to the Company, stating the number of Shares with respect to which the Option is being exercised, accompanied by payment in full by cash or certified check for such Shares, provided, however, that no less than One Thousand (1,000) Shares may be purchased upon any one exercise of this Option unless the number of Shares purchased at such time is the total number of Shares in respect of which this Option is then exercisable. Upon such exercise, instructions shall be given to issue and deliver to the Optionee a certificate for paid-up non-assessable Shares. The Optionee shall not have any rights as an owner of Common Stock of the Company by reason of the exercise of this Option until the date of issuance to him or her of a certificate or certificates representing the shares of Common Stock purchased. 4. TERM OF OPTION. This Option shall terminate the earlier of either i) one year from the date of COMPLETION of the first public offering of the Company's shares in an offering registered under the Securities Act of 1933, as amended, or ii) the occurrence of a Change in Control. This Option shall also terminate in accordance with the provisions of Section 5(b) hereof. 5. ADJUSTMENTS. (a) In the event of any change in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, consolidations, recapitalization, or reorganizations, an appropriate and proportionate adjustment shall be made by the Company in the number of shares subject to this Option and in the exercise price per share with respect to any unpurchased shares hereunder. Any such adjustment hereto shall be made without a change in the total exercise price applicable to such unpurchased shares but with a corresponding adjustment in the per share exercise price. No fractional shares of Common Stock shall be issued under this Option on account of any adjustment under this Section 5(a). (b) Notwithstanding anything in paragraph 5(a) above to the contrary, in the event of any merger, consolidation or other reorganization of the Company or in the event of the liquidation or dissolution of the Company, this Option shall terminate on the effective date of such merger, consolidation, reorganization, liquidation or dissolution. Notwithstanding any other provision of this Option to the contrary, this Option shall be exercisable for a period of 30 days prior to the effective date of any such merger, consolidation, reorganization, liquidation or dissolution. 6. TRANSFERABILITY OF THE OPTION. The Optionee may transfer the Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, or by will or the laws of descent and distribution. 7. OPTIONEE'S AGREEMENT TO GUARANTEE LETTER OF CREDIT TO THE COMPANY. In consideration for the grant of this Option, the Optionee hereby has guaranteed a Letter of Credit in the amount of $65,000 (U.S.) to a bank selected by the Company. The terms of this Stock Option Agreement require that the Letter of Credit remain guaranteed by the Optionee for a minimum of one year from the date of the Letter of Credit. 8. PURCHASE FOR INVESTMENT. By his execution of this Option, Optionee represents, acknowledges and agrees that (a) this Option is, and any shares of Common Stock acquired upon exercise hereof will be (unless then registered under the United States Securities Act of 1933 (the "Act") or unless an exemption from such registration not requiring such representation is then available for the sale of the Common Stock), acquired for investment and not with a view to or for sale in connection with any distribution thereof, (b) this Option has not been, and the shares of Common Stock issuable upon exercise hereof may not be, registered under the Act, may not be transferred in violation of the Act, and must be held indefinitely unless they are subsequently registered thereunder or an exemption from such registration is available, and (c) all Certificates representing Common Stock issued upon exercise of this Option may bear a restrictive legend as may be required to comply with any law or with any rule or regulation of any stock exchange on which such securities may be listed. 9. GOVERNING LAW. This Option shall be governed by and interpreted in accordance with the laws of the State of California. IN WITNESS WHEREOF, the Company has caused this Stock Option Agreement to be duly executed by its officer thereunto duly authorized, and the Optionee has hereunto set his hand as of the date and year first above written. MYO DIAGNOSTICS INC. By /s/ Gerald D. Appel ---------------------------- Gerald D. Appel, President Optionee ______________________________ Address: ______________________________ ______________________________ ______________________________ FIRST AMENDMENT TO STOCK OPTION AGREEMENT This FIRST AMENDMENT TO STOCK OPTION AGREEMENT (this "Amendment") is made as of June 30, 1996, by and between Myo Diagnostics, Inc., a California corporation (the "Company") and ______________ ("Optionee"). R E C I T A L S A. The Company and Optionee are parties to that certain Myo Diagnostics, Inc. Stock Option Agreement (the "Option"), dated as of December 19, 1994; and B. The Company and Optionee desire to amend the Option as hereinafter provided. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing facts, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. TIME AND MANNER OF EXERCISE OF OPTION. Section 3(a) of the Option is hereby amended to read in its entirety as follows: "This Option shall become exercisable on July 17, 1995. Notwithstanding the foregoing, in the event that any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), acquires more than 50% of the outstanding Common Stock of the Company or the securities of a successor company for which this Option may be exercised, this Option shall become exercisable immediately prior to the occurrence of any such acquisition (a "Change in Control")." 2. TERM OF OPTION. Section 4 of the Option is hereby amended to read in its entirety as follows: "This Option shall terminate on the earliest of (i) one year from the date the Common Stock of the Company or any other securities for which this Option may be exercised becomes registered under Section 12 of the Exchange Act, (ii) one year from the date the Common Stock of the Company is exchanged for a security which is registered under Section 12 of the Exchange Act, or (iii) the occurrence of a Change in Control." 3. ADJUSTMENTS. Section 5(b) of the Option is hereby amended to read in its entirety as follows: "Subject to Section 4 hereof, in case any capital reorganization or reclassification, change in the outstanding Common Stock of the Company, merger or consolidation of the Company with or into another entity, or sale of substantially all of the assets of the Company to another entity, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or assets with respect to or in exchange for Common Stock, the Option shall, without any further act or the execution of any further instrument whatsoever, become an Option to purchase or receive, at the exercise price, such shares of stock or other securities or assets as Optionee would have been entitled to receive upon such reorganization, reclassification, change, merger or consolidation, or sale of assets, in exchange for or in respect of that portion of the Shares which remain unexercised immediately prior to such reorganization, reclassification, change, merger or consolidation, or sale of assets, and appropriate adjustment (as reasonably determined by the Board of Directors of the Company or the surviving entity, as the case may be) shall be made in the application of the provisions herein set forth with respect to the rights of Optionee, to the end that such provisions (including provisions with respect to changes in and other adjustments of the exercise price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon exercise of such Option, provided that the aggregate purchase price shall remain the same." 4. This Amendment may be executed in two or more counterparts and by different parties in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5. Except as otherwise expressly provided for herein, all of the terms and conditions of the Option shall remain in full force and effect. 2 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written. "THE COMPANY" MYO DIAGNOSTICS, INC. By --------------------------------- Gerald D. Appel President "OPTIONEE" By ---------------------------------- 3 EX-10.11 15 EXHIBIT 10.11 STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1.0 BASIC PROVISIONS ("BASIC PROVISIONS"). 1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, August 1, 1996, is made by and between THE URCIS FAMILY TRUST ("Lessor") and MYO DIAGNOSTICS, INC. ("Lessee"), (collectively the "Parties," or individually a "Party"). 1.2(a) PREMISES: That certain portion of the Building, including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 3760 South Robertson Boulevard, located in the City of Culver City, County of LOS ANGELES, State of CALIFORNIA, with zip code 90232, as outlined on Exhibit ___ attached hereto ("Premises"). The "Building" is that certain building containing the Premises and generally described as (describe briefly the nature of the Building): Approximately 9,749 Rentable Square Feet of a Larger Second Floor Bldg. as generally depicted on Exhibit "A" attached hereto. In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the Building or to any other buildings in the Industrial Center. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "INDUSTRIAL CENTER." (Also see Paragraph 2.) 1.2(b) PARKING: ________________________ unreserved vehicle parking spaces ("UNRESERVED PARKING SPACES"); and 30 reserved vehicle parking spaces ("RESERVED PARKING SPACES"). (Also see Paragraph 2.6.) 1.3 TERM: 3 years and 0 months ("ORIGINAL TERM") commencing October 1, 1996 (See Attached Addendum) ("COMMENCEMENT DATE") and ending September 30, 1999 ("EXPIRATION DATE"). (Also see Paragraph 3.) 1.4 EARLY POSSESSION: _______________________ ("EARLY POSSESSION DATE"). (Also see Paragraphs 3.2 and 3.3.) 1.5 BASE RENT: $10,300.00 per month ("BASE RENT"), payable on the First day of each month commencing October 1, 1996 (Also see Paragraph 4.) [ ] If this box is checked, this Lease provides for the Base Rent to be adjusted per Addendum _______, attached hereto. 1.6(a) BASE RENT PAID UPON EXECUTION: $10,300 as Base Rent for the period October 1, 1996. 1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: 0% except for as provided in attached Addendum. 1.7 SECURITY DEPOSIT: $10,300.00 ** ("SECURITY DEPOSIT"). (also see Paragraph 5**.) $4,100.00 previously deposited plus $6,200.00 due upon execution. 1.8 PERMITTED USE: General Office Use and Diagnostic Evaluation (Non-Invasive) and any legal use. ("PERMITTED USE") (Also see Paragraph 6.) 1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.) 1.10(a) REAL ESTATE BROKERS. The following real estate broker(s) (collectively, the "BROKERS") and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes): [ ] ______________________________________ represents Lessor exclusively ("LESSOR'S BROKER"); [ ] N/A represents Lessee exclusively ("LESSEE'S BROKER"); [ ] _______________________________________ represents both Lessor and Lessee exclusively (DUAL AGENCY"). (Also see Paragraph 15.) 1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate written agreement between Lessor and said Broker(s) (or in the event there is no separate written agreement between Lessor and said Broker(s), the sum of $_________) for brokerage services rendered by said Broker(s) in connection with this transaction. 1 1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("GUARANTOR"). (Also see paragraph 37.) 1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum through _____, and Exhibits "A" through _____, all of which constitute a part of this Lease. 2. PREMISES, PARKING AND COMMON AREAS. 2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental and/or Common Area Operating Expenses, is an approximation which Lessor and Lessee agree is reasonable and the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, electrical systems, fire sprinkler system, lighting, air conditioning and heating systems and loading doors, if any, in the Premises, other than those constructed by Lessee, are in good operating condition on the Commencement Date. If a non-compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice form Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within thirty (30) days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. SEE ADDENDUM ATTACHED HERETO. 2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor warrants that any improvements (other than those constructed by Lessee or at Lessee's direction) on or in the Premises which have been constructed or installed by Lessor or with Lessor's consent or at Lessor's direction shall comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Lessor further warrants to Lessee that Lessor has no knowledge of any claim having been made by any governmental agency that a violation or violations of applicable building codes, regulations, or ordinances exist with regard to the Premises as of the Commencement Date. Said warranties shall not apply to any Alterations or Utility Installations (defined in paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said warranties, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee given within six (6) months following the Commencement Date and setting forth with specificity the nature and extent of such non-compliance take such action, at Lessor's expense, as maybe reasonable or appropriate to rectify the non-compliance. Lessor makes no warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined in paragraph 2.4). 2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been advised to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, seismic and earthquake requirements, and compliance with the Americans with Disabilities Act and applicable zoning, municipal, county, state and federal laws, ordinances and regulations and any covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the present and future suitability of the Premises for Lessee's intended use; (b) that Lessee has made such investigation as it deems necessary with reference to such matters, is satisfied with reference thereto, and assumes all responsibility therefore as the same relate to Lessee's occupancy of the Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. 2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner of occupant of the Premises. In such event, Lessee shall, at Lessee's sole cost and expense, correct any non-compliance of the Premises with said warranties. 2 2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and loaded or unloaded as directed by Lessor in the Rules and Regulations (as defined in Paragraph 40) issued by Lessor. (Also see paragraph 2.9.) (a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. (b) If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee; which cost shall be immediately payable upon demand by Lessor. (c) Lessor shall at the Commencement Date of this Lease, provide the parking facilities required by Applicable Law. 2.7 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all areas and facilities outside the Promises and within the exterior boundary line of the Industrial Center and Interior utility raceways within the Premises that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. 2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Industrial Center. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable Rules and Regulations with respect thereto in accordance with paragraph 40. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the Industrial Center. 2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land outside the boundaries of the Industrial Center to be a part of the Common Areas; 3 (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs, or alterations to the Industrial Center, or any portion thereof; and (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Industria Center as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 3. TERM. 3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph 1.4 and if Lessee totally or partially occupies the Premises alter the Early Possession Date but prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early occupancy. All other terms of this Lease, however, (including but not limited to the obligations to pay Lessee's Share of Common Area Operating Expenses and to carry the insurance required by Paragraph 8) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Terms. SEE ADDENDUM ATTACHED. 3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession of the Premises to Lessee by the early Possession Date, if one is specified in Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days alter the end of said sixty (60) day period, cancel this Lease, in which event the parties shall be discharged form all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period. Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. Except as maybe otherwise provided, and regardless of when the Original Term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to the period during which the Lessee would have otherwise enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. SEE ADDENDUM ATTACHED. 4 RENT. 4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the same may be adjusted from time to time, to Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one full month shall be prorated based upon the actual number of days of the month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: SEE ADDENDUM ATTACHED. (a) "Common Area Operating Expenses" are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Industrial Center, including, but not limited to, the following: (i) The operation, repair and maintenance, in neat, clean, good order and condition, of the following: SEE ADDENDUM ATTACHED. 4 (aa) The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators and roof. (bb) Exterior signs and any tenant directories. (cc) Fire detection and sprinkler systems. (ii) The cost of water, gas, electricity and telephone to service the Common Areas. (iii) Trash disposal, property management and security services and the costs of any environmental inspections. (iv) Reserves set aside for maintenance and repair of Common Areas. (v) Real Property Taxes (as defined in paragraph 10.2) to be paid by Lessor for the Building and the Common Areas under paragraph 10 hereof. (vi) The cost of the premiums for the insurance policies maintained by Lessor under Paragraph 8 hereof. (vii) Any deductible portion of an insured loss concerning the Building or the Common Areas. (viii) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense. (b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Building or to any other building in the Industrial Center or to the operation, repair and maintenance thereof, shall be allocated entirely to the Building or to such other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Industrial Center. (c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements of facilities or to provide those services unless the Industrial Center already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them. (d) Lessee's Share of Common Area Operating Expenses shall be payable by Lessee within ten (10) days after a reasonably detailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12-month period of the Lease term, on the same day as the Base Rent is due hereunder, Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated on said statement, Lessor shall be credited the amount of such overpayment against Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by lessor to Lessee of said statement. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution hereof the Security Deposit set forth in paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefore deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor as an addition to the Security Deposit so that the total 5 amount of the Security Deposit shall at all times bear the same proportion to the then current Base Rent as the Initial Security Deposit bears to the Initial Base Rent set forth in paragraph 1.5 Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration of earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any monies to be paid by Lessee under this Lease. 6. USE. 6.1 PERMITTED USE. (a) Lessee shall use and occupy the Premises only for the Permitted Use set forth in Paragraph 1.8, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to the Premises or neighboring premises or properties. (b) Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee, Lessee's assignees or subtenants, and by prospective assignees and subtenants of Lessee, its assignees and subtenants, for a modification of said Permitted Use, so long as the same will not impair the structural integrity of the improvements on the Premises or in the Building or the mechanical or electrical systems therein, does not conflict with uses by other lessees, is not significantly more burdensome to the Premises or the Building and the improvements thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within five (5) business days after such request give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use. 6.2 HAZARDOUS SUBSTANCES. (a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical,material or waste whose presence,nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment, or the Premises; (ii) regulated or monitored by any governmental authority; or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products or by-products thereof. Lessee shall not engage in any activity in or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Requirements (as defined in paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and (iii) the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable laws require that a notice given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but upon notice to Lessor and in compliance with all Applicable Requirements, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of the Permitted Use, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to any Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefor, including but not limited to the installation (and, at Lessor's option, removal on or before Lease expiration or earlier termination) of reasonably necessary protective 6 modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises or the Building, other than as previously consented to by Lessor, Lessee shall immediately give Lessor written notice thereof, together with a copy of any statement, report, notice, registration, application,permit, business plan, license, claim, action , or proceeding given to, or received from, any governmental authority or private party concerning the presence, spill, release, discharge of, or exposure to, such Hazardous Substance including but not limited to all such documents as may be involved in any Reportable Use involving the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including, without limitation, through the plumbing or sanitary sewer system). (c) Indemnification. