-----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, Ln3Y2ERc3OVqjJAx85KoWvnC0y7KLWOkyvWhcQlkmSm/19NTWIULAG8D3J3sP9yu ADP365VmUjqmm3Y73wfLtw== 0000890566-99-000700.txt : 19990518 0000890566-99-000700.hdr.sgml : 19990518 ACCESSION NUMBER: 0000890566-99-000700 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL SCIENCE SYSTEMS INC CENTRAL INDEX KEY: 0001037649 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 943123681 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23413 FILM NUMBER: 99628057 BUSINESS ADDRESS: STREET 1: 100 NE LOOP 410 STREET 2: STE 820 CITY: SAN ANTONIO STATE: TX ZIP: 78216-4749 BUSINESS PHONE: 2103496400 MAIL ADDRESS: STREET 1: 100 NE LOOP 410 STREET 2: STE 820 CITY: SAN ANTONIO STATE: TX ZIP: 78216 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended: MARCH 31, 1999 Commission File Number: 333-37441 MEDICAL SCIENCE SYSTEMS, INC. (Name of Small Business Issuer in its Charter) TEXAS 94-3123681 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 N.E. LOOP 410, SUITE 820 SAN ANTONIO, TX 78216 (Address of principal executive offices)(Zip Code) Issuer's Telephone Number: (210) 349-6400 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES (X) NO ( ) Title of Each Class Outstanding at May 10, 1999 - - ------------------- ---------------------------- Common stock, no par value 5,558,668 Transitional Small Business Disclosure Format (check one): Yes No X --- --- ================================================================================ MEDICAL SCIENCE SYSTEMS, INC. Form 10-QSB INDEX
PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets (Unaudited) at March 31,1999 and December 31, 1998...............................2 Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 1999 and March 31, 1998..............3 Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 1999 and March 31, 1998..............4 Notes to Condensed Consolidated (Unaudited) Financial Statements..............................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................8 PART II. OTHER INFORMATION Item 1. Legal Proceedings...................................................12 Item 2. Changes in Securities...............................................12 Item 3. Default Upon Senior Securities......................................12 Item 4. Submission of Matters to a Vote of Security Holders.................12 Item 5. Other Information...................................................12 Item 6. Exhibits and Reports on Form 8-K....................................12
i PART I FINANCIAL INFORMATION MEDICAL SCIENCE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1999 December 31, 1998 -------------- ----------------- ASSETS Cash and cash equivalents ............................................ $ 1,183,787 $ 2,432,271 Accounts receivable, net ............................................. 113,785 125,086 Prepaid Expenses ..................................................... 145,286 127,426 ------------ ------------ Total current assets ................................................. 1,442,858 2,684,783 Furniture and equipment, net ......................................... 412,695 458,107 Other assets ......................................................... 530,000 530,000 TOTAL ASSETS ......................................................... $ 2,385,553 $ 3,672,890 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable ..................................................... $ 232,567 $ 278,773 Notes payable ........................................................ 26,111 47,813 Accrued expenses ..................................................... 450,550 433,859 Deferred income ...................................................... 274,439 275,321 Current portion of long-term debt .................................... 81,432 81,432 Current portion of capitalized lease obligations ..................... 102,379 104,837 ------------ ------------ Total current liabilities ............................................ 1,167,478 1,222,035 Long-term debt, net .................................................. 427,498 447,856 Capitalized lease obligations, net ................................... 138,891 156,651 ------------ ------------ Total liabilities .................................................... 1,733,867 1,826,542 ------------ ------------ Preferred stock, no par value 5,000,000 shares authorized none issued and outstanding ....................................... 0 0 Common stock, no par value 10,000,000 shares authorized 5,558,668 shares issued and outstanding ........................... 16,730,396 16,719,933 Retained earnings (Accumulated deficit) .............................. (16,078,710) (14,873,585) Total shareholders' equity ........................................... 651,686 1,846,348 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................... $ 2,385,553 $ 3,672,890 ============ ============
See accompanying notes to condensed consolidated financial statements 2 MEDICAL SCIENCE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, 1999 March 31, 1998 ----------- ----------- (Unaudited) (Unaudited) Sales .......................................... $ 92,738 $ 58,894 Cost of sales .................................. 32,911 30,087 ----------- ----------- Gross profit ................................... 59,827 28,807 Research and development ....................... 555,125 516,922 Selling, general, and administrative expense ... 709,152 1,785,518 ----------- ----------- Total expenses ................................. 1,264,277 2,302,440 ----------- ----------- Loss from operations ........................... (1,204,450) (2,273,633) Other income (expense): Interest income ................................ 17,592 145,649 Interest expense ............................... (22,582) (24,290) Other income ................................... 4,315 0 ----------- ----------- Total other income (expense) ................... (675) 121,359 ----------- ----------- Loss before provision for income taxes ......... (1,205,125) (2,152,274) Provision for taxes ............................ 0 850 ----------- ----------- NET LOSS ....................................... $(1,205,125) $(2,153,124) =========== =========== Basic loss per share ........................... (0.22) (0.39) Diluted loss per share ......................... (0.22) (0.39) Weighted average common shares outstanding ..... 5,548,583 5,540,895 3 MEDICAL SCIENCE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended March 31, 1999 March 31, 1998 -------------- -------------- (unaudited) (unaudited) CASH FLOW FROM OPERATING ACTIVITIES Net loss ............................................ $(1,205,125) $(2,153,124) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization .................. 50,586 34,297 Accretion of investments ....................... 0 (103,985) (Increase) decrease in Accounts receivable ............................ 11,301 3,672 Inventories .................................... 0 840 Prepaid expenses ............................... (17,859) (724) Increase (decrease) in Accounts payable ............................... (46,206) 25,674 Notes Payable .................................. (21,702) 0 Accrued expenses ............................... 16,691 (28,842) Deferred income ................................ (882) 118,293 ----------- ----------- Net cash used in operating activities ............... (1,213,196) (2,103,899) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of furniture and equipment ................ (5,175) (89,103) Decreases (Increases) in patents .................... 0 (68,159) Maturity of investments ............................. 0 2,052,000 ----------- ----------- Net cash provided by (used in) investing activities . (5,175) 1,894,738 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Sale of common stock ................................ 10,463 0 Principal payments of long-term debt ................ (20,358) (36,784) Principal payments of capitalized lease obligations . (20,218) (11,865) ----------- ----------- Net cash used in financing activities ............... (30,113) (48,649) ----------- ----------- Net increase (decrease) in cash and equivalents ..... (1,248,484) (257,810) Cash and equivalents, beginning of period ........... 2,432,271 6,005,059 ----------- ----------- CASH AND EQUIVALENTS, END OF PERIOD ................. $ 1,183,787 $ 5,747,249 =========== =========== Interest paid ....................................... $ 22,582 $ 24,290 Income taxes paid ................................... $ 0 $ 1,600