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if nay, and the Premises, harmless from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss of permits and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation (including consultants' and attorneys' fees and testing), removal, remediation, restoration and or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement. 6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "Applicable Requirements," which term is used in this Lease to mean all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but to limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill, or release of any Hazardous Substance), now in effect or which may hereafter come into effect. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including but not limited to permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Requirements. 6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to employ experts and/or consultants in connection therewith to advise Lessor with respect to Lessee's activities, including but not limited to Lessee's installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease by Lessee or a violation of Applicable Requirements or a contamination, caused or materially contributed to by Lessee, is found to exist or to be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case maybe, for the costs and expenses of such inspections. 7.0 MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERATIONS. 7 7.1 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair (whether or not such portion of the Premises requiring repair, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements of the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities specifically servicing the Premises, such as lighting facilities, , fired or unfired pressure vessels, fire hose connections if within the Premises, fixtures, interior walls, interior surfaces of exterior walls, , floors, windows, doors, , and , but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all Improvements thereon or a part thereof in good order, condition and state of repair. (b) , Lessor reserves the right, , to procure and maintain the contract for the heating, air conditioning and ventilating systems. (c) If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, in accordance with Paragraph 13.2 below. 7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraph 2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if located in the Common Areas) or other automatic fire extinguishing system including fire alarm and/or smoke detection systems and equipment, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expenses or to terminate this Lease because of Lessor's failure to keep the Building, Industrial Center or Common Areas in good order, condition and repair. 7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS. (a) Definitions; Consent Required. The term "Utility Installations" is used in this Lease to refer to all air lines, power panels, electrical distribution, security, fire protection systems, communications systems, lighting fixtures, heating, ventilating and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment which can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises which are provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be made any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without Lessor's consent but upon notice to Lessor, so long 8 as they are not visible from the outside of the Premises, do not involve puncturing, relocating or removing the roof or any existing walls, or changing or interfering with the fire sprinkler or fire detection systems and the cumulative cost thereof during the term of this Lease as extended does not exceed $2,500.00. (b) Consent. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon: i) Lessee's acquiring all applicable permits required by governmental authorities; (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility installation to Lessor prior to commencement of the work thereon; and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and be in compliance with all Applicable Requirements. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. Lessor may, (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation. (c) Lien Protection. Lessee shall pay when due all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on, or about the Premises, and Lessor shall have the right to pose notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense, defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, Indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION. (a) Ownership. Subject to Lessor's right to require their removal and to cause Lessee to become the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations and Utility Installations made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon the Premises and be surrendered with the Premises by lessee. (b) Removal. Unless otherwise agreed in writing, Lessor may require that any or all Lessee-Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding that their installation may have been consented to by Lessor. Lessor may require the removal at any time of all or any part of any Alterations or Utility Installations made without the required consent of Lessor. (c) Surrender/Restoration. Lessee shall surrender the Premises by the end of the last day of the Lessee term or any earlier termination date, clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. Ordinary wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified herein, the Premises, as surrendered, shall include the Alterations and Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and Lessee-Owned Alterations and Utility Installations, as well as the 9 removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Requirements and/or good practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. 8. INSURANCE; INDEMNITY. 8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the Insurance policies maintained by Lessor under this Paragraph 8 shall be paid by Lessor. . 8.2 LIABILITY INSURANCE. (a) Carried by Lessee. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in writing (as additional insureds) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises" endorsement and contain the "Amendment of the Pollution Exclusion" endorsement for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any Intra-Insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "Insured contract" for the performance of Lessee's Indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried by Lessor. Lessor shall also maintain liability insurance described in Paragraph 8.2(a) above, in addition to and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE. (a) Building and Improvements. Lessor shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to any Lender(s), insuring against loss or damage to the Premises. Such insurance shall be for full replacement cost, as the same shall exist from time to time, or the amount required by any Lender(s), but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. Lessee-Owned Alterations and Utility Installations, Trade Fixtures and Lessee's personal property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and commercially appropriate, Lessor's policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Building required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered loss, but not including plate glass insurance. Said policy or policies shall also contain an agreed valuation provision in lieu of any co-insurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located, at its election. (b) Rental Value. Lessor shall also obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and any Lender(s), insuring the loss of the full rental and other charges payable by all lessees of the Building to Lessor for one year (including all Real Property Taxes, insurance 10 costs, all Common Area Operating Expenses and any scheduled rental increases). Said insurance may provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any co-insurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income. Real Property Taxes, insurance premium costs and other expenses, if any, otherwise payable, for the next 12-month period. Common Area Operating Expenses shall include any deductible amount in the event of such loss. (c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Industrial Center if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee-Owned Alterations and Utility installations unless the item in question has become the property of Lessor under the terms of this Lease. 8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance shall be full replacement cost coverage with a deductible not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property and the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request from Lessor, Lessee shall provide Lessor with written evidence that such insurance is in force. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven (7) days after the earlier of the Early Possession Date or the Commencement Date, certified copies of, or certificates evidencing the existence and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject to modification except after thirty (30) days' prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. 8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss or damage to their property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. Lessor and Lessee agree to have their respective insurance companies issuing property damage insurance waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters. Lessee 11 upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects or pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other lessee of Lessor nor from the failure by Lessor to enforce the provisions of any other lease in the Industrial Center. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS. (a) "Premises Partial Damage" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than fifty percent (50%) of the then Replacement Cost (as defined in Paragraph 9.1(d) of the Premises (excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures immediately prior to such damage or destruction. In addition, damage or destruction to the Building, other than Lessee-Owned alterations and Utility Installations and Trade Fixtures) immediately prior to such damage or destruction. (b) "Premises Total Destruction" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility Installations, the repair cost of which damage or destruction is fifty percent (50%) or more of the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any lessees of the Building, the cost of which damage or destruction is fifty percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any lessees of the Building) of the Building shall, at the option of Lessor, be deemed to be Premises Total Destruction. (c) "Insured Loss" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect. In the event, however, that there is a shortage of insurance proceeds and such shortage is due to the fact that, by reason of the unique nature of the improvements in the Premises, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor 12 receives said funds or adequate assurance thereof within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, lessor shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within such ten (10) day period, and if Lessor does not so elect to restore and repair, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds contributed by Lessee to repair any such damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds contributed by Lessee to repair any such damage or destruction. Premises Partial damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in full force and effect). Lessor may at Lessor's option, either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following such commitment from Lessee. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 9.7. 9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by (a) exercising such option, and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten (10) days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten (10) days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate as of the date set forth in the first sentence of this Paragraph 9.5. 13 9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance Condition for which Lessee is not legally responsible, the Base Rent, Common Area Operating Expenses and other charges, if any, payable by Lessee hereunder for the period during which such damage or condition, its repair, remediation or restoration continues, shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not in excess of proceeds from insurance required to be carried under Paragraph 8.3(b). Except for abatement of Base Rent, Common Area Operating Expenses and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair, remediation or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after the receipt of such notice, this Lease shall continue in full force and effect. "Commence" as used in this Paragraph 9.6 shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever occurs first. 9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then month Base Rent or $100,000 whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the excess costs of (a) investigation and remediation of such Hazardous Substance Condition to the extent required by Applicable Requirements, over (b) an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following said commitment by Lessee. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time period specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment made by Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 WAIVER OF STATUTES. Lessor and Less agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises and the Building with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent it is inconsistent herewith. 10. REAL PROPERTY TAXES. 10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Industrial Center. 14 10.2 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee-Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or stored within the Industrial Center. When possible, Lessee shall cause its Lessee-Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. UTILITIES. Lessee shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity, telephone, security, gas and cleaning of the Premises, together with any taxes thereon. If any such utilities or services are not separately metered to the Premises or separately billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be determined by Lessor of all such charges jointly metered or billed with other premises in the Building, in the manner and within the time periods set forth in Paragraph 4.2(d). See Addendum attached. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) A change in the control of Lessee shall constitute an assignment requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose. See Addendum attached. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the time of full execution and delivery of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall be considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding any Guarantors) established under generally accepted accounting principles consistently applied. (d) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1, or a non-curable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unconsented to assignment or subletting as a non-curable Breach, Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon thirty (30) days' written notice ("Lessor's Notice"), increase the monthly Base Rent for the Premises to the greater of the then fair market rental value of the Premises, as reasonably determined by Lessor, or one hundred ten percent (110%) of the Base Rent then in effect. Pending determination of the new fair market rental value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to the then fair market value as reasonably determined by Lessor (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition) or one hundred ten percent (110%) of the price previously in effect, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment, and 15 (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new rental bears to the Base Rent in effect immediately prior to the adjustment specified in Lessor's Notice. (e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief. 12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING. (a) Regardless of Lessor's consent, any assignment or subletting shall not (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, nor (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent for performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the assignee or sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable under this Lease or the sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or the sublease. (d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of the Lessee's obligations under this Lease, including any sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering in such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which lessor has specifically consented in writing. (g) The occurrence of a transaction described in Paragraph 12.2(c) shall give Lessor the right (but not the obligation) to require that the Security Deposit be increased by an amount equal to three (3) times the then monthly Base Rent, and Lessor may make the actual receipt by Lessor of the Security Deposit increase a condition to Lessor's consent to such transaction. (h) Lessor, as a condition to giving its consent to any assignment or subletting, may require that the amount and adjustment schedule of the rent payable under this Lease by adjusted to what is then the market value and/or adjustment schedule for property similar to the Premises as then constituted, as determined by Lessor. 12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: 16 (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of the foregoing provision or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against such sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior defaults or breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee under a sublease approved by Lessor shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. DEFAULT; BREACH; REMEDIES. 13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, and that Lessor may include the cost of such services and costs in said notice as rent due and payable to cure said default. A "Default" by Lessee is defined as a failure by Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" by Lessee is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent, Lessee's Share of Common Area Operating Expenses, or any other monetary payment required to be made by Lessee hereunder as and when due, the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with Applicable Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), 17 (iii) the rescission of an unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that are to be observed, complied with or performed by Lessee, other than those described in Subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this Subparagraph 13.1(e) is contrary to any applicable law, such provision shall be of no force or effect, and shall not affect the validity of the remaining provisions. (f) The discovery by lessor that any financial statement of Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Lessee's failure, within sixty (60) days following written notice by or on behalf of Lessor to Lessee of any such event, to provide Lessor with written alternative assurances of security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease. 13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its own option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid 18 rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District in which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph 13.2. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace period under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two (2) such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. Lessor and Lessee agree that the limitations on assignment and subletting in this Lease are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under this Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions" shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor, as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 LATE CHARGES. Lessee hereby acknowledges that the late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or deed of trust covering the 19 Premises. Accordingly, if any installment of rent or other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease unless Lessor falls within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by any Lender(s) whose name and address shall have been furnished to Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. 14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the portion of the Common Areas designated for Lessee's parking, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the Premises. No reduction of Base Rent shall occur if the condemnation does not apply to any portion of the Premises. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution of value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation, separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above Lessee's Share of the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage to the Premises caused by such condemnation authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 15. BROKERS' FEES. 15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the procuring cause of this Lease. 15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined in Paragraph 39.1) granted under this Lease or any Option subsequently granted, or (b) if Lessee acquires any rights to the Premises or other premises in which Lessor has an interest, or (c) if Lessee remains in possession of the Premises with the consent of Lessor after the expiration of the term of this Lease after having failed to exercise an Option, or (d) if said Brokers are the procuring cause of any other lease or sale entered into between the Parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, or (e) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then as to any of said transactions, Lessor shall pay said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect at the time of the execution of this Lease. 20 15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Each Broker shall be an intended third party beneficiary of the provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any commission arising from this Lease and may enforce that right directly against Lessor and its successors: 15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder other than as named in Paragraph 1.10(a) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and that no broker or other person, firm or entity other than said named Broker(s) is entitled to any commission or finder's fee in connection with said transaction. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the Indemnifying Party, including any costs, expenses, and/or attorneys' fees reasonably incurred with respect thereto. 16. TENANCY AND FINANCIAL STATEMENTS. 16.1 TENANCY STATEMENT. Each Party (as "Responding Party") shall within ten (10) days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in a form similar to the then most current "Tenancy Statement" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell the Premises or the Building, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15.3, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within ten (10) days following the date on which it was due, shall bear interest from the date due at the prime rate charged by the largest state chartered bank in the state in which the Premises are located plus four percent (4%) per annum, but not exceeding the maximum rate allowed by law, in addition to the potential late charge provided for in Paragraph 13.4. 20. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any 21 default or breach hereof by either Party. Each Broker shall be an intended third party beneficiary of the provisions of this Paragraph 22. 23. NOTICES. 23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission during normal business hours, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail, the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or the courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone or facsimile confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday or a Sunday or a legal holiday, it shall be deemed received on the next business day. 24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or any other term, covenant or condition hereof. Lessor's consent to, or approval of, any such act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any Default or breach by Lessee of any provision hereof. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. 26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. In the event that Lessee holds over in violation of this Paragraph 26 then the Base Rent payable from and after the time of the expiration or earlier termination of this Lease shall be increased to two hundred percent (200%) of the Base Rent applicable during the month immediately preceding such expiration or earlier termination. Nothing contained herein shall be construed as a consent by Lessor to any holding over by Lessee. 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 22 30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE. 30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), nor or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give andy Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one month's rent. 30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys' fees, costs and expenses incurred in preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. Broker(s) shall be intended third party beneficiaries of this Paragraph 31. 32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the Building, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or Building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred eighty (180) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 23 34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or the Building, except that Lessee may, with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business so long as such signs are in a location designated by Lessor and comply with Applicable Requirements and the signage criteria established for the Industrial Center by Lessor. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof of the Building, and the right to install advertising signs on the Building, including the roof, which do not unreasonably interfere with the conduct of Lessee's business; Lessor shall be entitled to all revenues from such advertising signs. 35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. CONSENTS. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. In addition to the deposit described in Paragraph 12.2(e), Lessor may, as a condition to considering such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the impositions by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. GUARANTOR. 37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease, including but not limited to the obligation to provide the Tenancy Statement and information required in Paragraph 16. 37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of the Lessee under this Lease if any such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf) to obligate such Guarantor on said guaranty, and resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signatures of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 24 38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and the performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. OPTIONS. 39.1 DEFINITION. As used in this Lease, the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises, or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original lessee is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise. 39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the period commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee), or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three (3) or more notices of separate Defaults under Paragraph 13.1 during the twelve (12) month period immediately preceding the exercise of the Option, whether or not the Defaults are cured. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of separate Defaults under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and observe all reasonable rules and regulations ("Rules and Regulations") which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Industrial Center and their invitees. 41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. RESERVATIONS. Lessor reserves the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights of way, utility raceways, and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights of way, utility raceways, dedications, maps and restrictions 25 do not reasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor shall not be deemed an offer to lease. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 47. AMENDMENTS. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The Parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional insurance company or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. 26 LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. 27 The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures. Executed at: Culver City, CA Executed at: Culver City, CA -------------------------- -------------------------- on: 9-12-96 on: 9-12-96 ------------------------- ------------------------- By LESSOR: By LESSEE: URCIS Family Trust MYO Diagnostics LTD. - ------------------------------ ------------------------------ - ------------------------------ ------------------------------ By: /S/ Ruben Urcis By: /S/ Gerald Appel ------------------------------- ------------------------- Name Printed: Ruben Urcis Name Printed: Gerald Appel ---------------------- ---------------- Title: Trustee Title: President -------------- ------------------ Initials: ----- ----- 28 ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - MODIFIED NET DATED AUGUST 1, 1996 BETWEEN THE URCIS FAMILY TRUST, AS LESSOR, AND MYO DIAGNOSTICS, LTD., AS LESSEE This Addendum dated for reference purposes only August 1, 1996 is attached to and made a part of the above referenced Standard Industrial/Commercial Multi- Tenant Lease - Modified Net ("Lease Agreement" together with this Addendum, the "Lease"). The provisions of this Addendum shall govern and supersede any and all contrary, conflicting or inconsistent provisions of the Lease Agreement. The defined terms herein have the meaning ascribed thereto in the Lease Agreement unless otherwise indicated. The paragraph numbers set forth herein correspond to the paragraph numbers of the Lease Agreement for convenience of reference. 1.3 The Term of the Lease shall commence on the date that Lessor tenders possession of the Premises to Lessee by delivery of written notice thereof from Lessor to Lessee, provided that the basic monthly Rent shall commence to accrue starting on the tenth day following such Commencement Date, it being understood that Lessee shall be entitled to occupy the Premises free of basic Rent during the first ten calendar days of the Term of the Lease. Lessee acknowledges that another tenant is currently in possession of the Premises but is expected to vacate the Premises on or about October 1, 1996. Lessor and Lessee are currently the lessor and lessee, respectively, under Lease dated June 14, 1995 (the "Prior Lease") concerning a portion of certain real property commonly referred to as 3710 Robertson Blvd., Culver City, California. The tenancy and leasehold interest under the Prior Lease shall be terminated on the close of the tenth calendar day following the Commencement Date of the Lease. If Lessee continues in possession of the premises covered by the Prior Lease beyond such tenth day, Lessee shall be considered a hold-over tenant as provided for in Paragraph 26 of the Prior Lease. 2.2 Notwithstanding anything in the Lease to the contrary, except as herein provided, Lessee is leasing the Premises in an "as-is" condition and Lessor shall not be required to make any improvements or alterations to the Premises. Lessor shall repaint that portion of the Premises previously occupied by IKON and as shown on Exhibit "A" and shall also cause to be cleaned all carpeting in the Premises. Any other improvements or alterations necessary or requested by Lessee shall be made by Lessee at its sole cost and expense and in conformity with the provisions of the Lease. 4.2 Lessee shall pay its pro rata charge for electricity supplied to the second floor of the Building. The Premises contain approximately 9749 rentable square feet. The second floor of the Building contains approximately 13,349 square feet. Lessee agrees to pay to Lessor an amount equal to 73.032% of electricity supplied to the second floor of the Building, Lessee acknowledging that the Premises are not separately metered and all of the tenants on the second floor of the Building are on the same meter. If the entire second floor of the Building at any time is not fully leased and occupied, then Lessee shall pay that percentage of the electricity costs derived by dividing the rental area of the Premises by the rentable area of that portion of the second floor of the Building which is leased and occupied. In the event Lessee requires janitorial services for the Premises, Lessee shall either contract for services directly or request that Lessor provide them, in either case, at Lessee's expense. Lessee shall be responsible for all of Lessee's own light bulbs or fluorescent replacement, door re-keying and like expenses. Lessor and Lessee agree that Lessee shall not be responsible for real property taxes assessed against the Building or for the costs of property damage or liability insurance maintained by Lessor. 8.8 Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, of Lessee's lessees, employees, contractors, invitees, customers, or any other person in or about the Premises whether such injury or damage results from conditions arising upon the Premises from any act whether or not such act be the result of negligence on the part of Lessee or its invitees, except for any injury or damage which may be caused by incidents occurring from outside of the Premises. Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss or income or profit therefrom; however, Lessor shall remain liable to Lessee for actions arising out of Lessor's negligence. 12.1(f) Lessee may assign all, but not less than all, of its rights under the Lease, without Lessor's consent to any corporation which controls, is controlled by or is under common control with Lessee or to any corporation resulting from a merger or consolidation with Lessee, or to any person or entity which acquires substantially all the assets of Lessee as a going concern of the business that is being conducted on the Premises, each of which are referred to as a "Lessee Affiliate," provided that before such assignment shall be effective said assignee shall assume, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease. Lessor shall execute and deliver a formal consent to any such assignment or subletting to a Lessee Affiliate if requested by Lessee. 49. No payment by Lessee or receipt by Lessor of a lesser amount than on account of the Rent, nor shall any endorsement or statement on any letter accompanying any check or payment of Rent be deemed an accord and satisfaction, and Lessor may accept a check or payment without prejudice to any Lessor's right to recover the balance of Rent or pursue any other remedy provided in this Lease. 29 50. Lessor hereby grants to Lessee the First Right of Negotiation to lease additional space on the second floor of the Building when and as any such space becomes available for rent. Lessor shall, from time to time, advise Lessee in writing at least thirty days in advance of the date that any such additional space is to become available for lease. Lessee shall have thirty days from the date of notification by Lessor to decide whether or not Lessee desires to lease such additional space. If Lessee desires to lease such additional space, Lessee shall give Lessor written notice thereof within such thirty-day period. If Lessee does not give Lessor written notice of its desire to Lease such space within such thirty-day period, then Lessee's right of first negotiation with respect to such space shall forever be terminated. If Lessee gives Lessor written notice of Lessee's desire to lease such space within such thirty-day period, then Lessor and Lessee shall negotiate in good faith for the lease of such space from Lessor to Lessee, the term of which lease shall end with the termination date of this Lease, and on other terms and conditions acceptable to the parties. In the event that Lessor and Lessee have not entered into a written lease for such additional space within twenty days after delivery of Lessee's notice to Lessor, then Lessee's right of first negotiation with respect to such space shall be deemed forever terminated. 51. Lessor hereby grants to Lessee the option ("Option") to extend the term of this Lease for one (1) additional two (2) year period upon all of the following terms and conditions: (i) Lessee gives to Lessor, and Lessor actually receives, on a date which is prior to the date that the option period would commence (if exercised) by at least three (3) and not more than nine (9) months, a written notice of the exercise of the option to extend this Lease for said additional term, time being of the essence. If said notification of the exercise of said option is not so given and received, the Option shall automatically expire; (ii) The provisions of Paragraph 39 of this Lease, including the provision relating to default of Lessee set forth in Paragraph 39.3, are conditions of the Option; and (iii) The Rent during the Option Period shall be 115% of the Rent in effect as of the last day of the original term of this Lease. All other terms and conditions of this Lease, except where specifically modified by this Paragraph 51 and this Paragraph 51, shall apply. [Remainder of page intentionally left blank] 30 In witness whereof, the Lessor and Lessee have executed this Addendum to Lease as of the date and year first above written. "Lessor" The Urcis Family Trust by: /S/ Ruben Urcis ---------------------------------- Ruben Urcis, trustee "Lessee" Myo Diagnostics, Inc. by: /S/ Gerald D. Appel ---------------------------------- its President ------------------------------ 31 EX-10.12 16 EXHIBIT 10.12 THESE AGENT'S WARRANTS ARE ONLY EXERCISABLE IN THE PROVINCE OF ONTARIO. NO SHARES ISSUABLE UPON EXERCISE OF THE AGENT'S WARRANTS WILL BE DELIVERED IN ANY JURISDICTION OTHER THAN THE PROVINCE OF ONTARIO. THE AGENT'S WARRANTS AND THE SHARES ISSUABLE UPON EXERCISE OF THE AGENT'S WARRANTS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ARE NOT OFFERED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO A "U.S. PERSON," AS DEFINED BY REGULATION S UNDER THE SECURITIES ACT, UNLESS REGISTERED UNDER THE SECURITIES ACT AND THE SECURITIES LAWS OF ALL APPLICABLE STATES OF THE UNITED STATES OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. THE AGENT IN ACCEPTING DELIVERY OF THE AGENT'S WARRANTS ACKNOWLEDGES AND AGREES THAT THE AGENT'S WARRANTS MAY NOT BE SOLD AND THE RIGHTS HEREIN PROVIDED MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF A U.S. PERSON UNLESS REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, AND THAT CERTIFICATES REPRESENTING THE AGENT'S WARRANTS AND THE SHARES ISSUABLE UPON THEIR EXERCISE WILL BEAR A LEGEND TO SUCH EFFECT. NON-TRANSFERABLE AGENT'S WARRANTS TO PURCHASE COMMON SHARES OF MYO DIAGNOSTICS, INC. EXERCISABLE COMMENCING DECEMBER 6, 1996 VOID AFTER DECEMBER 6, 1998 THIS CERTIFIES that, for value received, Griffiths McBurney & Partners (the "Agent"), is the registered holder of 43,200 Agent's warrants (the "Agent's Warrants"). Each Agent's Warrant entitles the Agent, subject to the terms and conditions set forth in this Agent's Warrant Certificate, to purchase from Myo Diagnostics, Inc. (the "Company"), one fully paid and non-assessable common shares of the Company (a "Share"), at any time commencing on the date hereof and continuing up to 5:00 p.m. Toronto time on December 6, 1998 (the "Time of Expiry") on payment of U.S$2.50 per Share (the "Exercise Price"). The number of Shares which the Agent is entitled to acquire upon exercise of the Agent's Warrants and the Exercise Price are subject to adjustment as hereinafter provided. 1. EXERCISE OF AGENT'S WARRANTS (a) ELECTION TO PURCHASE. The rights evidenced by this certificate may be exercised by the Agent in whole or in part and in accordance with the provisions hereof by delivery of an Election to Purchase in substantially the form attached hereto as Schedule "A", properly completed and executed, together with payment of the Exercise Price in United States Dollars for the number of Shares specified in the Election to Purchase at the principal office of the Company or such other address as may be notified in writing by the Company (the "Company Office"). In the event that the rights evidenced by this certificate are exercised in part, the Company shall, contemporaneously with the issuance of the Shares issuable on the exercise of the Agent's Warrants so exercised, issue to the Agent a substitute certificate, on identical terms in respect of that number of Shares in respect of which the Agent has not exercised the rights evidenced by this certificate. (b) EXERCISE. The Company shall, on the date it receives a duly executed Election to Purchase and the Exercise Price for the number of Shares specified in the Election to Purchase (the "Exercise Date"), issue that number of Shares specified in the Election to Purchase as fully paid and non-assessable common shares in the capital of the Company. (c) SHARE CERTIFICATES. As promptly as practicable after the Exercise Date, the Company shall issue and deliver to the Agent, registered in the name of the Agent, a certificate or certificates for the number of Shares specified in the Election to Purchase. To the extent permitted by law, such exercise shall be deemed to have been effected as of the close of business on the Exercise Date, and at such time the rights of the Agent with respect to the number of Agent's Warrants which have been exercised as such shall cease, and the person or persons in whose name or names any certificate or certificates for Shares shall then be issuable upon such exercise shall be deemed to have become the holder or holders of record of the Shares represented thereby. (d) FRACTIONAL SHARES. No fractional Shares shall be issued upon exercise of any Agent's Warrants and no payments or adjustment shall be made upon any exercise on account of any cash dividends on the Shares issued upon such exercise. If any fractional interest in a Share would, except for the provisions of the first sentence of this Section l(d), be deliverable upon the exercise of an Agent's Warrant, the Company shall, in lieu of delivering the fractional share therefor, pay to the Agent an amount 2 in cash equal to the Fair Market Value (as hereinafter defined) of such fractional interest. (e) CORPORATE CHANGES. (i) Subject to paragraph l(e)(ii) hereof, if the Company shall be a party to any reorganization, merger, dissolution or sale of all or substantially all of its assets, whether or not the Company is the surviving entity, the number of Agent's Warrants evidenced by this certificate shall be adjusted so as to apply to the securities to which the holder of that number of Shares of the Company subject to the unexercised Agent's Warrants would have been entitled by reason of such reorganization, merger, dissolution or sale of all or substantially all of its assets (the "Event"), and the Exercise Price shall be adjusted to be the amount determined by multiplying the Exercise Price in effect immediately prior to the Event by the number of Shares subject to the unexercised Agent's Warrants immediately prior to the Event, and dividing the product thereof by the number of securities to which the holder of that number of Shares subject to the unexercised Agent's Warrants would have been entitled to by reason of such Event. (ii) If the Company is unable to deliver securities to the Agent pursuant to the proper exercise of an Agent's Warrant, the Company may satisfy such obligations to the Agent hereunder by paying to the Agent in cash the difference between the Exercise Price of all unexercised Agent's Warrants granted hereunder and the Fair Market Value of the securities to which the Agent would be entitled to upon exercise of all unexercised Agent's Warrants. Adjustments under this subparagraph (e) or (subject to subparagraph (o)) any determinations as to the Fair Market Value of any securities shall be made by the board of directors of the Company, or any committee thereof specifically designated by the board of directors to be responsible therefor, and any reasonable determination made by such board or committee thereof shall be binding and conclusive, subject only to any disputes being resolved by the Company's auditors, whose determination shall be binding and conclusive. (f) SUBDIVISION OR CONSOLIDATION OF SHARES 3 (i) In the event the Company shall subdivide its outstanding common shares into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding common shares of the Company shall be consolidated into a smaller number of common shares, the Exercise Price in effect immediately prior to such consolidation shall be proportionately increased. (ii) Upon each adjustment of the Exercise Price as provided herein, the Agent shall thereafter be entitled to acquire, at the Exercise Price resulting from such adjustment, the number of Shares (calculated to the nearest tenth of a Share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Shares which may be acquired hereunder immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (g) CHANGE OR RECLASSIFICATION OF SHARES. In the event the Company shall change or reclassify its outstanding common shares into a different class of securities, the rights evidenced by the Agent's Warrants shall be adjusted as follows so as to apply to the successor class of securities: (i) the number of the successor class of securities which the Agent shall be entitled to acquire shall be that number of the successor class of securities which a holder of that number of Shares subject to the unexercised Agent's Warrants immediately prior to the change or reclassification would have been entitled to by reason of such change or reclassification; and (ii) the Exercise Price shall be determined by multiplying the Exercise Price in effect immediately prior to the change or reclassification by the number of Shares subject to the unexercised Agent's Warrants immediately prior to the change or reclassification, and dividing the product thereof by the number of common shares determined in paragraph 1(g)(i) hereof. (h) OFFERING TO SHAREHOLDERS. If and whenever at any time prior to the Time of Expiry, the Company shall fix a record date or if a date of entitlement to receive is otherwise established (any such date being hereinafter referred to in this Subsection 1(h) as the "record date") 4 for the issuance of rights, options or warrants to all or substantially all the holders or the outstanding common shares of the Company entitling them, for a period expiring not more than 45 days after such record date, to subscribe for or purchase common shares of the Company or securities convertible into or exchangeable for common shares at a price per share or, as the case may be, having a conversion or exchange price per share less than 80% of the Fair Market Value (as hereinafter defined) on such record date, the Exercise Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Exercise Price in effect on such record date by a fraction, of which the numerator shall be the total number of common shares outstanding on such record date plus a number equal to the number arrived at by dividing the aggregate subscription or purchase price of the total number of additional common shares offered for subscription or purchase or, as the case may be, the aggregate conversion or exchange price of the convertible or exchangeable securities so offered by such Fair Market Value, and of which the denominator shall be the total number of common shares outstanding on such record date plus the total number of additional common shares so offered (or into which the convertible or exchangeable securities so offered are convertible or exchangeable); common shares owned by or held for the account of the Company or any subsidiary of the Company shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that any rights or warrants are not so issued or any such rights or warrants are not exercised prior to the expiration thereof, the Exercise Price shall then be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed or to the Exercise Price which would then be in effect based upon the number of common shares or conversion or exchange rights contained in convertible or exchangeable securities actually issued upon the exercise of such rights or warrants, as the case may be. (i) CARRY OVER OF ADJUSTMENTS. No adjustment of the Exercise Price shall be made if the amount of such adjustment shall be less than 1% of the Exercise Price in effect immediately prior to the event giving rise to the adjustment, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least 1% of the Exercise Price. 