NOTE 1 - PRESENTATION OF INTERIM INFORMATION As contemplated by the Securities and Exchange Commission under Item 310(b) of Regulation S-B, the accompanying consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. It is recommended that these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998. The interim financial data are unaudited; however, in the opinion of the management of Medical Science Systems, Inc. and subsidiaries (the "Company"), the accompanying unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to make the interim financial information not misleading. All significant intercompany transactions and accounts have been eliminated in consolidation. Results for interim periods are not necessarily indicative of those to be expected for the full year. Certain classifications have been made in prior period financial statements to conform with the current period presentation. The accompanying financial statements of the Company have been prepared on the basis of accounting principles applicable to a going concern. Since its inception, the Company has incurred cumulative net losses of approximately $16.1 million, including losses of approximately $1.2 million during the first quarter of 1999. In the three months ended March 31, 1999, the Company had negative cash flows from operating activities of approximately $1.2 million. As a result of these losses, available cash resources are limited and will be depleted in 1999 absent additional debt or equity funding. While the Company continues to pursue sources of capital, there can be no assurance that they will be successful in these efforts. These matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. The ability of the Company to continue as a going concern is dependent upon the Company achieving significant revenue increases from their existing genetic products, developing new products, successfully marketing its products to customers at profitable prices and obtaining significant levels of new capital. If the Company is not successful in these efforts, the Company would likely be unable to continue operating as a going concern. The Company has retained the services of a New York City-based investment banking firm to raise additional equity capital via a private placement. A private placement memorandum has been prepared for this offering and is currently being circulated to potential investors. Management of the Company believes this offering can be successfully concluded during the second quarter of 1999. In addition, management is in discussions with a number of potential strategic partners and, if discussions are successfully completed, believes there should be up-front funding of some of the Company's development programs. Commercial success of genetic susceptibility tests will depend upon their acceptance as medically useful and cost-effective by patients, physicians, dentists, other members of the medical and dental community, and third-party payers. It is uncertain whether current genetic susceptibility tests or others that the Company may develop will gain commercial acceptance on a timely basis. Research in the field of disease predisposing genes and genetic markers is intense and highly competitive. The Company has many competitors in the United States and abroad which have considerably greater financial, technical, marketing, and other resources available. If the Company does not discover disease predisposing genes or genetic markers and develop susceptibility tests and launch such services or products before their competitors, then revenues may be reduced or eliminated. The Company's ability to successfully commercialize genetic susceptibility tests depends on obtaining adequate reimbursement for such products and related treatment from government and private health care insurers and other third-party payers. Doctors' decisions to recommend genetic susceptibility tests will be influenced by the scope and reimbursement for such tests by third-party payers. If both third-party payers and individuals are unwilling to pay for the test, then the number of tests performed will significantly decrease, therefore resulting in a reduction of revenues. The Company has entered into an agreement with Sheffield University, whereby the Company will undertake the development and commercialization of certain discoveries resulting from Sheffield University's research. The agreement is non-cancelable for discoveries on which the parties have reached a specific agreement, but may be terminated with or without cause by either party upon six-months notice with respect to new discoveries on which the parties have not yet reached agreement. If Sheffield University terminated the agreement, such termination could make the discovery and commercial introduction of new products more difficult or unlikely. NOTE 2 - CASH AND CASH EQUIVALENTS The Company considers all highly-liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains cash deposits at one bank. Deposits at this bank are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. NOTE 3 - EARNINGS PER SHARE The Company computes earnings (loss) per share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Basic earnings per share is computed using the weighted-average number of common shares outstanding during the period. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. Net loss per share amounts for all periods have been restated to conform to SFAS No. 128 requirements. Prior to SFAS No. 128, the Securities and Exchange Commission ("SEC") required that, even where anti-dilutive, common and common equivalent shares issued during the twelve-month period prior to the filing of an IPO be included in the calculation of earnings per share as if they were outstanding for all periods presented (using the treasury stock method and the IPO price). Because of new requirements issued in 1998 by the SEC for companies that recently completed an IPO and interpretation by FASB of the initial application of SFAS No. 128, the number of shares used in the calculation of basic net loss per share has changed to exclude common equivalent shares, even when anti-dilutive. Net loss per share for all periods presented has been restated to conform with SFAS No. 128 and Staff Accounting Bulletin No. 98. NOTE 4 - STOCK OPTIONS During the quarter ended March 31, 1999, the Company issued 118,181 incentive stock options to certain employees. The options entitle the holder to purchase shares of the Company's common stock at $0.75 per share and expire ten years from the date of issuance. NOTE 5 - SEGMENT INFORMATION During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes new standards for reporting information about operating segments in annual and interim financial statements, requiring that public business enterprises report financial and descriptive information about its reportable segments based on a management approach. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. In applying the requirements of this statement, each of the Company's geographic areas described below were determined to be an operating segment as defined by the statement, but have been aggregated as allowed by the statement for reporting purposes. As a result, the Company continues to have one reportable segment, which is the development of genetic susceptibility tests and therapeutic targets for common diseases. The following table presents information about the Company by geographic area. FOR THE THREE MONTHS ENDED MARCH 31, 1999 1998 ------------ ------------ Total Revenues: United States ................... $ 74,335 $ 49,071 France .......................... 10,784 2,405 Other foreign ................... 7,619 7,418 ------------ ------------ Total ..................... $ 92,738 $ 58,894 ============ ============ Operating Income: United States ................... $ (963,560) $ (1,859,832) France .......................... (144,534) (100,034) Other foreign ................... (96,356) (313,767) ------------ ------------ Total ..................... $ (1,204,450) $ (2,273,633) ============ ============ Assets: United States ................... $ 2,385,553 $ 10,736,728 France .......................... 0 0 Other foreign ................... 0 0 ------------ ------------ Total ..................... $ 2,385,553 $ 10,736,728 ============ ============ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL OVERVIEW Medical Science Systems, Inc., a Texas corporation ("MSSI" or the "Company") develops and commercializes genetic diagnostic tests and medical research tools. The Company's efforts are focused on genetic factors that affect the rate of progression of clinical disease through their influence on common host systems. The Company's first genetic test, PST(R), a test predictive of risk for periodontal disease, is currently marketed in the United States, France and Israel. Products under development include tests predictive of risk for osteoporosis, coronary artery disease, diabetic retinopathy, asthma and meningitis/sepsis. The Company believes by combining genetic risk assessment with specific therapeutic strategies, improved clinical outcomes and more cost-effective management of these common diseases are achieved. MSSI also develops and licenses its medical research tools, including BioFusion(R), to pharmaceutical companies. BioFusion, a proprietary enabling system for diagnostic and drug discovery and development, is a computer modeling system that integrates genetic and other sub-cellular behavior, system functions, and clinical symptoms to simulate complex diseases. This system allows for the utilization of the rapidly increasing databases of gene expression, cell biology, prognostic, pharmacogenomic and predictive medicine databases being generated in companies and academic centers worldwide. The Company has retained the services of a New York City-based investment banking firm to assist it in raising capital pursuant to a private placement. Management of the Company believes that this offering will be successfully concluded during the second quarter of 1999. In addition, the Company is in discussions with a number of potential strategic partners and, if such discussions are successfully completed, the Company believes this will result in the up-front funding of some of its programs. There can be no assurance that the private placement or any of the partnering discussions will be completed. The Company has followed a strategy of working with strategic partners at the fundamental discovery stage. This strategy has given the Company access to discoveries while reducing up-front research expenses. Since 1994, the Company has had a strategic alliance with the Department of Molecular and Genetic Medicine at Sheffield University in the United Kingdom ("Sheffield"). Under this alliance, Sheffield has provided to the Company the fundamental discovery and genetic analysis from Sheffield's research laboratories and the Company has focused on product development, including clinical trials, and the commercialization of these discoveries. The Company has entered into multiple joint development and commercialization project agreements with Sheffield, and anticipates entering into additional collaborative arrangements with Sheffield and other parties in the future. In December 1998, the Company signed an agreement with Washington Dental Service, a member of the Delta Dental Plans Association, for the purchase of 1,200 PST tests. The tests will be used in a study, sponsored by Washington Dental Service, in collaboration with the University of Washington School of Dentistry and Medical Science Systems. The study will provide scientific and financial information about PST in a reimbursement system. This study is expected to provide scientific and financial data regarding the use of PST as a treatment-planning tool to assess risk. The data from the study should be available for analysis in the last quarter of 1999. In December 1997, the Company entered into an agreement with Medicadent, a French corporation ("Medicadent"), to market and sell PST in France. In August 1998, the Company entered into an agreement with H.A. Systems, Ltd. to market and sell PST in Israel. Medicadent commenced offering PST in France in June 1998, and H.A. Systems commenced offering PST in Israel in April 1999. No assurances can be made regarding the commercial acceptance of PST. The Company anticipates additional international agreements for the distribution of PST in 1999, but no assurances can be made that such agreements will be entered into by the Company. In March 1999, the Company entered into an agreement with the Straumann Company, a leading supplier of dental implants, to market and sell PST in the United States and Puerto Rico. Straumann launched its PST promotional activities in April 1999. In April 1999, the Company entered into an agreement with Dumex, a subsidiary of AlPharma, a pharmaceutical manufacturer, to market and sell PST in nine European countries (Austria, Denmark, Finland, Germany, Ireland, Norway, Sweden, Switzerland and the U.K.). Dumex is well-known in Europe as a manufacturer of oral health care products used by periodontists. The Company has been awarded four U.S. patents, and has sixteen U.S. patent applications pending. The U.S. Patent & Trademark Office awarded patents to the Company for its osteoporosis and periodontal disease susceptibility tests and two patent awards for its biologic modeling technology called BioFusion(R). BioFusion is used by the Company in the discovery, development and commercialization process. The Company's disease susceptibility patents seek to protect the use of its various genetic markers as an indicator of risk for the specific disease covered, as well as protecting various therapeutic applications which these markers may have. The Company has been granted a number of corresponding foreign patents and has filed foreign counterparts of its U.S. applications within the appropriate time frames. Where the Company has originally filed in another country, it has filed and plans to continue to file U.S. and other foreign counterparts within the appropriate time frame. CURRENT FINANCIAL CONDITION Since its inception, the Company has incurred cumulative net losses of approximately $16.1 million including losses of approximately $1.2 million during the first quarter of 1999. As a result of these losses, available cash resources are limited and will be depleted in July 1999 absent additional debt or equity funding. While the Company continues to pursue sources of capital, there can be no assurance that they will be successful in these efforts. The ability of the Company to continue as a going concern is dependent upon the Company achieving significant revenue increases from their existing genetic products, developing new products, successfully marketing its products to customers at profitable prices and obtaining significant levels of new capital. If the Company is not successful in these efforts, the Company would likely be unable to continue operating as a going concern. RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THREE MONTHS ENDED MARCH 31, 1998 Gross revenue for the three months ended March 31, 1999 was $92,738 compared to $58,894 for the same period ended March 31, 1998, an increase of 57%. The increase in revenue is attributable to an increase in the number of genetic susceptibility tests sold by the Company. In the three months ended March 31, 1999, the Company conducted 510 tests compared to 355 tests in the same period in 1998. Cost of sales was $32,911 for the three months ended March 31, 1999 compared to $30,087 for 1998. Gross profit margin was 64.5% in the three months ended March 31, 1999 compared to 48.9% for the year earlier period, reflecting lower unit laboratory costs for the Company's genetic tests due to the higher volume of tests. Research and development expenses remained relatively stable. For the three months ended March 31, 1999, the Company had R&D expenses of $555,125 as compared to $516,922 for the first quarter of 1998. Selling, general and administrative expenses were $709,152 in the first quarter of 1999 compared to $1,785,518 in the first quarter of 1998, a decrease of 60.3%. This decrease is a result of the Company's ongoing cost-cutting initiatives and change in strategy to utilize collaborative partners for its direct sales of its genetic tests. As a result of the Company's effort to reduce costs, the Company had 18 full time employees as of March 31, 1999 compared to 46 one year earlier. Interest income in the first quarter of 1999 was $17,592 compared to $145,649 in the first quarter of 1998. This decrease reflects lower balances of cash in 1999 compared to the year earlier period, as cash was utilized throughout 1998 to cover the Company's operating losses. Interest expense of $22,582 was incurred during the period ended March 31, 1999, compared to $24,290 in the same period in 1998. The reduction in interest expense was due to the reduction in the principal amount of the bank debt and lower interest rate on that debt. Net loss was $1,205,125 for the first quarter of 1999 compared to a net loss of $2,153,124 for the first quarter of 1998, a decrease of 44.0%. This decrease reflects the reduction in sales and marketing expense as the Company shifts to a collaborative partnering strategy. The Company anticipates that it will continue to experience losses unless its genetic testing revenues grow substantially from current levels and its efforts to develop revenue from licensing its biologic modeling research tools are successful. In addition, if the Company is successful in reaching agreements with strategic partners on developing additional genetic tests, milestone payments, if any, from these strategic partners to help cover the Company's research and development expense could also reduce the net loss. No assurances can be made that the Company will be able to increase its revenues, either from genetic tests or licensing revenue, or that it will be able to reach collaborative partnering agreements. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was $1,213,196 during the quarter ended March 31, 1999 and $2,103,899 during the same quarter of the prior fiscal year. As of March 31, 1999, the Company had cash and cash equivalents of $1,183,787. The Company currently does not have any commitments for material capital expenditures. The Company's obligation at March 31, 1999 for capitalized lease obligations totaled $241,270, of which $138,891 is classified as long-term and $102,379 is classified as current. The Company has a term loan with the Bank of America NT&SA which matures in June 2005. The principal balance at March 31, 1999 was $508,930, of which $427,498 is classified long-term debt and $81,432 is classified short-term debt. The Company has provided a certificate-of-deposit as security for this loan, the balance of which at March 31, 1999 was $530,000. The Company anticipates that its existing cash and cash equivalents, together with anticipated interest income and revenue, will be sufficient to conduct its operations as planned through July 1999. However, the Company's future capital requirements are anticipated to be substantial, and the Company does not have commitments for additional capital at this time. Such capital requirements are expected to arise from the commercial launch of additional genetic tests, continued marketing and sales efforts for PST, continued research and development efforts, the protection of the Company's intellectual property rights (including preparing and filing of patent applications), as well as operational, administrative, legal and accounting expenses. The Company plans to raise capital through equity and/or debt issuance when, and if, such capital is available to it. The Company has retained the services of a New York City-based investment banking firm to assist it in raising capital pursuant to a private placement. Management of the Company believes that this offering will be successfully concluded during the second quarter of 1999. THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO RAISE ANY ADDITIONAL NECESSARY CAPITAL. IF ADDITIONAL AMOUNTS CANNOT BE RAISED, THE COMPANY WOULD SUFFER MATERIAL ADVERSE CONSEQUENCES TO ITS BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND WOULD LIKELY BE REQUIRED TO SEEK PROTECTION UNDER THE UNITED STATES BANKRUPTCY LAWS. SEE "Current Financial Condition" on page 9 hereof. The Company's Common Stock is currently listed on The NASDAQ SmallCap Market and the Boston Stock Exchange. If the Company fails to maintain the qualification for its Common Stock to trade on the NASDAQ SmallCap Market or the Boston Stock Exchange, its Common Stock could be subject to delisting. The NASDAQ Stock Market announced increases in the quantitative standards, which became effective in February 1998, for maintenance of any of (x) $2,000,000 of net tangible assets, (y) $35,000,000 of market capitalization or (z) $500,000 of net income for two of the last three years and a minimum bid price per share of $1.00. On February 3, 1999, we received notice from NASDAQ that we are in violation of NASDAQ's minimum bid price requirement and that if our Common Stock does not have a closing bid price of at least $1.00 for ten consecutive trading days during the 90-day period ending May 3, 1999, our Common Stock will be subject to delisting on May 3, 1999. The Company believes it has satisfied this requirement by having a closing bid price of at least $1.00 for the ten consecutive trading days ending March 29, 1999; however the Company has not yet received notice from NASDAQ that such requirement was satisfied. Furthermore, there can be no assurance that our stock price will maintain such $1.00 minimum bid price. If the market price for our Common Stock does fall below the $1.00 bid price, our Common Stock could be subject to delisting from The NASDAQ SmallCap Market. On April 26, 1999, the Company received notice from the NASDAQ SmallCap Market that the Company is in violation of NASDAQ's minimum net tangible asset requirement. The Company has retained the services of a New York City-based investment banking firm to assist it in raising capital pursuant to a private placement. Management believes that the Company, upon the successful conclusion of this offering, will be in compliance with NASDAQ's minimum net tangible asset requirement. However, there can be no assurance that the Company will be able to raise the additional capital necessary to comply with NASDAQ's minimum net tangible asset requirement. If the Company is unable to achieve compliance with NASDAQ's minimum net tangible asset requirement, the Company would likely be delisted from The NASDAQ SmallCap Market and may also suffer material adverse consequences to its business, financial condition and results of operations. Such NASDAQ delisting would also greatly impair the Company's ability to raise additional necessary capital through equity or debt financing. YEAR 2000 COMPLIANCE The efficient operation of the Company's business is dependent on its computer software programs and operating systems (collectively, "Programs and Systems"). These Programs and Systems are used in several key areas of the Company's business, including financial reporting, as well as in various administrative functions. The Company has evaluated its Programs and Systems to identify potential year 2000 compliance problems, as well as manual processes, external interfaces with customers, and services supplied by vendors to coordinate year 2000 compliance and conversion. The year 2000 problem refers to the limitations of the programming code in certain existing software programs to recognize date sensitive information for the year 2000 and beyond. Unless modified prior to the year 2000, such systems may not properly recognize such information and could generate erroneous data or cause a system to fail to operate properly. Based on current information, the Company believes its Programs and Systems are year 2000 compliant. However, because most computer systems are, by their very nature, interdependent, it is possible that non-compliant third party computers may not interface properly with the Company's computer systems. The Company could be adversely affected by the year 2000 problem if it or unrelated parties fail to successfully address this issue. In the event the Company determines following the year 2000 date change that its Programs and Systems are not year 2000 compliant, the Company will likely experience considerable delays in compiling information required for financial reporting and performing various administrative functions. In the event of such occurrence, the Company's contingency plans call for it to switch vendors to obtain hardware and/or software that is 2000 compliant, and until such hardware and/or software can be obtained, the company will plan to use non-computer systems for its business, including information management services and financial reporting, as well as its various administrative functions. Year 2000 Information and Readiness Disclosure Act To the maximum extent permitted by applicable law, the above information is being designated as "Year 2000 Readiness Disclosure" pursuant to the "Year 2000 Information and Readiness Disclosure Act" which was signed into law on October 19, 1998. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On March 2, 1999, Entelos, Inc. filed an action against the Company in United States District Court for the Northern District of California, alleging that two of Entelos' principals, Samuel Holtzman and Thomas Paterson, are co-inventors of the inventions claimed in two of the Company's patents - U.S. Pat. Nos. 5,657,255 and 5,808,918, both of which relate to the Company's BioFusion products. In the suit, Entelos seeks a declaratory judgment that Entelos is the co-owner of all rights under the foregoing patents, an order correcting the inventorship of the patents to list Holtzman and Paterson as co-inventors, and restitution to Entelos of its share of the profits obtained from the patents. The Company is currently investigating the claims of co-inventorship and is engaged in settlement discussions with Entelos in an effort to resolve the matter out of court. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Sales of Unregistered Securities. On March 31, 1999, the Company issued 10,000 shares of Common Stock to Donner Corp. International ("Donner") in connection with an agreement whereby Donner provided investor and public relations services and other related services to the Company. Such shares of Common Stock were issued pursuant to the exemptions from registration provided under Regulation D ("Regulation D") of the rules and regulations promulgated under the Securities Act of 1933, as amended (the "Securities Act"), by the Securities and Exchange Commission and Section 4(2) of the Securities Act. The Company relied upon certain representations and warranties of Donner, including, among other things, as to its status as an "accredited investor" (as that term is defined in Rule 501(a) of Regulation D) and that the Common Stock was being acquired solely for investment and not with a view to distribution. Use of Proceeds from Sales of Registered Securities. On November 26, 1997, the Company completed an initial public offering of its Common Stock, no par value (the "Offering"). Aggregate proceeds from the Offering were $16,200,000, and the net proceeds were $14,904,000. Of the net proceeds, $1,855,617 has been used to repay debt, $3,391,143 has been used for research and development expenses, $4,618,461 has been used for marketing and sales expenses, $4,403,846 has been used for general and administrative expenses, and the remaining $1,003,933 has been allocated to general working capital requirements. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to shareholders in the three months ended March 31, 1999. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 10.1 Business Loan Agreement between the Company and Bank of America dated June 5, 1998 (filed herewith) 10.2* Distribution Agreement between the Company and The Straumann Company dated March 25, 1999 (filed herewith) 27 Financial Data Schedule (filed herewith) *Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (b) Reports on Form 8-K Not applicable EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 10.1 Business Loan Agreement between the Company and Bank of America dated June 5, 1998 (filed herewith) 10.2* Distribution Agreement between the Company and The Straumann Company dated March 25, 1999 (filed herewith) 27 Financial Data Schedule (filed herewith) * Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MEDICAL SCIENCE SYSTEMS, INC. Date: May 17, 1999 By: /s/ U. SPENCER ALLEN U. Spencer Allen Chief Financial Officer and Treasurer (Duly authorized signatory and Principal Financial and Accounting Officer) EX-10.1 2 EXHIBIT 10.1 BANK OF AMERICA - ------------------------------------------------------------------------------ |_| BUSINESS LINE |X| BUSINESS LOAN AGREEMENT To: Bank of America National Trust and Savings Association Business Lending Services #1738 101 S. Marengo Avenue, 5th Floor Pasadena, CA 91122 CUSTOMER NAME MEDICAL SCIENCE SYSTEMS, INC. LINE OF CREDIT/LOAN NO. CREDIT LIMIT/LOAN AMOUNT BRANCH NO. DEPOSIT ACCOUNT NO. ("ACCOUNT") - ----------------------- ------------------------ ---------- ------------------------------- 0740829-9003 $570,000.00 0694 06940-18831
INTRODUCTION. This Agreement dated as of June 05, 1998 is entered into between Medical Science Systems, Inc. (the "Borrower") and Bank of America National Trust and Savings Association (the "Bank") concerning the Borrower's Business Loan credit facility with the Bank. In consideration of, and to induce the Bank to make available to the Borrower the credit facility described herein, the Borrower agrees and warrants as follows: |_| I.THE LINE OF CREDIT A. NATURE OF THE LINE. If the box above is checked, the Bank has made available to the Borrower a revolving line of credit ("Line") in the principal amount shown above as "Credit Limit" subject to the terms and conditions of this Agreement. This means that the Borrower, or any person provided for in Section I.C. below, may request an advance of all or a part of the Line at any time while the Line is available. Any amount repaid by the Borrower becomes available for the Borrower to reborrow after the expiration of a hold period for payments by personal checks of up to eleven business days. If the Bank delays the availability of funds, it will mail to the Borrower a notice within one business day. B. ADVANCES. Advances under the Line may be in any amount not to exceed the Credit Limit remaining available. Advances may be made by writing a credit line check or by telephone authorization, deposited into the Borrower's account listed above, if any, or such other of the Borrower's eligible accounts with the Bank as designated by the Borrower in writing (the "Account"). C. TELEPHONE AUTHORIZATION. The Bank may honor telephone instructions for advances or repayments given by any one of the individuals who signed the application for this Line on the Borrower's behalf, or any other individual designated by any one of such authorized individuals. Repayments authorized by telephone shall be withdrawn from the Borrower's Account. The Borrower indemnifies and excuses the Bank (including its officers, employees, and agents) from all liability, loss, and costs in connection with any act resulting from telephone instructions it reasonably believes are made by any individual authorized by the Borrower to give such instructions. This indemnity and excuse will survive this Agreement's termination. D. CREDIT LINE CHECKS. 1. WRITING CHECKS. The Bank will issue checks to the Borrower at no cost. The Borrower may borrow money under the Line (up to the Credit Limit remaining available) by writing checks. The Borrower agrees not to write checks in an amount less than $300, and not to write more than five checks in any one billing cycle. The Bank may charge a fee for any checks written for a lesser amount, or if more than the permitted number of checks are written. Each paid check will be charged to the Line. Checks may be signed by any one individual who signed the application for credit. Only one signature shall be required on any check. 2. STOP PAYMENTS. The Borrower may stop payment on a check as long as the request is received by the Bank prior to the time the check is posted to the Line. The request must include the information which the Bank requires. The Borrower may be charged a fee to place or renew a stop payment order. A stop payment shall be effective for 180 days. The Borrower must renew the stop payment if it wishes the stop payment to be effective for a longer period. In some cases, the Bank may pay a check even if a stop payment is in effect. For example, if a branch of the Bank or another person or entity becomes a "holder in due course" of a check, the Bank may still pay the check and post the amount to the Line. 3. CHECK CERTIFICATION. The Bank will not certify checks. 4. LOST OR STOLEN CHECKS. The Borrower must notify the Bank immediately at the Bank of America Address shown at the top of the Agreement if any checks are lost or stolen. 5. CANCELED CHECKS. The Bank will not return the canceled checks to the Borrower, but will retain photocopies for eight (8) years. The Borrower agrees to examine the monthly billing statement on the Account promptly in order to identify improper or unauthorized transactions. If the Borrower requests a copy of a check, the Borrower must write a letter to the Bank, including the Account number, the check number and amount, and the date that the check posted to the billing statement. The Bank may charge a fee for providing a copy of checks. 6. AUTHORIZED USE. The checks issued to the Borrower must be used only by the Borrower. If the Borrower permits anyone else to use its checks without the Bank's consent, the Borrower will be obligated to pay for any advances obtained by that person plus any interest and other charges attributable to such advances. 7. RETURN OF CHECKS. At the Bank's request, the Borrower will return to the Bank any unused checks if the Account is terminated. If any such event occurs, the Bank may return any checks presented against the Account. E. OVERDRAFT PROTECTION. |_| If the box to the left is checked, the following paragraph applies: The Line has been linked for overdraft protection to the following business checking account with the Bank: N/A. If the business checking account is overdrawn, the Bank will transfer funds from the Line to cover the overdraft in multiples of $50 as long as there is sufficient available credit on the Line. Overdraft protection is not accessible by in-branch transaction, ATM withdrawal or transfer through your home or office computer. F. DEFAULTS. The Bank may, in its sole discretion, refuse to make advances hereunder if an Event of Default has occurred (as defined in Section IX, below). G. AVAILABILITY OF THE LINE. Advances under the Line will be available until the earlier of the following (the "Termination Date"): (1) N/A ; or (2) the date the Bank terminates the Line because of an Event of Default pursuant to Section IX.; or (3) the date the Line is canceled by the Borrower pursuant to Section X.N. On the Termination Date, no further advances will be available to the Borrower. The entire outstanding principal balance of the Line, together with all accrued and unpaid interest thereon, and fees and charges owing in connection therewith, shall be due and payable in full on the Termination Date. H. CREDIT LIMIT. A credit limit has been set on the Line and is shown above as "Credit Limit." The Borrower agrees not to allow the principal amount which the Borrower owes at any one time under this Agreement to exceed the Credit Limit. The Bank does not have to honor any request for an advance which, when added to the unpaid balance, would exceed the Credit Limit. |X| II. THE LOAN A. AMOUNT. If the box above is checked, the Bank has made available to the Borrower a term loan ("Loan") in the principal amount shown above as "Loan Amount" subject to the terms and conditions of this Agreement. III. PAYMENTS AND INTEREST RATE A. PAYMENTS 1. AMOUNT. The Borrower promises to pay to the Bank principal and/or interest payments as indicated by the box checked below: |_| A. INTEREST ONLY. The minimum payment due each month shall be the amount of accrued interest. |_| B. PRINCIPAL AND INTEREST. Principal and interest in monthly installments of Dollars ($__________________). |X| C. PRINCIPAL PLUS INTEREST. Principal in 84 monthly installments of SIX THOUSAND SEVEN HUNDRED EIGHTY-SIX AND 00/100 DOLLARS ($6,786.00) plus interest. In addition, the Borrower must pay any amounts past due, any amount that exceeds the Credit Limit, if applicable, and any other charges assessed as described in this Agreement. 