5 (j) NOTICE OF ADJUSTMENT. Upon any adjustment of the number of Shares and upon any adjustment of the Exercise Price, then and in each such case the Company shall give written notice thereof to the Agent, which notice shall state the Exercise Price and the number of Shares or other securities subject to the unexercised Agent's Warrants resulting from such adjustment, and shall set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Upon the request of the Agent there shall be transmitted promptly to the Agent a statement of the firm of independent chartered accountants retained to audit the financial statements of the Company to the effect that such firm concurs in the Company's calculation of the change. (k) OTHER NOTICES. In case at any time: (i) the Company shall declare any dividend upon its common shares payable in Shares; (ii) the Company shall offer for subscription pro rata to the holders of its common shares any additional shares of any class or other rights; (iii) there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation, amalgamation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, in any one or more of such cases, the Company shall give to the Agent (A) at least 10 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, amalgamation, sale, dissolution, liquidation or winding-up and (B) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, at least 10 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (A) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of common shares shall be 6 entitled thereto, and such notice in accordance with the foregoing clause (B) shall also specify the date on which the holders of common shares shall be entitled to exchange their common shares for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, amalgamation, sale, dissolution, liquidation or winding-up, as the case may be. (l) SHARES TO BE RESERVED. The Company will at all times keep available, and reserve if necessary under applicable law, out of its authorized common shares, solely for the purpose of issue upon the exercise of the Agent's Warrants, such number of Shares as shall then be issuable upon the exercise of the Agent's Warrants. The Company covenants and agrees that all Shares which shall be so issuable will, upon issuance, be duly authorized and issued as fully paid and non-assessable. The Company will take all such actions as may be necessary to ensure that all such Shares may be so issued without violation of any applicable requirements of any exchange upon which the common shares of the Company may be listed or in respect of which the common shares are qualified for unlisted trading privileges. The Company will take all such actions are within its power to ensure that all such Shares may be so issued without violation of any applicable law. (m) ISSUE TAX. The issuance of certificates for Shares upon the exercise of Agent's Warrants shall be made without charge to the Agent for any issuance tax in respect thereto, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the Agent. (n) FAIR MARKET VALUE. For the purposes of any computation hereunder, the "Fair Market Value" at any date shall be the weighted average sale price per share for the common shares of the Company for the 20 consecutive trading days immediately before such date on The Toronto Stock Exchange, or, if the shares in respect of which a determination of Fair Market Value is being made are not listed on any stock exchange, the Fair Market Value shall be determined by the directors, which determination shall be conclusive. The weighted average price shall be determined by dividing the aggregate sale price of all such shares sold on the said exchange during the said 20 consecutive trading days by the total number of such shares so sold. 7 2. REPLACEMENT Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Agent's Warrant Certificate and, if requested by the Company, upon delivery of a bond of indemnity satisfactory to the Company (or, in the case of mutilation, upon surrender of this Agent's Warrant Certificate), the Company will issue to the Agent a replacement certificate (containing the same terms and conditions as this Agent's Warrant Certificate). 3. EXPIRY DATE The Agent's Warrants shall expire and all rights to purchase Shares hereunder shall cease and become null and void at the Time of Expiry. 4. GOVERNING LAW The laws of the State of California and the federal laws of United States of America applicable therein shall govern the Warrants. 5. SUCCESSORS This Agent's Warrant Certificate shall enure to the benefit of and shall be binding upon the Agent and the Company and their respective successors. 6. NON U.S. PERSON The Agent in accepting delivery of this Agent's Warrant Certificate, acknowledges it is not a U.S. Person (as defined in Rule 902(0) of Regulation S ("Regulation s") promulgated by the United States Securities and Exchange Commission, which definition includes, but is not limited to, any natural person resident in the United States, any corporation or partnership incorporated or organized under the laws of the United States, or any estate or trust of which any executor, administrator or trustee is a U.S. Person), the Agent will not receive delivery of the Agent's Warrants or the Shares for the account or benefit of any U.S. Person or for offering, resale or delivery for the account or benefit of any U.S. Person or for the account of any person in any jurisdiction other than the Province of Ontario. 7. WARRANTS NON-TRANSFERABLE The Warrants are non-transferable. IN WITNESS WHEREOF the Company has caused this Agent's Warrant Certificate to be signed by its duly authorized officers and its corporate seal hereto affixed. 8 DATED as of December 6, 1996. MYO DIAGNOSTICS, INC. Per: /s/ Gerald Appel ------------------------- Gerald Appel, President 9 SCHEDULE "A" ELECTION TO EXERCISE The undersigned hereby irrevocably elects to exercise the number of Agent's Warrants of MYO Diagnostics, Inc. set out below for the number of Shares (or other property or securities subject thereto) as set forth below: (a) Number of Agent's Warrants to be Exercised: __________ (b) Number of Shares to be Acquired: __________ (c) Exercise Price per Share: $_________ (d) Aggregate Purchase Price [(b) multiplied by (c)] $_________ and hereby tenders a certified cheque, bank draft or cash in United States dollars for such aggregate purchase price, and directs such Shares to be registered and a certificate therefor to be issued as directed below. DATED this __ day of __________, 199___ GRIFFITHS MCBURNEY & PARTNERS Per: -------------------------- 10 EX-10.13 17 EXHIBIT 10.13 THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, (THE "SECURITIES ACT") AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL UNDERSIGNED OF THE SECURITIES, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER. WARRANTS TO PURCHASE COMMON SHARES OF MYO DIAGNOSTICS, INC. THIS CERTIFIES that, for value received, ________________ (the "Holder"), is the registered holder of _______ warrants (the "Warrants"). Each Warrant entitles the holder, subject to the terms and conditions set forth in this Certificate, to purchase from Myo Diagnostics, Inc. (the "Company"), one fully paid and non-assessable Common Share of the Company (the "Share") at any time commencing on the date hereof and continuing up to 5:00 p.m. (Toronto time) on December 6, 1997 (the "Time of Expiry") on payment of U.S$3.00 per Share (the "Exercise Price"). The number of Shares which the Holder is entitled to acquire upon exercise of the Warrants and the Exercise Price are subject to adjustment as hereinafter provided. 1. EXERCISE OF HOLDER'S WARRANTS (a) ELECTION TO PURCHASE. The rights evidenced by this Certificate may be exercised by the Holder in whole or in part and in accordance with the provisions hereof by delivery of an Election to Purchase in substantially the form attached hereto as Schedule "A", properly completed and executed, together with payment of the Exercise Price for the number of Shares specified in the Election to Purchase at the principal office of the Company at its head office or as may be notified in writing by the Company (the "Company Office"). It is a condition to the Company's obligation to issue Shares upon exercise that the representation and warranties of the undersigned in a Subscription Agreement dated May 9, 1996, as amended by an Amendment dated May 16, 1996, be true and correct as of the date of exercise. In the event that the rights evidenced by this Certificate are exercised in part, the Company shall, contemporaneously with the issuance of the Shares issuable on the exercise of the Warrants so exercised, issue to the Holder a Certificate on identical terms in respect of that number of Shares in respect of which the Holder has not exercised the rights evidenced by this certificate. (b) EXERCISE. The Company shall, on the date it receives a duly executed Election to Purchase and the Exercise Price for the number of Shares specified in the Election to Purchase (the "Exercise Date"), issue that number of Shares specified in the Election to Purchase as fully paid and non-assessable Shares in the capital of the Company. (c) CERTIFICATES. As promptly as practicable after the Exercise Date and, in any event, within five (5) business days of receipt of the Election to Purchase, the Company shall issue and deliver to the Holder, registered in the name of the Holder, a certificate or certificates for the number of Shares specified in the Election to Purchase. To the extent permitted by law, such exercise shall be deemed to have been effected as of the close of business on the Exercise Date, and at such time the rights of the Holder with respect to the number of Warrants which have been exercised as such shall cease, and the person or persons in whose name or names any certificate or certificates for Shares shall then be issuable upon such exercise shall be deemed to have become the holder or holders of record of the Shares represented thereby. (d) FRACTIONAL SHARES OR WARRANTS. No fractional Shares shall be issued upon exercise of any Warrants and no payments or adjustment shall be made upon any exercise on account of any cash dividends on the Shares issued upon such exercise. If any fractional interest in a Share would, except for the provisions of the first sentence of this Section l(d), be deliverable upon the exercise of Warrants, the Company shall, in lieu of delivering the fractional share therefor, pay to the Holder an amount in cash equal to the Fair Market Value (as hereinafter defined) of such fractional interest. (e) CORPORATE CHANGES (i) Subject to paragraph 1(e)(ii) hereof, if the Company shall be a party to any reorganization, merger, dissolution or sale of all or substantially all of its assets, whether or not the Company is the surviving entity, the number of Warrants evidenced by this certificate shall be adjusted so as to apply to the securities to which the holder of that number of Shares subject to the unexercised Warrants would have been entitled by reason of such reorganization, merger, dissolution or sale of all or substantially all of its assets (the "Event"), and the Exercise Price shall be adjusted to be the amount determined by multiplying the Exercise Price in effect immediately prior to the Event by the number of Shares subject to the unexercised Warrants immediately prior to the Event, and dividing the product thereof by the number of securities to Which the holder of that number of Shares subject to the unexercised Warrants would have been entitled to by reason of such Event. (ii) If the Company is unable to deliver securities to the Holder pursuant to the proper exercise of Warrants, the Company may satisfy such obligations to the Holder hereunder by paying to the Holder in cash the difference between the Exercise Price of all unexercised Warrants granted hereunder and the Fair Market Value of the securities to which the Holder would be entitled to upon 2 exercise of all unexercised Warrants. Adjustments under this subparagraph (e) or (subject to subparagraph (n)) any determinations as to the Fair Market Value of any securities shall be made by the board of directors of the Company, or any committee thereof specifically designated by the board of directors to be responsible therefor, and any reasonable determination made by such board or committee thereof shall be binding and conclusive, subject only to any disputes being resolved by the Company's auditors, whose determination shall be binding and conclusive. (f) SUBDIVISION OR CONSOLIDATION OF SHARES (i) In the event the Company shall subdivide its outstanding common shares into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding common shares of the Company shall be consolidated into a smaller number of shares, the Exercise Price in effect immediately prior to such consolidation shall be proportionately increased. (ii) Upon each adjustment of the Exercise Price as provided herein, the Holder shall thereafter be entitled to acquire, at the Exercise Price resulting from such adjustment, the number of Shares (calculated to the nearest tenth of a Share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Shares which may be acquired hereunder immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (g) CHANGE OR RECLASSIFICATION OF SHARES. In the event the Company shall change or reclassify its outstanding common shares into a different class of securities, the rights evidenced by the Warrants shall be adjusted as follows so as to apply to the successor class of securities: (i) the number of the successor class of securities which the Holder shall be entitled to acquire shall be that number of the successor class of securities which a holder of that number of Shares subject to the unexercised Warrants immediately prior to the change or reclassification would have been entitled to by reason of such change or reclassification; and (ii) the Exercise Price shall be determined by multiplying the Exercise Price in effect immediately prior to the change or reclassification by the number of Shares subject to the unexercised Warrants immediately prior to the change or reclassification, and dividing the product thereof by the number of shares determined in paragraph 1(g)(i) hereof. (h) OFFERING TO SHAREHOLDERS. If and whenever at any time 3 prior to the Time of Expiry, the Company shall fix a record date or if a date of entitlement to receive is otherwise established (any such date being hereinafter referred to in this Subsection 1(h) as the "record date") for the issuance of rights, options or warrants to all or substantially all the holders or the outstanding common shares of the Company entitling them, for a period expiring not more than 45 days after such record date, to subscribe for or purchase common shares of the Company or securities convertible into or exchangeable for common shares at a price per share or, as the case may be, having a conversion or exchange price per share less than 95% of the Fair Market Value (as hereinafter defined) on such record date, the Exercise Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Exercise Price in effect on such record date by a fraction, of which the numerator shall be the total number of common shares outstanding on such record date plus a number equal to the number arrived at by dividing the aggregate subscription or purchase price of the total number of additional common shares offered for subscription or purchase or, as the case may be, the aggregate conversion or exchange price of the convertible or exchangeable securities so offered by such Fair Market Value, and of which the denominator shall be the total number of common shares outstanding on such record date plus the total number of additional common shares so offered (or into which the convertible or exchangeable securities so offered are convertible or exchangeable); common shares owned by or held for the account of the Company or any subsidiary of the Company shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that any rights or warrants are not so issued or any such rights or warrants are not exercised prior to the expiration thereof, the Exercise Price shall then be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed or to the Exercise Price which would then be in effect based upon the number of common shares or conversion or exchange rights contained in convertible or exchangeable securities actually issued upon the exercise of such rights or warrants, as the case may be. (i) CARRY OVER OF ADJUSTMENTS. No adjustment of the Exercise Price shall be made if the amount of such adjustment shall be less than 1% of the Exercise Price in effect immediately prior to the event giving rise to the adjustment, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least 1% of the Exercise Price. (j) NOTICE OF ADJUSTMENT. Upon any adjustment of the number of Shares and upon any adjustment of the Exercise Price, then and in each such case the Company shall give written notice thereof to 4 the Holder, which notice shall state the Exercise Price and the number of Shares subject to the Warrants resulting from such adjustment, and shall set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Upon the request of the Holder there shall be transmitted promptly to the Holder a statement of the firm of independent chartered accountants retained to audit the financial statements of the Company to the effect that such firm concurs in the Company's calculation of the change. (k) OTHER NOTICES. In case at any time: (i) the Company shall declare any dividend upon its common shares payable in Shares; (ii) the Company shall offer for subscription pro rata to the holders of its common shares any additional shares of any class or other rights; (iii) there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation, amalgamation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, in any one or more of such cases, the Company shall give to the Holder (A) at least 10 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, amalgamation, sale, dissolution, liquidation or winding-up and (B) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, at least 10 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (A) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of common shares shall be entitled thereto, and such notice in accordance with the foregoing clause (B) shall also specify the date on which the holders of common shares shall be entitled to exchange their common shares for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, amalgamation, sale, dissolution, liquidation or winding-up, as the case may be. (l) SHARES TO BE RESERVED. The Company will at all times keep available, and reserve if necessary out of its authorized common shares, solely for the purpose of issue upon the exercise of the Warrants, such number of Shares as shall then be issuable upon 5 the exercise of the Warrants. The Company covenants and agrees that all Shares which shall be so issuable will, upon issuance, be duly authorized and issued as fully paid and non-assessable and issued. The Company will take all such actions as may be necessary to ensure that all such Shares may be so issued without violation of any applicable requirements of any exchange upon which the common shares of the Company may be listed or in respect of which the common shares are qualified for unlisted trading privileges. The Company will take all such actions are within its power to ensure that all such Shares may be so issued without violation of any applicable law. (m) ISSUE TAX. The issuance of certificates for Shares upon the exercise of Warrants shall be made without charge to the Holder for any issuance tax in respect thereto, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the Holder. (n) FAIR MARKET VALUE. For the purposes of any computation hereunder, the "Fair Market Value" at any date shall be the weighted average sale price per share for the common shares of the Company for the 20 consecutive trading days immediately before such date on such principal stock exchange or over-the-counter market as the common shares may then be listed or quoted (as the case may be), or, if the shares in respect of which a determination of Fair Market Value is being made are not listed on any stock exchange or quoted for trading by a recognized over-the-counter market, the Fair Market Value shall be determined by the firm of independent chartered accountants retained to audit the financial statements of the Company, which determination shall be conclusive. The weighted average price shall be determined by dividing the aggregate sale price of all such shares sold on the said exchange during the said 20 consecutive trading days by the total number of such shares so sold. 2. REPLACEMENT Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Certificate and, if requested by the Company, upon delivery of a bond of indemnity satisfactory to the Company (or, in the case of mutilation, upon surrender of this Certificate), the Company will issue to the Holder a replacement certificate (containing the same terms and conditions as this Certificate). 