2. PAYMENT DATE. The payments shall be due and payable in full on the 1st day of each month, beginning JULY 1, 1998 and continuing until JUNE 1, 2005, on which date all unpaid principal and interest shall be paid in full. If the payment date falls on a Saturday or Sunday, or on a holiday on which the Bank is closed, the payment shall be due on the next business day. If this is a Loan, the principal and interest may also at the Bank's option be due and payable in full upon an Event of Default in accordance with Section IX. herein. 3. PAYMENT ALLOCATION. All sums received from the Borrower for application to the Line or Loan shall be applied to the Borrower's obligation under the Line or Loan in such order as determined by the Bank. 4. PREPAYMENT. The Borrower can pay the balance of the credit outstanding under this Agreement in full or part at any time without premium or penalty. The Bank may accept partial payments, whether or not marked "paid in full" without losing the Bank's rights under this Agreement. 5. PAYMENT ADDRESS. Payments should be made to: Bank of America National Trust and Savings Association Business Lending Services #1738 P. O. Box 6012 Pasadena, CA 91102-6012 6. CREDITING THE PAYMENT. If the Bank receives the payment at the above address by 9:00 a.m. on any business day, except Saturday or Sunday, the Bank will credit the payment to the amount outstanding under this Agreement as of that day. Payments may also be made at any of the Bank's California branches. Payments received at a branch after 4 p.m. (7 p.m. on Fridays) or on a Saturday, Sunday or holiday will be posted the following business day. 7. AUTOMATIC REPAYMENT. |X| If the box to the left is checked, the following paragraphs apply: A. AUTOMATIC PAYMENT SERVICE. The Borrower hereby chooses to have its principal and interest payments made pursuant to the Bank's Automatic Payment Service, and authorizes the Bank to collect all sums due hereunder by charging the full amount thereof to the Borrower's Account. Should there be insufficient funds in the Account to pay when due all or any portion of the amount due, the full amount of such deficiency shall be immediately due and payable by the Borrower. B. TERMINATION. If, for any reason during the term of this Agreement, this Automatic Payment Service is terminated by the Borrower or the Bank, the interest rate under this Agreement will increase by one (1) percentage point and the amount of each payment will be increased accordingly. B. INTEREST RATE 1. INTEREST RATE OPTIONS. The principal balance outstanding under this Agreement shall bear interest per annum equal to: |X| A. VARIABLE RATE. The Bank's Reference Rate plus 0.00 percentage points, as said Reference Rate may change from time to time. The Reference Rate is the rate of interest publicly announced from time to time by the Bank in San Francisco, California as its Reference Rate. The Reference Rate is set by the Bank based on various factors, including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank's Reference Rate. |_| B. FIXED RATE. A fixed rate of N/A percentage points. 2. COMPUTATION OF INTEREST AND FEES. All computations of interest and fees made or called for hereunder shall be calculated on the basis of: |X| A. 360-DAY YEAR. A 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. |_| B. 365-DAY YEAR. An actual 365/366-day year and the actual number of days elapsed. 3. DEFAULT RATE. Upon the occurrence and during the continuation of any default under this Agreement, amounts outstanding under this Agreement will at the option of the Bank bear interest at a rate per annum which is N/A (____) percentage points higher than the rate of interest otherwise provided under this Agreement. This will not constitute a waiver of any default. IV. FEES A. PROMISE TO PAY FEES AND COSTS. The Borrower promises to pay according to the terms of this Agreement, all amounts outstanding and fees and costs which may be assessed under this Agreement including reasonable attorneys' fees (which may include the allocated costs of in-house counsel), court costs, and collection costs. B. LOAN FEE. Upon the date of this Agreement, the Borrower will pay a non-refundable loan fee of $250.00. If this is a Line, this fee may be paid by check, charged to the Account, or treated as an advance. The advance will be subject to all the terms of this Agreement. C. OVERDRAFT TRANSFER FEE. Each overdraft advance shall be subject to an overdraft transfer fee equal to 2 percent (2%) of the amount of the advance, subject to a minimum of $3 and a maximum of $15. D. LATE FEES. A late charge of 6% of the unpaid portion of the payment amount, with a minimum fee of $5.00 and a maximum fee of $15.00, may be assessed if payment is not received within fifteen days after the date the payment is due. This fee may be changed by the Bank at its option. E. OVERLIMIT FEES. An overlimit fee of $15 may be assessed each time the Borrower exceeds the Credit Limit, regardless of whether the Bank permits the Borrower to exceed the Credit Limit. F. RETURNED ITEM FEE. The Borrower may be charged a returned item fee of $10 each time a payment is returned or if there are insufficient funds in the Account when a payment is attempted through Automatic Payment Service. G. STATEMENT COPY FEE. A fee may be charged for each statement copy requested, plus an hourly charge for any necessary research time. V. SECURITY A. SECURITY. As security for payment of this Line or Loan and all obligations provided for herein, the Borrower grants to the Bank a security interest in the property described below. The Borrower also grants to the Bank a security interest in all renewals of this property, other property substituted for it, and proceeds. SAVINGS/CD - 0694501340 , GD BAG B. STOCKS/BONDS. 1. MARGIN CALL. If at any time the Credit Limit, if a Line, or the outstanding balance, if a Loan, to collateral value ratio exceeds 60% for a Line or Loan secured partially or completely by stock, or 65% for a Line or Loan secured only by bonds, the Bank may send the Borrower notice requesting additional collateral. The Bank may determine collateral value using any reasonable method. If the additional collateral is not received within the time given in the notice, the Borrower will be in default and the Bank may terminate the Line or Loan as provided in Section IX. 2. RESTRICTION ON USE OF FUNDS. The Borrower agrees not to use the Line or Loan to finance the purchase of margin stock (as defined by Regulation U) or to pay obligations incurred in the purchase of such securities. C. INSURANCE. The Borrower agrees to maintain all risk property damage insurance policies covering the tangible property comprising the security. Each insurance policy must be in an amount acceptable to the Bank. The insurance must be issued by an insurance company acceptable to the Bank and must include a lender's loss payable endorsement in favor of the Bank in a form acceptable to the Bank. If the Borrower fails to maintain insurance on the security described in Paragraph A. above, the Bank may, in its sole discretion, obtain such insurance and the cost of the premiums shall be payable on demand with interest at the interest rate herein. VI. CONDITIONS The Bank must receive the following items in form and content acceptable to the Bank before it is required to extend any credit to the Borrower under this Agreement. A. AUTHORIZATION. Evidence that the execution, delivery and performance by the Borrower of this Agreement and any instrument or agreement required under this Agreement have been duly authorized. B. GUARANTIES. Guaranties signed by those persons and in the amounts as required. C. SECURITY