3. NO TRANSFER OF WARRANT The Warrant shall not be assignable or transferable except in accordance with applicable securities laws and with the prior written consent of the Company, such consent not to be unreasonably withheld. 6 4. EXPIRY DATE The Warrants shall expire and all rights to purchase Shares hereunder shall cease and become null and void at the Time of Expiry. 5. GOVERNING LAW The laws of the State of California and the federal laws of United States of America applicable therein shall govern the Warrants. 6. SUCCESSORS This Certificate shall enure to the benefit of and shall be binding upon the Holder and the Company and their respective successors. 7. TRANSFER OF SHARES The Holder agrees that none of the Shares or Warrants may be sold, transferred, assigned, pledged, hypothecated or otherwise disposed of ("Transferred") except pursuant to an effective registration statement under the Securities Act or unless the Company shall have received a written opinion of counsel, in form and substance satisfactory to the Company and its counsel, to the effect that the Transfer may be effected without registration under the Securities Act. As a further condition to any such Transfer, except in the event that such Transfer is made pursuant to an effective registration statement under the Securities Act, if in the reasonable opinion of counsel to the Company any Transfer of the Shares or Warrants by the contemplated transferee thereof would not be exempt from the registration and prospectus delivery requirements of the Securities Act, the Company may require the contemplated transferee to furnish the Company with an investment letter setting forth such information and agreements as may be reasonably requested by the Company to ensure compliance by such transferee with the Securities Act. Each certificate evidencing the Shares will bear the following legend: "THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL UNDERSIGNED OF THE SECURITIES, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER." The Company shall have no obligation to register any purported Transfer of any of the Shares or any Warrants in violation of this 7 agreement on its stock transfer records, and any such Transfer shall be null, void and of no force and effect. 8. PLACE OF EXECUTION These Warrants are exercisable only in the Province of Ontario. No shares issuable upon exercise of the Warrants will be delivered in any other jurisdiction. IN WITNESS WHEREOF the Company has caused this Certificate to be signed by its duly authorized officers and its corporate seal hereto affixed. DATED as of the 6th day of December, 1996. MYO DIAGNOSTICS, INC. Per: /s/ Gerald D. Appel ------------------------------ 8 SCHEDULE "A" Election to Exercise The undersigned hereby irrevocably elects to exercise the number of Warrants of Myo Diagnostics Inc. Inc. set out below for the number of Shares as set forth below: (a) Number of Warrants to be Exercised: ____________ (b) Number of Shares to be Acquired: ____________ (c) Exercise Price per Share: $___________ (d) Aggregate Purchase Price [(a) MULTIPLIED BY (c)] $___________ and hereby tenders a certified cheque, bank draft or cash in United States dollars for such aggregate purchase price, and directs such Shares to be registered and a certificate therefor to be issued as directed below. The undersigned hereby represents and warrants that the representations and warranties of the undersigned in a Subscription Agreement dated May 9, 1996, as amended by an Amendment dated May 16, 1996, are true and correct as of the date hereof. DATED this ____ day of _________________, 199__. ------------------------------ Name of Holder By: --------------------------- 9 EX-10.14 18 EXHIBIT 10.14 THIS OPTION AND THE UNDERLYING COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THIS OPTION HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND THIS OPTION AND THE UNDERLYING COMMON STOCK MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR LAWS. MYO DIAGNOSTICS, INC. STOCK OPTION AGREEMENT OPTION AGREEMENT made as of the 23rd day of March, 1995 between Myo Diagnostics, Inc, a California corporation (hereafter called the "Company"), and Steve Nelson (hereafter called the "Optionee"). 1. GRANT OF OPTION. The Company hereby irrevocably grants to the Optionee the right and option to purchase all or any part of an aggregate of Fifteen Thousand (15,000) shares of its common stock, $ .01 par value (the "Shares"), on the terms and conditions herein set forth. 2. EXERCISE PRICE. The exercise price of each of the Shares covered by the Option shall be $ .10 representing the fair market value as of the date hereof. 3. TIME AND MANNER OF EXERCISE OF OPTION. (a) This Option shall be exercisable in accordance with the schedule attached hereto as Schedule A and immediately prior to the acceptance of an offer made to acquire all or a majority of the shares of the company. (b) To the extent that the right to exercise this Option has accrued and is in effect, this Option may be exercised by giving written notice, signed by the person or persons exercising the Option, to the Company, stating the number of Shares with respect to which the Option is being exercised, accompanied by payment in full by cash or certified check for such Shares, provided, however, that no less than One Thousand (1,000) Shares may be purchased upon any one exercise of this Option unless the number of Shares purchased at such time is the total number of Shares in respect of which this Option is then exercisable. Upon such exercise, instructions shall be given to issue and deliver to the Optionee a certificate for paid-up non-assessable Shares. 4. TERM OF OPTION. This Option shall expire the earlier of either i) one year from the date of an Initial Public Offering of the Company's shares, or ii) upon acceptance of an offer made to acquire all or a majority of the shares of the Company. 5. ADJUSTMENTS In the event of any change in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, consolidations, recapitalizations, or reorganizations, an appropriate and proportionate adjustment shall be made by the Company in the number of shares subject to this Option and in the exercise price per share with respect to any unpurchased shares hereunder. Any such adjustment hereto shall be made without a change in the total exercise price applicable to such unpurchased shares but with a corresponding adjustment in the per share exercise price. No fractional shares of Common Stock shall be issued under this Option on account of under this Section 5. 6. TRANSFERABILITY OF THE OPTION The Optionee may transfer the Shares to or for the benefit of any spouse, child or grandchild, or to a trust for their benefit, or by the will or the laws of descent and distribution. 7. RESTRICTIONS (a) In the event the Optionee owns more than 5% of, becomes employed by or associated with or is in any fiduciary relationship with a competitor of the Company, the options shall be exercised and transferred to the Company at a value of $.10 per share. (b) In the event that more than 6% of the outstanding shares of the Company are purchased by an individual or entity, these options shall be exercised and transferred, upon the Company's request, to the purchaser at a value equal to the value received by the shareholders 8. PURCHASE FOR INVESTMENT The Shares to be issued upon exercise of this Option are unregistered shares and are subject to Rule 144 under the Securities Act of 1933 as now in force or hereafter amended. The person who exercises this option is acquiring the Shares as an investment and not with the view to, or for sale in connection with, the distribution of any such Shares, and that he will make no transfer of the same except in compliance with any rules and regulations in force at the time of transfer under the Securities Act of 1933, or any other applicable law, and a legend to this effect will be endorsed upon the securities so issued. IN WITNESS WHEREOF, the Company has caused this Stock Option Agreement to be duly executed by its officer thereunto duly authorized, and the Optionee has hereunto set his hand and seal as of the date and year first above written. MYO DIAGNOSTICS INC. By /s/ Gerald D. Appel ----------------------------- Gerald D. Appel, President Attest: /s/ - ------------------------------ Optionee: /s/ ------------------------------- Bearer Address: 444 31st Street ------------------------------- Manhattan Beach, CA 90266 ------------------------------- MYO DIAGNOSTICS, INC. STOCK OPTION AGREEMENT SCHEDULE A Name of Optionee Steve Nelson Date of Grant March 23, 1995 Number of Options 15,000 Shares: 15,000 Vested: March 23, 1995 EX-10.15 19 EXHIBIT 10.15 EXHIBIT 10.15
BUSINESS PRIMELINE PROMISSORY NOTE - --------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $65,000 10-10-1995 10-17-1994 LA01295491 650 5542712565 BLM - --------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - --------------------------------------------------------------------------------------------------------------------- Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association 3710 SOUTH ROBERTSON BOULEVARD Business Loan Division CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023 San Jose, CA 95113 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Principal Amount: $65,000.00 Initial Rate: 8.50% Date of Note: October 17, 1994
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells Fargo Bank, National Association ("Lender"), or order, in lawful money of the United States of America, the principal amount of Sixty Five Thousand & 00/100 Dollars ($65,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON OCTOBER 10, 1995. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING NOVEMBER 10, 1994, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of clays the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the Prime Rate (the "Index"). The Prime Rate is a base rate that the Lender from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. The Prime Rate is not necessarily the lowest or best rate at which the Lender makes loans. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced within the Lender. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. THE INTEREST RATE CHANGE WILL NOT OCCUR MORE OFTEN THAN EACH TIME THE RATE CHANGES. THE INDEX CURRENTLY IS 7.750% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 0.750 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 8.500% PER ANNUM. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $15.00, whichever is greater. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to perform promptly at the time and strictly in the manner provided in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any of the events described in this default section occurs with respect to any guarantor of this Note. (h) Lender in good faith deems itself insecure. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Subject to any right of Lender to increase the interest rate on this Note in the event of a breach or other default, the interest rate will continue at the stated Note rate. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the Jurisdiction of the courts of any County, the State of California. This Note shall be governed by and construed in accordance with the laws of the State of California. DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA, Keogh, and trust accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. Advances must be in amounts of at least $1,000, or the amount of the principal remaining available, whichever is less. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to make advances under this Note, and as security for the payment and performance of all obligations of Borrower to Lender under this Note, Borrower shall provide to Lender a Standby Letter of Credit, issued by a bank and in a form satisfactory to Lender, naming Lender as beneficiary in an amount not less than the principal amount of this Note (in dollars) and with an expiry date no earlier than 120 days following the scheduled maturity date of this Note. OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a designated business checking account with Lender, overdrafts in amounts in excess of $10 will be automatically covered by an Advance under this Note. The Lender will automatically transfer enough money to cc the overdraft unless this Note is delinquent or closed, or the Advance would cause the Note balance to exceed the maximum amount available up this Note. INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its primary deposit account with Lender (defined as the deposit account into which substantially all Borrower's receipts from its operations are deposited and from which substantially all Borrower's disbursements operations are made), or if Lender is not able to collect all payments on this Note by charging Borrower's primary deposit account with Lender, whether because Borrower cancels the authorization to Lender to do so, or Borrower fails at any time to maintain sufficient sums in said account, or for any other reason, then the interest rate applicable to this Note shall be increased immediately and without notice by one percent (1%). CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or personal credit bureau reports on Borrower at any time. 2 APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in the Payment section of this Note, all sums received application to Borrower's obligations under this Note shall be applied first, to interest then due, second, to any fees and charges then due, and, the outstanding principal balance thereof. ADDITIONAL PROVISION. Notwithstanding anything herein to the contrary, at no time shall the rate of interest on this Note be less than two (2%) above the highest effective annual rate of interest rounded upward to the next highest quarter percent (taking into account any interest) earned by Borrower on any time deposit, market rate account or savings account pledged to Lender as collateral for such amounts. PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the month this Note is dated, the due dates of all scheduled payments shall be deferred one month. EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been extended or renewed by Lender, no further advances available to Borrower and the entire outstanding principal balance of this Note, together with all accrued and unpaid interest thereon and fees charges owing in connection therewith, shall be due and payable in full as stated above. The date at which Borrower's obligations hereunder are and payable in full shall be considered extended or renewed only if Lender has sent to Borrower a written notice of renewal or extension, effective the next maturity date of this Note (each, a Renewal or Extension Notice). Borrower's obligation under this Note may be renewed or extended at the Lender's sole discretion and may be conditioned among modification of Borrower's obligations hereunder, including but not limited to a decrease in the amount available under this Note, an increase in interest rate applicable to this Note and/or payment of a fee for such renewal or extension. In addition, Lender may increase the principal amount available under the Note at any time. Borrower shall be deemed to have accepted the terms of each Renewal or Extension Notice, including any notice of an increase in availability, if Borrower does not deliver to Lender written rejection of such Notice within 10 days following the date of such Notice. If Borrower's obligations under this Note are renewed and/or extended, they will be subject to all terms and conditions of this Note, as modified by Renewal or Extension Notice. Borrower understands and agrees that the interest rate applicable to this Note may be increased upon any extension and that the new interest rate will apply to the entire outstanding balance of this Note, including the outstanding balance of advances made prior to the effective date of the Renewal or Extension Notice. After any renewal or extension of Borrower's obligations under this Note the "maturity date" as used in this Note shall be deemed to mean the new maturity date set forth in the Renewal or Extension Notice, and the same renewal or extension shall apply to any renewal or extension of this Note and its new maturity date. LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as specified in the "Disbursement Request and Authorization" executed by Borrower in connection with this Note. Such fees are non-refundable and shall be due and payable in full immediately upon execution of this Note. COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to Collect all payments, including principal, interest, fees, charges, and amounts due under this Note by charging Borrower's primary deposit account with Lender as specified in the "Disbursement Authorization" executed by Borrower in connection with this Note for the full amount thereof, or such other deposit account of Borrower Borrower shall designate in writing. Should there be insufficient funds in said account to pay when due all or any portion of the total amount due Borrower to Lender, the full amount of such deficiency shall be immediately due and payable by Borrower. ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any party to this Agreement, any dispute, claim, or controversy kind, whether in contract or in tort, statutory or common law, legal or equitable now existing or hereafter arising between the parties, in any way arising out of, pertaining to or in connection with this Agreement, or any related agreements, documents, or instruments shall be resolved through a dispute resolution process administered by Judicial Arbitration and Mediation Services, Inc. (JAMS) involving first, mediation before a retired judge the JAMS panel followed, if necessary by final and binding arbitration (conducted at a location determined by the arbitrator in a city located miles of the Borrower's business address) administered by and in accordance with the then existing JAMS' Rules or Practice and Procedure. Judgment upon any award rendered by the arbitrator(s) may be entered by any state or federal court having jurisdiction thereof. BORROWER UNDERSTANDS THAT BY SIGNING THIS NOTE, BORROWER IS GIVING UP ANY RIGHTS BORROWER MIGHT POSSESS TO HAVE ANY DISPUTE, CLAIM, OR LITIGATED IN A COURT OR JURY TRIAL. As soon as practicable after selection of the arbitrator, the arbitrator or his (her) designated 3 representatives shall determine a anticipated fees and costs of the arbitrator, and render a statement to each party seeing forth that party's pro-rata share of said fees and Thereafter, each party shall, within ten (10) days of receipt of said statement, deposit said sum with the arbitrator. Failure of any party to make deposit shall result in a forfeiture by the non-depositing party of the fight to prosecute or defend the claim which is the subject of the arbitration, shall not otherwise serve to abate, stay or suspend the arbitration proceedings. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorney fees and costs. If for any reason JAMS is not able to provide, or is legally precluded from providing, a judge in accordance with any of the provisions above, or if parties stipulate, the mediation or the arbitration will be conducted by a mediator or arbitrator selected by the American Arbitration Association, and accordance with its procedures. All of the above provisions not in conflict with the procedures of AAA would remain in effect to the extent law in any such proceedings. This section applies only to disputes involving $250,000 or more in value, including claim(s) asserted on behalf of others or a class of $250,000 or in value when aggregated. This section does not apply to the Lender's exercise of any judicial or non-judicial remedies in the event of a default under this Agreement or security agreement, deed of trust or other security instrument securing the Agreement. The Lender's exercise of such a remedy shall not be deemed waive the Lender's right to enforce the terms of this section. TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the available balance or credit limit, between designated accounts specified in writing, upon Lender's receipt of instructions from any of Borrower's Owners/Principals. Lender will have no liability for any upon the written or venal request of any person believed by Lender in good faith to be an authorized representative of Borrower. Borrower will indemnify and hold Lender harmless from and against any damages, liabilities, costs or expenses (including attorney's fees) arising out of any claim Borrower or any third party against Lender in connection with Lender's performance of transfers as described above. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COPY OF THE NOTE. BORROWER: MYO DIAGNOSTICS, INC. By: /s/ By: /s/ --------------------------------------- -------------------------------- NAME:, TITLE: NAME:, TITLE: By: /s/ By: /s/ --------------------------------------- -------------------------------- NAME:, TITLE: NAME:, TITLE: 4 WELLS FARGO BANK, NATIONAL ASSOCIATION January 4, 1996 MYO DIAGNOSTICS, INC. 3710 S. ROBERTSON BLVD. #212 CULVER CITY, CA 90232-2350 RENEWAL NOTICE RE: Renewal of Business PrimeLine of Credit Application #LA02257641 Account #5542712565 Dear Customer: Wells Fargo Bank, National Association ("Lender") is pleased to inform you that your Business PrimeLine Line of Credit ("Line") granted pursuant to your Business Loan Agreement dated JULY 7, 1994, and your Promissory Note ("Note") dated OCTOBER 17, 1994 and other related documents (collectively, the "Agreement"), will be renewed in ten (1O) days. The new maturity date will be JANUARY 10, 1997. Your Business Primeline Line of Credit remains subject to all terms and conditions of the Agreement, as modified by this Renewal Notice. A non-refundable Renewal Fee of $250.00 will be charged to your account #0619073265 ten (10) days after the date of this letter unless prior to that date we receive your written rejection of this Renewal Notice. If you have any questions please do not hesitate to call us at our toll free number 800-932-4343 or (408) 277-6049. We appreciate your business and look forward to continuing to serve as your business bank. WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ ---------------------------------- Title: Credit Officer
BUSINESS PRIMELINE PROMISSORY NOTE - --------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $75,000 05-27-1994 06-10-1995 LA01032661 650 NEW JFT - --------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - --------------------------------------------------------------------------------------------------------------------- Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association 3710 SOUTH ROBERTSON BOULEVARD Business Loan Division CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023 San Jose, CA 95113 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Principal Amount: $75,000.00 Initial Rate: 8.750% Date of Note: May 27, 1994
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells Fargo Bank, National Association ("Lender"), or order, in lawful money of the United States of America, the principal amount of Seventy Five Thousand & 00/100 Dollars ($75,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on June 10, 1995. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning June 10, 1994, and all subsequent interest payments are due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the Prime Rate (the "Index"). The Prime Rate is a base rate that the Lender from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. The Prime Rate is not necessarily the lowest or best rate at which the Lender makes loans. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced within the Lender. Landed will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as we,I The interest rate change will not occur more often than each TIME THE RATE CHANGES. The Index currently Is 7.250% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 1.500 percentage points over the Index, resulting in an initial rate of 8.750% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments. LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $15.00, whichever is greater. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to perform promptly at the time and strictly in the manner provided in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any of the events described in this default section occurs with respect to any guarantor of this Note. (h) Lender in good faith deems itself insecure. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Subject to any right of Lender to increase the interest rate on this Note in the event of a breach or other default, the interest rate will continue at the stated Note rate. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services, Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of any County, the State of California. This Note shall be governed by and construed in accordance with the laws of the State of California. DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA, Keogh, and trust accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. Advances must be in amounts of at [east $1,000, or the amount of principal remaining available, whichever is less. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a designated business checking account with Lender, overdrafts in amounts in excess of $10 will be automatically covered by an Advance under this Note. The Lender will automatically transfer enough money to cover the overdraft unless the Note is delinquent or closed, or the Advance would cause the Note balance to exceed the maximum amount available this Note. INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its primary deposit account with Lender (defined as the deposit account into which substantially all Borrower's receipts from its operations are deposited and from which substantially all Borrower's disbursements operations are made), or if Lender is not able to collect all payments on this Note by charging Borrower's deposit account with Lender, because Borrower cancels the authorization to Lender to do so, or Borrower fails at any time to maintain sufficient sums in said deposit account, or any other reason, then the interest rate applicable to this Note shall he increased immediately and without notice by one percent(l%). CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or personal credit bureau reports on Borrower at any time. APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in the Payment section of this Note, all sums received application to Borrower's obligations under this Note shall be applied first, to interest then due, second, to any fees and charges then due, and, the outstanding principal balance thereof. PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the month this Note is 2 dated, the due dates of all scheduled payments shall be deferred one month. LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to make advances under this Note, and as security for payment and performance of all obligations of Borrower to Lender under this Note, Borrower shall provide to Lender a Standby Letter of Credit, issued by a bank and in a form satisfactory to Lender, naming Lender as beneficiary in an amount not less than the principal amount of this Note (in dollars) and with an expiry date no earlier than 120 days following the scheduled maturity date of this Note. EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been extended or renewed by Lender, no further advances shall available to Borrower and the entire outstanding principal balance of this Note, together with all accrued and unpaid interest thereon and fees charges owing in connection therewith, shall be due and payable in full as stated above. The date at which Borrower's obligations hereunder are and payable in full shall be considered extended or renewed only if Lender has sent to Borrower a written notice of renewal or extension, effective the next maturity date of this Note (each, a Renewal or Extension Notice). Borrower's obligation under this Note may be renewed or extended at the Lender's sole discretion and may be conditioned among other things modification of Borrower's obligations hereunder, including but not limited to a decrease in the amount available under this Note, an increase in interest rate applicable to this Note and/or payment of a fee for such renewal or extension. In addition, Lender may increase the principal amount available under the Note at any time. Borrower shall be deemed to have accepted the terms of each Renewal or Extension Notice, including any notice of an increase in availability, if Borrower does not deliver to Lender written rejection of such Notice within 10 days following the date of such Notice. If Borrower's obligations under this Note are renewed and/or extended, they will be subject to all terms and conditions of this Note, as modified by Renewal or Extension Notice. Borrower understands and agrees that the interest rate applicable to this Note may be increased upon any renewal extension and that the new interest rate will apply to the entire outstanding balance of this Note, including the outstanding balance of advances made prior to the effective date of the Renewal or Extension Notice. After any renewal or extension of Borrower's obligations under this Note the ta "maturity date" as used in this Note shall be deemed to mean the new maturity date set forth in the Renewal or Extension Notice, and the same rules renewal or extension shall apply to any renewal or extension of this Note and its new maturity date. LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as specified in the "Disbursement Request and Authorization" executed by Borrower in connection with this Note. Such fees are non-refundable and shall be due and payable in full immediately upon Borrower's execution of this Note. COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to collect all payments, including principal, interest, fees, charges, and other amounts due under this Note by charging Borrower's primary deposit account with Lender as specified in the "Disbursement Request a Authorization" executed by Borrower in connection with this Note for the full amount thereof, or such other deposit account of Borrower with Lender Borrower shall designate in writing. Should there be insufficient funds in said account to pay when due all or any portion of the total amount due from Borrower to Lender, the full amount of such deficiency shall be immediately due and payable by Borrower. ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any party to this Agreement, any dispute, claim, or controversy of a kind, whether in contract or in tort, statutory or common law, legal or equitable now existing or hereafter arising between the parties, in any way arising out of, pertaining to or in connection with this Agreement, or any related agreements, documents, or instruments shall be resolved through a two-step dispute resolution process administered by Judicial Arbitration and Mediation Services, Inc. (JAMS) involving first, mediation before a retired judge from the JAMS panel followed, if necessary, by final and binding arbitration (conducted at a location determined by the arbitrator in a city located within 1 miles of the Borrower's business address) administered by and in accordance with the then existing JAMS' Rules or Practice and Procedure. Judgment upon any award rendered by the arbitrator(s) may be entered by any state or federal court having jurisdiction thereof. Borrower understands that by signing this Note, Borrower Is giving up any rights Borrower might possess to have any dispute, claim, or controversy litigated in a court or jury trial. As soon as practicable after selection of the arbitrator, the arbitrator or his (her) designated representatives shall determine a reasonable estimate anticipated fees and costs of the arbitrator, and render a statement to each party setting forth that party's pro-rata share of said fees and costs. Thereafter, each party shall, within ten (10) days of receipt of said statement, deposit said sum with the arbitrator. Failure of any party to make such deposit shall result in a 3 forfeiture by the non-depositing party of the right to prosecute or defend the claim which is the subject of the arbitration, shall not otherwise serve to abate, stay or suspend the arbitration proceedings. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorney fees and costs. If for any reason JAMS is not able to provide, or is legally precluded from providing, a judge in accordance with any of the provisions above, or if parties stipulate, the mediation or the arbitration will be conducted by a mediator or arbitrator selected by the American Arbitration Association, and accordance with its procedures. All of the above provisions not in conflict with the procedures of AAA would remain in effect to the extent allowed law in any such proceedings. This section applies only to disputes involving $250,000 or more in value, including claim(s) asserted on behalf of others or a class of $250,000 or more in value when aggregated. This section does not apply to the Lender's exercise of any judicial or non-judicial remedies in the event of a default under this Agreement or a security agreement, deed of trust or other security instrument securing the Agreement. The Lender's exercise of such a remedy shall not be deemed waive the Lender's right to enforce the terms of this section. TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the available balance or credit limit, between designated accounts specified in writing, upon Lender's receipt of instructions from any of Borrower's Owners/Principals. Lender will have no liability for any transfer me( upon the written or verbal request of any person believed by Lender in good faith to be an authorized representative of Borrower. Borrower indemnify and hold Lender harmless from and against any damages, liabilities, costs or expenses (including attorney's fees) arising out of any claim by Borrower or any third party against Lender in connection with Lender's performance of transfers as described above. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: MYO DIAGNOSTICS, INC. By: /s/ By: /s/ ---------------------------- ------------------------------ NAME:, TITLE: NAME:, TITLE: By: /s/ By: /s/ ---------------------------- ------------------------------ NAME:, TITLE: NAME:, TITLE: 4 [WELLS FARGO BANK LETTERHEAD] * * * Renewal Notice * * * June 14, 1996 Myo Diagnostics, Inc. 3710 S. Robertson Blvd. #212 Culver City, CA 90232-2347 RE: Renewal of Business PrimeLine Application #: 02406454 Customer #: 5542712565 Dear Myo Diagnostics, Inc.: Wells Fargo Bank is pleased to inform you that your Business PrimeLine #5542712565, in the amount of $75,000.00, was renewed on June 14, 1996. The new maturity date is June 10, 1997. Your PrimeLine remains subject to all terms and conditions of the Business Loan Agreement, as modified by this Renewal Notice. The interest rate to be applied to the unpaid Principal balance of the Note will be at a rate of 0.75% over the Index. A non-refundable renewal fee of $375.00 will be charged to your account #0619073265. If you have any questions, please do not hesitate to call us at our toll free number (800) 932-4343 or (408) 277-6049 and press 1. We appreciate your business and look forward to continuing to serve as your business bank. Sincerely, Wells Fargo Bank, N.A. /s/ Liela Alemania - ------------------------------- Liela Alemania Documentation Representative
BUSINESS PRIMELINE PROMISSORY NOTE - --------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $65,000 07-07-1994 07-10-1995 LA01122592 650 5542712565 MDB - --------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - --------------------------------------------------------------------------------------------------------------------- Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association 3710 SOUTH ROBERTSON BOULEVARD Business Loan Division CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023 San Jose, CA 95113 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Principal Amount: $65,000.00 Initial Rate: 8.000% Date of Note: July 7, 1994
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells Fargo Bank, National Association ("Lender"), or order, in lawful money of the United States of America, the principal amount of Sixty Five Thousand & 00/100 Dollars ($65,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on July 10, 1995. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning August 10, 1994, and all subsequent interest payments are due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the Prime Rate (the "Index"). The Prime Rate is a base rate that the Lender from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. The Prime Rate is not necessarily the lowest or best rate at which the Lender makes loans. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced within the Lender. Landed will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as we,I The interest rate change will not occur more often than each TIME THE RATE CHANGES. The Index currently Is 7.250% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 0.750 percentage points over the Index, resulting in an initial rate of 8.000% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments. LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $15.00, whichever is greater. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to perform promptly at the time and strictly in the manner provided in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any of the events described in this default section occurs with respect to any guarantor of this Note. (h) Lender in good faith deems itself insecure. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Subject to any right of Lender to increase the interest rate on this Note in the event of a breach or other default, the interest rate will continue at the stated Note rate. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services, Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of any County, the State of California. This Note shall be governed by and construed in accordance with the laws of the State of California. DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA, Keogh, and trust accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. Advances must be in amounts of at [east $1,000, or the amount of principal remaining available, whichever is less. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to make advances under this Note, and as security for the payment and performance of all obligations of Borrower to Lender under this Note, Borrower shall provide to Lender a Standby Letter of Credit, issued by a bank and in a form satisfactory to Lender, naming Lender as beneficiary in an amount not less than the principal amount of this Note (in U.S. dollars) and with an expiry date no earlier than 120 days following the scheduled maturity date of this Note. OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a designated business checking account with Lender, overdrafts in amounts in excess of $10 will be automatically covered by an Advance under this Note. The Lender will automatically transfer enough money to cover the overdraft unless the Note is delinquent or closed, or the Advance would cause the Note balance to exceed the maximum amount available this Note. INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its primary deposit account with Lender (defined as the deposit account into which substantially all Borrower's receipts from its operations are deposited and from which substantially all Borrower's disbursements operations are made), or if Lender is not able to collect all payments on this Note by charging Borrower's deposit account with Lender, because Borrower cancels the authorization to Lender to do so, or Borrower fails at any time to maintain sufficient sums in said deposit account, or any other reason, then the interest rate applicable to this Note shall he increased immediately and without notice by one percent(l%). CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or personal credit bureau reports on Borrower at any time. 2 APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in the Payment section of this Note, all sums received application to Borrower's obligations under this Note shall be applied first, to interest then due, second, to any fees and charges then due, and, the outstanding principal balance thereof. ADDITIONAL PROVISION. Notwithstanding anything herein to the contrary, at no time shall the rate of interest on this Note be less than two percent (2%) above the highest effective annual rate of interest rounded upward to the next highest quarter percent (taking into account any compounding of interest) earned by Borrower on any time deposit, market rate account or savings account pledged to Lender as collateral for such amounts. PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the month this Note is dated, the due dates of all scheduled payments shall be deferred one month. EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been extended or renewed by Lender, no further advances shall available to Borrower and the entire outstanding principal balance of this Note, together with all accrued and unpaid interest thereon and fees charges owing in connection therewith, shall be due and payable in full as stated above. The date at which Borrower's obligations hereunder are and payable in full shall be considered extended or renewed only if Lender has sent to Borrower a written notice of renewal or extension, effective the next maturity date of this Note (each, a Renewal or Extension Notice). Borrower's obligation under this Note may be renewed or extended at the Lender's sole discretion and may be conditioned among other things modification of Borrower's obligations hereunder, including but not limited to a decrease in the amount available under this Note, an increase in interest rate applicable to this Note and/or payment of a fee for such renewal or extension. In addition, Lender may increase the principal amount available under the Note at any time. Borrower shall be deemed to have accepted the terms of each Renewal or Extension Notice, including any notice of an increase in availability, if Borrower does not deliver to Lender written rejection of such Notice within 10 days following the date of such Notice. If Borrower's obligations under this Note are renewed and/or extended, they will be subject to all terms and conditions of this Note, as modified by Renewal or Extension Notice. Borrower understands and agrees that the interest rate applicable to this Note may be increased upon any renewal extension and that the new interest rate will apply to the entire outstanding balance of this Note, including the outstanding balance of advances made prior to the effective date of the Renewal or Extension Notice. After any renewal or extension of Borrower's obligations under this Note the ta "maturity date" as used in this Note shall be deemed to mean the new maturity date set forth in the Renewal or Extension Notice, and the same rules renewal or extension shall apply to any renewal or extension of this Note and its new maturity date. LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as specified in the "Disbursement Request and Authorization" executed by Borrower in connection with this Note. Such fees are non-refundable and shall be due and payable in full immediately upon Borrower's execution of this Note. COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to collect all payments, including principal, interest, fees, charges, and other amounts due under this Note by charging Borrower's primary deposit account with Lender as specified in the "Disbursement Request a Authorization" executed by Borrower in connection with this Note for the full amount thereof, or such other deposit account of Borrower with Lender Borrower shall designate in writing. Should there be insufficient funds in said account to pay when due all or any portion of the total amount due from Borrower to Lender, the full amount of such deficiency shall be immediately due and payable by Borrower. ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any party to this Agreement, any dispute, claim, or controversy of a kind, whether in contract or in tort, statutory or common law, legal or equitable now existing or hereafter arising between the parties, in any way arising out of, pertaining to or in connection with this Agreement, or any related agreements, documents, or instruments shall be resolved through a two-step dispute resolution process administered by Judicial Arbitration and Mediation Services, Inc. (JAMS) involving first, mediation before a retired judge from the JAMS panel followed, if necessary, by final and binding arbitration (conducted at a location determined by the arbitrator in a city located within 1 miles of the Borrower's business address) administered by and in accordance with the then existing JAMS' Rules or Practice and Procedure. Judgment upon any award rendered by the arbitrator(s) may be entered by any state or federal court having jurisdiction thereof. Borrower understands that by signing this Note, Borrower Is giving up any rights Borrower might possess to have any dispute, claim, or controversy litigated in a court or jury trial. 3 As soon as practicable after selection of the arbitrator, the arbitrator or his (her) designated representatives shall determine a reasonable estimate anticipated fees and costs of the arbitrator, and render a statement to each party setting forth that party's pro-rata share of said fees and costs. Thereafter, each party shall, within ten (10) days of receipt of said statement, deposit said sum with the arbitrator. Failure of any party to make such deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend the claim which is the subject of the arbitration, shall not otherwise serve to abate, stay or suspend the arbitration proceedings. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorney fees and costs. If for any reason JAMS is not able to provide, or is legally precluded from providing, a judge in accordance with any of the provisions above, or if parties stipulate, the mediation or the arbitration will be conducted by a mediator or arbitrator selected by the American Arbitration Association, and accordance with its procedures. All of the above provisions not in conflict with the procedures of AAA would remain in effect to the extent allowed law in any such proceedings. This section applies only to disputes involving $250,000 or more in value, including claim(s) asserted on behalf of others or a class of $250,000 or more in value when aggregated. This section does not apply to the Lender's exercise of any judicial or non-judicial remedies in the event of a default under this Agreement or a security agreement, deed of trust or other security instrument securing the Agreement. The Lender's exercise of such a remedy shall not be deemed waive the Lender's right to enforce the terms of this section. TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the available balance or credit limit, between designated accounts specified in writing, upon Lender's receipt of instructions from any of Borrower's Owners/Principals. Lender will have no liability for any transfer made upon the written or verbal request of any person believed by Lender in good faith to be an authorized representative of Borrower. Borrower indemnify and hold Lender harmless from and against any damages, liabilities, costs or expenses (including attorney's fees) arising out of any claim by Borrower or any third party against Lender in connection with Lender's performance of transfers as described above. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: MYO DIAGNOSTICS, INC. By: /s/ By: /s/ -------------------------------- --------------------------------- NAME:, TITLE: NAME:, TITLE: By: /s/ By: /s/ -------------------------------- --------------------------------- NAME:, TITLE: NAME:, TITLE: 4 [WELLS FARGO BANK LETTERHEAD] * * * * Renewal Notice * * * * June 14,1996 Myo Diagnostics, Inc. 3710 S. Robertson Blvd. #212 Culver City, CA 90232-2347 RE: Renewal of Business PrimeLine Application #: 02406451 Customer #: 5542712565 Dear Myo Diagnostics, Inc.: Wells Fargo Bank is pleased to inform you that your Business PrimeLine #5542712565, in the amount of $65,000.00, was renewed on June 14, 1996. The new maturity date is June 10, 1997. Your PrimeLine remains subject to all terms and conditions of the Business Loan Agreement, as modified by this Renewal Notice. The interest rate to be applied to the unpaid Principal balance of the Note will be at a rate of 0.75% over the Index. A non-refundable renewal fee of $325.00 will be charged to your account #0619073265. If you have any questions, please do not hesitate to call us at our toll free number (800) 932-4343 or (408) 277-6049 and press 1. We appreciate your business and look forward to continuing to serve as your business bank. Sincerely, Wells Fargo Bank, N.A. /s/ Liela Alemania - --------------------------------- Liela Alemania Documentation Representative
BUSINESS PRIMELINE PROMISSORY NOTE - --------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $65,000 07-07-1994 07-10-1995 LA01122593 650 5542712565 MDB - --------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - --------------------------------------------------------------------------------------------------------------------- Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association 3710 SOUTH ROBERTSON BOULEVARD Business Loan Division CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023 San Jose, CA 95113 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Principal Amount: $65,000.00 Initial Rate: 8.000% Date of Note: July 7, 1994
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells Fargo Bank, National Association ("Lender"), or order, in lawful money of the United States of America, the principal amount of Sixty Five Thousand & 00/100 Dollars ($65,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on July 10, 1995. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning August 10, 1994, and all subsequent Interest payments are due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of clays the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the Prime Rate (the "Index"). The Prime Rate is a base rate that the Lender from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. The Prime Rate is not necessarily the lowest or best rate at which the Lender makes loans. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced within the Lender. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each TIME THE RATE CHANGES. The Index currently is 7.250% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 0.750 percentage points over the Index, resulting in an initial rate of 8.000% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments. LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $15.00, whichever is greater. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to perform promptly at the time and strictly in the manner provided in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any of the events described in this default section occurs with respect to any guarantor of this Note. (h) Lender in good faith deems itself insecure. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Subject to any right of Lender to increase the interest rate on this Note in the event of a breach or other default, the interest rate will continue at the stated Note rate. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the Jurisdiction of the courts of any County, the State of California. This Note shall be governed by and construed in accordance with the laws of the State of California. DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA, Keogh, and trust accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. Advances must be in amounts of at least $1,000, or the amount of the principal remaining available, whichever is less. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to make advances under this Note, and as security for the payment and performance of all obligations of Borrower to Lender under this Note, Borrower shall provide to Lender a Standby Letter of Credit, issued by a bank and in a form satisfactory to Lender, naming Lender as beneficiary in an amount not less than the principal amount of this Note (in dollars) and with an expiry date no earlier than 120 days following the scheduled maturity date of this Note. OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a designated business checking account with Lender, overdrafts in amounts in excess of $10 will be automatically covered by an Advance under this Note. The Lender will automatically transfer enough money to cc the overdraft unless this Note is delinquent or closed, or the Advance would cause the Note balance to exceed the maximum amount available up this Note. INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its primary deposit account with Lender (defined as the deposit account into which substantially all Borrower's receipts from its operations are deposited and from which substantially all Borrower's disbursements operations are made), or if Lender is not able to collect all payments on this Note by charging Borrower's primary deposit account with Lender, whether because Borrower cancels the authorization to Lender to do so, or Borrower fails at any time to maintain sufficient sums in said account, or for any other reason, then the interest rate applicable to this Note shall be increased immediately and without notice by one percent(1%). CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or personal credit bureau reports on Borrower at any time. 2 APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in the Payment section of this Note, all sums received application to Borrower's obligations under this Note shall be applied first, to interest then due, second, to any fees and charges then due, and, the outstanding principal balance thereof. ADDITIONAL PROVISION. Notwithstanding anything herein to the contrary, at no time shall the rate of interest on this Note be less than two (2%) above the highest effective annual rate of interest rounded upward to the next highest quarter percent (taking into account any interest) earned by Borrower on any time deposit, market rate account or savings account pledged to Lender as collateral for such amounts. PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the month this Note is dated, the due dates of all scheduled payments shall be deferred one month. EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been extended or renewed by Lender, no further advances available to Borrower and the entire outstanding principal balance of this Note, together with all accrued and unpaid interest thereon and fees charges owing in connection therewith, shall be due and payable in full as stated above. The date at which Borrower's obligations hereunder are and payable in full shall be considered extended or renewed only if Lender has sent to Borrower a written notice of renewal or extension, effective the next maturity date of this Note (each, a Renewal or Extension Notice). Borrower's obligation under this Note may be renewed or extended at the Lender's sole discretion and may be conditioned among modification of Borrower's obligations hereunder, including but not limited to a decrease in the amount available under this Note, an increase in interest rate applicable to this Note and/or payment of a fee for such renewal or extension. In addition, Lender may increase the principal amount available under the Note at any time. Borrower shall be deemed to have accepted the terms of each Renewal or Extension Notice, including any notice of an increase in availability, if Borrower does not deliver to Lender written rejection of such Notice within 10 days following the date of such Notice. If Borrower's obligations under this Note are renewed and/or extended, they will be subject to all terms and conditions of this Note, as modified by Renewal or Extension Notice. Borrower understands and agrees that the interest rate applicable to this Note may be increased upon any extension and that the new interest rate will apply to the entire outstanding balance of this Note, including the outstanding balance of advances made prior to the effective date of the Renewal or Extension Notice. After any renewal or extension of Borrower's obligations under this Note the "maturity date" as used in this Note shall be deemed to mean the new maturity date set forth in the Renewal or Extension Notice, and the same renewal or extension shall apply to any renewal or extension of this Note and its new maturity date. LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as specified in the "Disbursement Request and Authorization" executed by Borrower in connection with this Note. Such fees are non-refundable and shall be due and payable in full immediately upon execution of this Note. COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to Collect all payments, including principal, interest, fees, charges, and amounts due under this Note by charging Borrower's primary deposit account with Lender as specified in the "Disbursement Authorization" executed by Borrower in connection with this Note for the full amount thereof, or such other deposit account of Borrower Borrower shall designate in writing. Should there be insufficient funds in said account to pay when due all or any portion of the total amount due Borrower to Lender, the full amount of such deficiency shall be immediately due and payable by Borrower. ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any party to this Agreement, any dispute, claim, or controversy kind, whether in contract or in tort, statutory or common law, legal or equitable now existing or hereafter arising between the parties, in any way arising out of, pertaining to or in connection with this Agreement, or any related agreements, documents, or instruments shall be resolved through a dispute resolution process administered by Judicial Arbitration and Mediation Services, Inc. (JAMS) involving first, mediation before a retired judge the JAMS panel followed, if necessary by final and binding arbitration (conducted at a location determined by the arbitrator in a city located miles of the Borrower's business address) administered by and in accordance with the then existing JAMS' Rules or Practice and Procedure. Judgment upon any award rendered by the arbitrator(s) may be entered by any state or federal court having jurisdiction thereof. Borrower understands that by signing this Note, Borrower is giving up any rights Borrower might possess to have any dispute, claim, or litigated in a court or jury trial. As soon as practicable after selection of the arbitrator, the arbitrator or his (her) designated 3 representatives shall determine a anticipated fees and costs of the arbitrator, and render a statement to each party seeing forth that party's pro-rata share of said fees and Thereafter, each party shall, within ten (10) days of receipt of said statement, deposit said sum with the arbitrator. Failure of any party to make deposit shall result in a forfeiture by the non-depositing party of the fight to prosecute or defend the claim which is the subject of the arbitration, shall not otherwise serve to abate, stay or suspend the arbitration proceedings. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorney fees and costs. If for any reason JAMS is not able to provide, or is legally precluded from providing, a judge in accordance with any of the provisions above, or if parties stipulate, the mediation or the arbitration will be conducted by a mediator or arbitrator selected by the American Arbitration Association, and accordance with its procedures. All of the above provisions not in conflict with the procedures of AAA would remain in effect to the extent law in any such proceedings. This section applies only to disputes involving $250,000 or more in value, including claim(s) asserted on behalf of others or a class of $250,000 or in value when aggregated. This section does not apply to the Lender's exercise of any judicial or non-judicial remedies in the event of a default under this Agreement or security agreement, deed of trust or other security instrument securing the Agreement. The Lender's exercise of such a remedy shall not be deemed waive the Lender's right to enforce the terms of this section. TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the available balance or credit limit, between designated accounts specified in writing, upon Lender's receipt of instructions from any of Borrower's Owners/Principals. Lender will have no liability for any upon the written or venal request of any person believed by Lender in good faith to be an authorized representative of Borrower. Borrower will indemnify and hold Lender harmless from and against any damages, liabilities, costs or expenses (including attorney's fees) arising out of any claim Borrower or any third party against Lender in connection with Lender's performance of transfers as described above. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COPY OF THE NOTE. BORROWER: MYO DIAGNOSTICS, INC. By: /s/ By: /s/ --------------------------- ------------------------------- NAME:, TITLE: NAME:, TITLE: By: /s/ By: /s/ --------------------------- ------------------------------- NAME:, TITLE: NAME:, TITLE: 4 [WELLS FARGO BANK LETTERHEAD] * * * * Renewal Notice * * * * June 14, 1996 Myo Diagnostics, Inc. 3710 S. Robertson Blvd. #212 Culver City, CA 90232-2347 RE: Renewal of Business PrimeLine Application #: 02406452 Customer #: 5542712565 Dear Myo Diagnostics, Inc.: Wells Fargo Bank is pleased to inform you that your Business PrimeLine #5542712565, in the amount of $65,000.00, was renewed on June 14, 1996. The new maturity date is June 10, 1997. Your PrimeLine remains subject to all terms and conditions of the Business Loan Agreement, as modified by this Renewal Notice. The interest rate to be applied to the unpaid Principal balance of the Note will be at a rate of 0.75% over the Index. A non-refundable renewal fee of $325.00 will be charged to your account #0619073265. If you have any questions, please do not hesitate to call us at our toll free number (800) 932-4343 or (408) 277-6049 and press 1. We appreciate your business and look forward to continuing to serve as your business bank. Sincerely, Wells Fargo Bank, N.A. /s/ Liela Alemania - --------------------------------- Liela Alemania Documentation Representative
BUSINESS PRIMELINE PROMISSORY NOTE - --------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $65,000 09-15-1994 10-10-1995 LA01245351 650 5542712565 BLM - --------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - --------------------------------------------------------------------------------------------------------------------- Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association 3710 SOUTH ROBERTSON BOULEVARD Business Loan Division CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023 San Jose, CA 95113 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Principal Amount: $65,000.00 Initial Rate: 8.500% Date of Note: September 15, 1994
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells Fargo Bank, National Association ("Lender"), or order, in lawful money of the United States of America, the principal amount of Sixty Five Thousand & 00/100 Dollars ($65,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on October 10, 1995. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning October 10, 1994, and all subsequent Interest payments are due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of clays the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the Prime Rate (the "Index"). The Prime Rate is a base rate that the Lender from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. The Prime Rate is not necessarily the lowest or best rate at which the Lender makes loans. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced within the Lender. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each TIME THE RATE CHANGES. The Index currently is 7.250% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 0.750 percentage points over the Index, resulting in an initial rate of 8.000% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments. LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $15.00, whichever is greater. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to perform promptly at the time and strictly in the manner provided in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any of the events described in this default section occurs with respect to any guarantor of this Note. (h) Lender in good faith deems itself insecure. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Subject to any right of Lender to increase the interest rate on this Note in the event of a breach or other default, the interest rate will continue at the stated Note rate. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the Jurisdiction of the courts of any County, the State of California. This Note shall be governed by and construed in accordance with the laws of the State of California. DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA, Keogh, and trust accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. Advances must be in amounts of at least $1,000, or the amount of the principal remaining available, whichever is less. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to make advances under this Note, and as security for the payment and performance of all obligations of Borrower to Lender under this Note, Borrower shall provide to Lender a Standby Letter of Credit, issued by a bank and in a form satisfactory to Lender, naming Lender as beneficiary in an amount not less than the principal amount of this Note (in dollars) and with an expiry date no earlier than 120 days following the scheduled maturity date of this Note. OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a designated business checking account with Lender, overdrafts in amounts in excess of $10 will be automatically covered by an Advance under this Note. The Lender will automatically transfer enough money to cc the overdraft unless this Note is delinquent or closed, or the Advance would cause the Note balance to exceed the maximum amount available up this Note. INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its primary deposit account with Lender (defined as the deposit account into which substantially all Borrower's receipts from its operations are deposited and from which substantially all Borrower's disbursements operations are made), or if Lender is not able to collect all payments on this Note by charging Borrower's primary deposit account with Lender, whether because Borrower cancels the authorization to Lender to do so, or Borrower fails at any time to maintain sufficient sums in said account, or for any other reason, then the interest rate applicable to this Note shall be increased immediately and without notice by one percent(1%). CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or personal credit bureau reports on Borrower at any time. 2 APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in the Payment section of this Note, all sums received application to Borrower's obligations under this Note shall be applied first, to interest then due, second, to any fees and charges then due, and, the outstanding principal balance thereof. ADDITIONAL PROVISION. Notwithstanding anything herein to the contrary, at no time shall the rate of interest on this Note be less than two (2%) above the highest effective annual rate of interest rounded upward to the next highest quarter percent (taking into account any interest) earned by Borrower on any time deposit, market rate account or savings account pledged to Lender as collateral for such amounts. PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the month this Note is dated, the due dates of all scheduled payments shall be deferred one month. EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been extended or renewed by Lender, no further advances available to Borrower and the entire outstanding principal balance of this Note, together with all accrued and unpaid interest thereon and fees charges owing in connection therewith, shall be due and payable in full as stated above. The date at which Borrower's obligations hereunder are and payable in full shall be considered extended or renewed only if Lender has sent to Borrower a written notice of renewal or extension, effective the next maturity date of this Note (each, a Renewal or Extension Notice). Borrower's obligation under this Note may be renewed or extended at the Lender's sole discretion and may be conditioned among modification of Borrower's obligations hereunder, including but not limited to a decrease in the amount available under this Note, an increase in interest rate applicable to this Note and/or payment of a fee for such renewal or extension. In addition, Lender may increase the principal amount available under the Note at any time. Borrower shall be deemed to have accepted the terms of each Renewal or Extension Notice, including any notice of an increase in availability, if Borrower does not deliver to Lender written rejection of such Notice within 10 days following the date of such Notice. If Borrower's obligations under this Note are renewed and/or extended, they will be subject to all terms and conditions of this Note, as modified by Renewal or Extension Notice. Borrower understands and agrees that the interest rate applicable to this Note may be increased upon any extension and that the new interest rate will apply to the entire outstanding balance of this Note, including the outstanding balance of advances made prior to the effective date of the Renewal or Extension Notice. After any renewal or extension of Borrower's obligations under this Note the "maturity date" as used in this Note shall be deemed to mean the new maturity date set forth in the Renewal or Extension Notice, and the same renewal or extension shall apply to any renewal or extension of this Note and its new maturity date. LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as specified in the "Disbursement Request and Authorization" executed by Borrower in connection with this Note. Such fees are non-refundable and shall be due and payable in full immediately upon execution of this Note. COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to Collect all payments, including principal, interest, fees, charges, and amounts due under this Note by charging Borrower's primary deposit account with Lender as specified in the "Disbursement Authorization" executed by Borrower in connection with this Note for the full amount thereof, or such other deposit account of Borrower Borrower shall designate in writing. Should there be insufficient funds in said account to pay when due all or any portion of the total amount due Borrower to Lender, the full amount of such deficiency shall be immediately due and payable by Borrower. ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any party to this Agreement, any dispute, claim, or controversy kind, whether in contract or in tort, statutory or common law, legal or equitable now existing or hereafter arising between the parties, in any way arising out of, pertaining to or in connection with this Agreement, or any related agreements, documents, or instruments shall be resolved through a dispute resolution process administered by Judicial Arbitration and Mediation Services, Inc. (JAMS) involving first, mediation before a retired judge the JAMS panel followed, if necessary by final and binding arbitration (conducted at a location determined by the arbitrator in a city located miles of the Borrower's business address) administered by and in accordance with the then existing JAMS' Rules or Practice and Procedure. Judgment upon any award rendered by the arbitrator(s) may be entered by any state or federal court having jurisdiction thereof. Borrower understands that by signing this Note, Borrower is giving up any rights Borrower might possess to have any dispute, claim, or litigated in a court or jury trial. As soon as practicable after selection of the arbitrator, the arbitrator or his (her) designated 3 representatives shall determine a anticipated fees and costs of the arbitrator, and render a statement to each party seeing forth that party's pro-rata share of said fees and Thereafter, each party shall, within ten (10) days of receipt of said statement, deposit said sum with the arbitrator. Failure of any party to make deposit shall result in a forfeiture by the non-depositing party of the fight to prosecute or defend the claim which is the subject of the arbitration, shall not otherwise serve to abate, stay or suspend the arbitration proceedings. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorney fees and costs. If for any reason JAMS is not able to provide, or is legally precluded from providing, a judge in accordance with any of the provisions above, or if parties stipulate, the mediation or the arbitration will be conducted by a mediator or arbitrator selected by the American Arbitration Association, and accordance with its procedures. All of the above provisions not in conflict with the procedures of AAA would remain in effect to the extent law in any such proceedings. This section applies only to disputes involving $250,000 or more in value, including claim(s) asserted on behalf of others or a class of $250,000 or in value when aggregated. This section does not apply to the Lender's exercise of any judicial or non-judicial remedies in the event of a default under this Agreement or security agreement, deed of trust or other security instrument securing the Agreement. The Lender's exercise of such a remedy shall not be deemed waive the Lender's right to enforce the terms of this section. TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the available balance or credit limit, between designated accounts specified in writing, upon Lender's receipt of instructions from any of Borrower's Owners/Principals. Lender will have no liability for any upon the written or venal request of any person believed by Lender in good faith to be an authorized representative of Borrower. Borrower will indemnify and hold Lender harmless from and against any damages, liabilities, costs or expenses (including attorney's fees) arising out of any claim Borrower or any third party against Lender in connection with Lender's performance of transfers as described above. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COPY OF THE NOTE. BORROWER: MYO DIAGNOSTICS, INC. By: /s/ By: /s/ -------------------------------- --------------------------------- NAME:, TITLE: NAME:, TITLE: By: /s/ By: /s/ -------------------------------- --------------------------------- NAME:, TITLE: NAME:, TITLE: 4 WELLS FARGO BANK, NATIONAL ASSOCIATION MYO DIAGNOSTICS, INC. 3710 SOUTH ROBERTSON BLVD CULVER CITY, CA 90232 APRIL 12, 1996 RENEWAL NOTICE RE: Renewal of Business PrimeLine of Credit Application #LA02328671 Account #5542712565 Dear Customer: Wells Fargo Bank, National Association ("Lender") is pleased to inform you that your Business PrimeLine Line of Credit ("Line") granted pursuant to your Business Loan Agreement dated JULY 7, 1994, and your Promissory Note ("Note") dated OCTOBER 17, 1994 and other related documents (collectively, the "Agreement"), will be renewed in ONE (1) day. The new maturity date will be JANUARY 10, 1997. Your Business Primeline Line of Credit remains subject to all terms and conditions of the Agreement, as modified by this Renewal Notice. A non-refundable Renewal Fee of $187.50 will be charged to your account #0619073265 ONE (1) day after the date of this letter unless prior to that date we receive your written rejection of this Renewal Notice. If you have any questions please do not hesitate to call us at our toll free number 800-932-4343 or (408) 277-6049. We appreciate your business and look forward to continuing to serve as your business bank. WELLS FARGO BANK, NATIONAL ASSOCIATION By /s/ --------------------------------- Title: Credit Officer
BUSINESS PRIMELINE PROMISSORY NOTE - --------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $65,000 07-07-1994 07-10-1995 LA01122591 650 5542712565 MDB - --------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - --------------------------------------------------------------------------------------------------------------------- Borrower: MYO DIAGNOSTICS, INC Lender: Wells Fargo Bank, National Association 3710 SOUTH ROBERTSON BOULEVARD Business Loan Division CULVER CITY, CA 90232-0000 84 W. Santa Clara St. 0552-023 San Jose, CA 95113 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Principal Amount: $65,000.00 Initial Rate: 8.000% Date of Note: July 7, 1994
PROMISE TO PAY. MYO DIAGNOSTICS, INC. ("Borrower") promises to pay to Wells Fargo Bank, National Association ("Lender"), or order, in lawful money of the United States of America, the principal amount of Sixty Five Thousand & 00/100 Dollars ($65,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on July 10, 1995. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning August 10, 1994, and all subsequent Interest payments are due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of clays the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the Prime Rate (the "Index"). The Prime Rate is a base rate that the Lender from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. The Prime Rate is not necessarily the lowest or best rate at which the Lender makes loans. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced within the Lender. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each TIME THE RATE CHANGES. The Index currently is 7.250% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 0.750 percentage points over the Index, resulting in an initial rate of 8.000% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments. LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $15.00, whichever is greater. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to perform promptly at the time and strictly in the manner provided in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any of the events described in this default section occurs with respect to any guarantor of this Note. (h) Lender in good faith deems itself insecure. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Subject to any right of Lender to increase the interest rate on this Note in the event of a breach or other default, the interest rate will continue at the stated Note rate. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the Jurisdiction of the courts of any County, the State of California. This Note shall be governed by and construed in accordance with the laws of the State of California. DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA, Keogh, and trust accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. Advances must be in amounts of at least $1,000, or the amount of the principal remaining available, whichever is less. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. LETTER OF CREDIT COLLATERAL. As a condition precedent to Lender's obligation to make advances under this Note, and as security for the payment and performance of all obligations of Borrower to Lender under this Note, Borrower shall provide to Lender a Standby Letter of Credit, issued by a bank and in a form satisfactory to Lender, naming Lender as beneficiary in an amount not less than the principal amount of this Note (in dollars) and with an expiry date no earlier than 120 days following the scheduled maturity date of this Note. OVERDRAFT PROTECTION. If Borrower has elected Overdraft Protection on a designated business checking account with Lender, overdrafts in amounts in excess of $10 will be automatically covered by an Advance under this Note. The Lender will automatically transfer enough money to cc the overdraft unless this Note is delinquent or closed, or the Advance would cause the Note balance to exceed the maximum amount available up this Note. INTEREST RATE ADJUSTMENT. If for any reason Borrower fails to maintain its primary deposit account with Lender (defined as the deposit account into which substantially all Borrower's receipts from its operations are deposited and from which substantially all Borrower's disbursements operations are made), or if Lender is not able to collect all payments on this Note by charging Borrower's primary deposit account with Lender, whether because Borrower cancels the authorization to Lender to do so, or Borrower fails at any time to maintain sufficient sums in said account, or for any other reason, then the interest rate applicable to this Note shall be increased immediately and without notice by one percent(1%). CREDIT BUREAU INQUIRIES. Borrower authorizes Lender to obtain business and/or personal credit bureau reports on Borrower at any time. 2 APPLICATION OF PAYMENT. Notwithstanding the application of payments provided in the Payment section of this Note, all sums received application to Borrower's obligations under this Note shall be applied first, to interest then due, second, to any fees and charges then due, and, the outstanding principal balance thereof. ADDITIONAL PROVISION. Notwithstanding anything herein to the contrary, at no time shall the rate of interest on this Note be less than two (2%) above the highest effective annual rate of interest rounded upward to the next highest quarter percent (taking into account any interest) earned by Borrower on any time deposit, market rate account or savings account pledged to Lender as collateral for such amounts. PAYMENT DATE DEFERRAL. If this loan is not entered on Lender's books during the month this Note is dated, the due dates of all scheduled payments shall be deferred one month. EXTENSION AND RENEWAL. Unless Borrower's obligations under this Note have been extended or renewed by Lender, no further advances available to Borrower and the entire outstanding principal balance of this Note, together with all accrued and unpaid interest thereon and fees charges owing in connection therewith, shall be due and payable in full as stated above. The date at which Borrower's obligations hereunder are and payable in full shall be considered extended or renewed only if Lender has sent to Borrower a written notice of renewal or extension, effective the next maturity date of this Note (each, a Renewal or Extension Notice). Borrower's obligation under this Note may be renewed or extended at the Lender's sole discretion and may be conditioned among modification of Borrower's obligations hereunder, including but not limited to a decrease in the amount available under this Note, an increase in interest rate applicable to this Note and/or payment of a fee for such renewal or extension. In addition, Lender may increase the principal amount available under the Note at any time. Borrower shall be deemed to have accepted the terms of each Renewal or Extension Notice, including any notice of an increase in availability, if Borrower does not deliver to Lender written rejection of such Notice within 10 days following the date of such Notice. If Borrower's obligations under this Note are renewed and/or extended, they will be subject to all terms and conditions of this Note, as modified by Renewal or Extension Notice. Borrower understands and agrees that the interest rate applicable to this Note may be increased upon any extension and that the new interest rate will apply to the entire outstanding balance of this Note, including the outstanding balance of advances made prior to the effective date of the Renewal or Extension Notice. After any renewal or extension of Borrower's obligations under this Note the "maturity date" as used in this Note shall be deemed to mean the new maturity date set forth in the Renewal or Extension Notice, and the same renewal or extension shall apply to any renewal or extension of this Note and its new maturity date. LOAN FEES - AUTHORIZATION. Borrower shall pay to Lender any and all fees as specified in the "Disbursement Request and Authorization" executed by Borrower in connection with this Note. Such fees are non-refundable and shall be due and payable in full immediately upon execution of this Note. COLLECTION FROM DEPOSIT ACCOUNT. Borrower authorizes Lender to Collect all payments, including principal, interest, fees, charges, and amounts due under this Note by charging Borrower's primary deposit account with Lender as specified in the "Disbursement Authorization" executed by Borrower in connection with this Note for the full amount thereof, or such other deposit account of Borrower Borrower shall designate in writing. Should there be insufficient funds in said account to pay when due all or any portion of the total amount due Borrower to Lender, the full amount of such deficiency shall be immediately due and payable by Borrower. ALTERNATIVE DISPUTE RESOLUTION. It is understood that, upon request of any party to this Agreement, any dispute, claim, or controversy kind, whether in contract or in tort, statutory or common law, legal or equitable now existing or hereafter arising between the parties, in any way arising out of, pertaining to or in connection with this Agreement, or any related agreements, documents, or instruments shall be resolved through a dispute resolution process administered by Judicial Arbitration and Mediation Services, Inc. (JAMS) involving first, mediation before a retired judge the JAMS panel followed, if necessary by final and binding arbitration (conducted at a location determined by the arbitrator in a city located miles of the Borrower's business address) administered by and in accordance with the then existing JAMS' Rules or Practice and Procedure. Judgment upon any award rendered by the arbitrator(s) may be entered by any state or federal court having jurisdiction thereof. Borrower understands that by signing this Note, Borrower is giving up any rights Borrower might possess to have any dispute, claim, or litigated in a court or jury trial. As soon as practicable after selection of the arbitrator, the arbitrator or his (her) designated 3 representatives shall determine a anticipated fees and costs of the arbitrator, and render a statement to each party seeing forth that party's pro-rata share of said fees and Thereafter, each party shall, within ten (10) days of receipt of said statement, deposit said sum with the arbitrator. Failure of any party to make deposit shall result in a forfeiture by the non-depositing party of the fight to prosecute or defend the claim which is the subject of the arbitration, shall not otherwise serve to abate, stay or suspend the arbitration proceedings. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorney fees and costs. If for any reason JAMS is not able to provide, or is legally precluded from providing, a judge in accordance with any of the provisions above, or if parties stipulate, the mediation or the arbitration will be conducted by a mediator or arbitrator selected by the American Arbitration Association, and accordance with its procedures. All of the above provisions not in conflict with the procedures of AAA would remain in effect to the extent law in any such proceedings. This section applies only to disputes involving $250,000 or more in value, including claim(s) asserted on behalf of others or a class of $250,000 or in value when aggregated. This section does not apply to the Lender's exercise of any judicial or non-judicial remedies in the event of a default under this Agreement or security agreement, deed of trust or other security instrument securing the Agreement. The Lender's exercise of such a remedy shall not be deemed waive the Lender's right to enforce the terms of this section. TELEPHONE TRANSFER. Borrower authorizes Lender to make transfers, up to the available balance or credit limit, between designated accounts specified in writing, upon Lender's receipt of instructions from any of Borrower's Owners/Principals. Lender will have no liability for any upon the written or venal request of any person believed by Lender in good faith to be an authorized representative of Borrower. Borrower will indemnify and hold Lender harmless from and against any damages, liabilities, costs or expenses (including attorney's fees) arising out of any claim Borrower or any third party against Lender in connection with Lender's performance of transfers as described above. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COPY OF THE NOTE. BORROWER: MYO DIAGNOSTICS, INC. By: /s/ By: /s/ -------------------------------- -------------------------------- NAME:, TITLE: NAME:, TITLE: By: /s/ By: /s/ -------------------------------- -------------------------------- NAME:, TITLE: NAME:, TITLE: 4 WELLS FARGO BANK, NATIONAL ASSOCIATION MYO DIAGNOSTICS, INC. 3710 S. ROBERTSON BLVD. #212 CULVER CITY, CA 90232-2350 RENEWAL NOTICE January 4, 1996 RE: Renewal of Business PrimeLine of Credit Application #LA02257641 Account #5542712565 Dear Customer: Wells Fargo Bank, National Association ("Lender") is pleased to inform you that your Business PrimeLine Line of Credit ("Line") granted pursuant to your Business Loan Agreement dated JULY 7, 1994, and your Promissory Note ("Note") dated OCTOBER 17, 1994 and other related documents (collectively, the "Agreement"), will be renewed in ten (10) days. The new maturity date will be JANUARY 10, 1997. Your Business Primeline Line of Credit remains subject to all terms and conditions of the Agreement, as modified by this Renewal Notice. A non-refundable Renewal Fee of $250.00 will be charged to your account #0619073265 ten (10) days after the date of this letter unless prior to that date we receive your written rejection of this Renewal Notice. If you have any questions please do not hesitate to call us at our toll free number 800-932-4343 or (408) 277-6049. We appreciate your business and look forward to continuing to serve as your business bank. WELLS FARGO BANK, NATIONAL ASSOCIATION By /s/ Title: Credit Officer ------------------------------- EX-23.2 20 EXHIBIT 23.2 [Letterhead of Lever, Lippe, Hellie & Company LLP] INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Myo Diagnostics, Inc. on Form SB-2 of our report dated June 6, 1996, appearing in the Prospectus, which is a part of this Registration Statement, and to the references to us under the heading "Experts" in such Prospectus. /s/ Lever, Lippe, Hellie & Company LLP LEVER, LIPPE, HELLIE & COMPANY LLP December 30, 1996 EX-27 21 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC. DATED DECEMBER 31, 1995 AND UNAUDITED FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC. DATED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR 9-MOS DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 SEP-30-1996 3,030 224,455 0 0 37,690 27,172 6,222 9,150 0 0 40,157 248,986 190,576 283,195 127,089 155,030 129,723 406,402 934,088 829,510 0 0 0 0 0 0 2,028,322 3,200,154 (2,832,687) (3,623,262) 129,723 406,402 67,600 13,650 67,600 13,650 143,934 65,975 1,090,639 762,720 0 0 18,291 28,059 49,251 46,612 (1,066,480) (790,560) 800 0 (1,067,280) (790,560) 0 0 0 0 0 0 (1,067,280) (790,560) 0 0 0 0
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