AGREEMENT. Signed original security agreement, financing statements and fixture filings (together with collateral in which the Bank requires a possessory security interest, which the Bank requires. D. EVIDENCE OF PRIORITY. Evidence that security interests and liens in favor of the Bank are valid, enforceable, and prior to all others' rights and interests, except those the Bank consents to in writing. VII. FINANCIAL STATEMENTS The Borrower represents and warrants that: A. Statements and data submitted in writing by the Borrower to the Bank in connection with this request for credit are true and correct, and said statements truly present the financial condition of the Borrower as of the date thereof and the results of the operations of the Borrower for the period covered thereby, and have been prepared on a consistently-maintained basis, in accordance with generally accepted accounting principles or another basis acceptable to the Bank. Since such date there have been no material adverse changes in the ordinary course of business. The Borrower has no knowledge of any liabilities, contingent or otherwise, at such date not reflected in said statements, and the Borrower has not entered into any special commitments or substantial contracts which are not reflected in said statements, other than in the ordinary and normal course of its business, which may have a materially adverse effect upon its financial condition, operations or business as now conducted. B. The representation and warranty contained in Section VII.A. above shall apply to each financial statement submitted pursuant to Section VIII.B. herein and shall be continuous and shall be automatically restated for each such financial statement as of the date of such statement. VIII. COVENANTS The Borrower agrees that so long as credit is available under this Agreement and until the Bank is repaid in full, it will, unless the Bank shall otherwise consent in writing: A. INSURANCE. Maintain public liability, property damage and worker's compensation insurance and insurance on all its insurable property against fire and other hazards with responsible insurance carriers to the extent usually maintained by similar businesses. B. RECORDS AND REPORTS. Maintain a standard and modern system of accounting in accordance with generally accepted accounting principles or another basis acceptable to the Bank on a basis consistently maintained; permit Bank's representatives to have access to and to examine its properties, books and records at all reasonable times; and furnish the Bank: (1) Promptly, a notice in writing of the occurrence of any event of default hereunder or of any event which would become an event of default hereunder upon giving of notice, lapse of time, or both; and (2) The following financial information and statements by one year from the date of this Agreement and annually thereafter, and such other information relating to the affairs of the Borrower as the Bank may request from time to time: a. Borrower's Financial Statement. The Borrower's annual financial statements compiled by a Certified Public Accountant ("CPA") acceptable to the Bank; b. Borrower's Tax Return. The Borrower's federal income tax return (with all K-1 forms attached), together with a statement of any contributions made by the Borrower to any subchapter S corporation or trust, and copies of any extensions of the filing date; c. Guarantor's Financial Statement. Each guarantor's annual financial statement in form satisfactory to the Bank; and d. Guarantor's Tax Return. Copies of each guarantor's federal income tax return (with all K-1 forms attached), together with a statement of any contributions made by the guarantor to any subchapter S corporation or trust, and copies of any extensions of the filing date. C. TYPE OF BUSINESS. Not make any substantial change in the character of its business. D. PURPOSE. Use the proceeds of this loan solely for business purposes. E. OUTSIDE INDEBTEDNESS. Not create, incur, assume or permit to exist any indebtedness for borrowed money other than loans from the Bank except obligations now existing as shown on the credit application or the personal financial statement or data submitted with such application pursuant to Section VII.A. herein; or sell or transfer, either with or without recourse, any accounts or notes receivable or any money due or to become due. F. LIENS AND ENCUMBRANCES. Not create, incur, assume or permit to exist any mortgage, deed of trust, security interest (whether possessory or non-possessory) or other encumbrance of any kind (including without limitation, the charge upon property purchased under conditional sale or other title retention agreement) upon or on any of its property or assets, or sell, assign, pledge or otherwise transfer for security any of its accounts, contract rights, general intangibles, or chattel paper with or without recourse, whether now owned or hereafter acquired (hereinafter collectively called "Liens"), other than (1) Liens for taxes not delinquent or being contested in good faith in appropriate proceedings; (2) Liens in connection with worker's compensation, unemployment insurance or social security obligations; (3) Mechanics', workmen's, materialmen's, landlords', carriers', or other like liens arising in the ordinary and normal course of business with respect to obligations which are not due or which are being contested in good faith; (4) Liens on margin stock as defined within Regulation U of the Board of Governors of the Federal Reserve System, as amended from time to time; and (5) Liens in favor of the Bank. G. LOANS, SECONDARY LIABILITIES. Not make any loans or advances to any person or other entity other than in the ordinary and normal course of its business as now conducted; or guarantee or otherwise become liable upon the obligation of any person or other entity, except by endorsement of negotiable instruments for deposit or collection in the ordinary and normal course of its business. H. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Not purchase or otherwise acquire the assets or business of any person or other entity, or liquidate, dissolve, merge or consolidate, or commence any proceedings therefor; or sell any assets except in the ordinary and normal course of its business as now conducted, or sell, lease, assign, or transfer any substantial part of its business or fixed assets, or any property or other assets necessary for the continuance of its business as now conducted, including without limitation the selling of any property or other asset accompanied by the leasing back of the same. I. COMPLIANCE WITH LAWS. Comply with the laws, regulations and orders of any government body with authority over the Borrower's business. J. TRUSTS. Not transfer any of the Borrower's assets to a trust. IX. EVENTS OF DEFAULT The occurrence of any of the following events of default shall, at the Bank's option, terminate the Bank's obligation to extend credit under this Agreement, and make all sums of principal and interest immediately due and payable, all without demand, presentment or notice, all of which are hereby expressly waived and the Bank may exercise all its rights against the Borrower, any guarantor and any collateral as provided by law. A. FAILURE TO PAY INDEBTEDNESS. Failure to pay when due any obligation of the Borrower to the Bank. B. OTHER DEFAULTS. The occurrence of any event of default whether or not waived by the obligee under any other indebtedness extended by any institution or individual to the Borrower. C. BREACH OF COVENANT. Failure of the Borrower to perform any other term or condition of this Agreement binding upon the Borrower. D. BREACH OF WARRANTY. Any of the Borrower's representations or warranties made herein or any statement or certificate at any time given pursuant hereto or in connection herewith shall be false or misleading in any material respect. E. INSOLVENCY; RECEIVER OR TRUSTEE. The Borrower, any guarantor of the Indebtedness of the Borrower to the Bank or general partner of the Borrower shall become insolvent; or admit its inability to pay its debts as they mature, or make an assignment for the benefit of creditors; or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business. F. JUDGMENTS; ATTACHMENTS. Any money judgment, writ, or warrant of attachment, or similar process shall be entered or filed against the Borrower or any guarantor of any of the Borrower's obligations to the Bank or any of its assets and shall remain unvacated, unbonded or unstayed for a period of 10 days or in any event later than 5 days prior to the date of any proposed sale thereunder. G. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower, any guarantor of the indebtedness of the Borrower to the Bank or general partner of the Borrower. H. MATERIAL ADVERSE CHANGE. A material adverse change occurs in the Borrower's financial condition or the financial condition of any guarantor of the Borrower's obligations to the Bank, which, in the opinion of the Bank, would affect the ability of the Borrower to repay any advances made by the Bank hereunder or any other of the Borrower's obligations hereunder, or of such guarantor to perform under its guaranty. I. GUARANTY. Any guaranty of the indebtedness of the Borrower to the Bank, at any time after the execution and delivery of such guaranty and for any reason other than satisfaction in full of all indebtedness incurred hereunder, ceases to be in full force and effect or is declared to be null and void; or the validity or enforceability thereof is contested in a judicial proceeding; or any guarantor denies that it has any further liability under such guaranty; or any guarantor defaults in any provision of any guaranty; or any financial information provided by any guarantor is false or misleading in any material respect. J. DEATH. The Borrower or any guarantor dies; if the Borrower is a sole proprietorship, any owner dies; if the Borrower is a trust, a trustor dies; if the Borrower is a partnership, any general partner dies; or if the Borrower is a corporation, any principal officer or majority stockholder dies. K. GOVERNMENT ACTION. Any government authority takes action that the Bank believes materially adversely affects the Borrower's or any guarantor's financial condition or ability to repay. L. DEFAULT IN SECURITY DOCUMENTS. A default shall occur in any document or instrument provided by the Borrower to the Bank in connection with the security provided the Bank pursuant to Section V.A. herein. M. COLLATERAL VALUE. The Credit Limit, if a Line, or the principal balance, if a Loan, equals or exceeds the collateral value. N. LIEN PRIORITY. The Bank fails to have an enforceable first lien (except for any prior liens to which the Bank has consented in writing) on or security interest in any property given as security for this Line or Loan. O. BANK REMEDIES. If the Borrower is in default the Bank may also without prior notice, do any one or more of the following: (a) exercise any remedies available to a secured party under the Uniform Commercial Code or any other applicable law; (b) proceed in the foreclosure of its security interest in the property described in the paragraph entitled "Security;" (c) sell or otherwise dispose of the property at public or private sale, upon terms and in such manner as it may determine and it may purchase same at such sale; (d) refrain from disposing of the property and continue to maintain possession of the property for such time as it deems appropriate and the Borrower takes the risk of any depreciation in the value of the property pending disposition; or (e) transfer any of the property into the name of the Bank or the Bank's nominee. X. MISCELLANEOUS PROVISIONS A. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Bank, in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. B. OTHER AGREEMENTS. Nothing herein shall in any way limit the effect of the conditions set forth in any security or other agreement executed by the Borrower, but each and every condition hereof shall be in addition thereto. C. GOVERNING LAW AND WAIVER. The Borrower understands and agrees that (1) this Agreement will be governed by and interpreted in accordance with the laws of the State of California; and (2) the Borrower waives its right, under Section 1808.21 of the California Vehicle Code, to the confidentiality of its residence address in the records of the Department of Motor Vehicles, and the Borrower authorizes the Bank to request its residence address from the Department of Motor Vehicles if required by the Bank in enforcing this Agreement. D. SEVERABILITY. If any provision of this Agreement is held to be unenforceable, such determination shall not affect the validity of the remaining provisions of this Agreement. E. SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and the Bank's successors and assigns. The Borrower agrees that it may not assign this Agreement without the Bank's prior consent. F. HAZARDOUS WASTE INDEMNIFICATION. The Borrower will indemnify and hold harmless the Bank from any loss or liability directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance. This indemnity will apply whether the hazardous substance is on, under or about the Borrower's property or operations or property leased to the Borrower. The indemnity includes but is not limited to attorneys' fees (including the reasonable estimate of the allocated cost of in-house counsel and staff). The indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns. For these purposes, the term "hazardous substances" means any substance which is or becomes designated as "hazardous" or "toxic" under any federal, state or local law. This indemnity will survive repayment of the Borrower's obligations to the Bank. G. MULTIPLE BORROWERS. If there are two or more Borrowers under this Agreement, each will be individually obligated to repay the Bank in full, and all will be obligated together. The Bank may terminate the availability of credit under this Agreement if the Bank receives conflicting instructions from the Borrowers. H. ONE AGREEMENT. This Agreement and any related security or other agreements required by this Agreement collectively: (1) represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit; and (2) replace any prior oral or written agreements between the Bank and the Borrower concerning this credit; and (3) are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. I. CHANGE OF TERMS. The bank may change any term or condition of this Agreement, to the extent permitted by law, by providing written notice to the Borrower. Any such change shall apply to any unpaid balance outstanding under this Agreement as well as any future transactions under this Agreement. J. NOTICE. As required herein, notice to the Bank shall be sent to the address shown on the Borrower's latest billing statement, to be effective when received. Any written notice to the Borrower shall be sent to the Borrower's address in the Bank's records, to be effective when deposited in the U.S. mail, postage prepaid, unless otherwise stated in the notice. The Borrower agrees to notify the Bank promptly in writing of a change in the Borrower's mailing address. K. COSTS. If the Bank incurs any expense in connection with administering or enforcing this Agreement, or if the Bank takes collection action under this Agreement, it is entitled to costs and reasonable attorneys' fees, including any allocated costs of in-house counsel. At the Bank's option, the Bank may add these costs to the principal amount outstanding under this Agreement. L. ATTORNEYS' FEES. In the event of a lawsuit or arbitration procedure, the prevailing party is entitled to recover costs and reasonable attorneys' fees (including any allocated costs of in-house counsel) incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. M. TELEPHONE MONITORING. To the extent not prohibited by law, the Bank's personnel may listen to telephone calls between the Borrower and the Bank's employees for the purpose of monitoring the quality of service the Borrower receives. N. CANCELLATION BY THE BORROWER. The Borrower may cancel this Agreement by written notice to the Bank. The Borrower's request will take effect at the time it is received by the Bank. If there is more than one Borrower, the Bank may treat a request by one of them under this paragraph as a request by all of them. At the time of cancellation, the outstanding balance will be immediately due and payable. O. ARBITRATION. 1. This paragraph concerns the resolution of any controversies or claims between the Borrower and the Bank, including but not limited to those that arise from: (a) This Agreement (including any renewals, extensions or modifications of this Agreement); (b) Any document, agreement or procedure related to or delivered in connection with this Agreement; (c) Any violation of this Agreement; or (d) Any claims for damages resulting from any business conducted between the Borrower and the Bank, including claims for injury to persons, property or business interests (torts). 2. At the request of the Borrower or the Bank, any such controversies or claims will be settled by arbitration in accordance with the United States Arbitration Act. The United States Arbitration Act will apply despite the provisions of paragraph C., "Governing Law and Waiver," above. 3. Arbitration proceedings will be administered by the American Arbitration Association and will be subject to its commercial rules of arbitration. 4. For purposes of the application of the statute of limitations, the filing of an arbitration pursuant to this paragraph is the equivalent of the filing of a lawsuit, and any claim or controversy which may be arbitrated under this paragraph is subject to any applicable statute of limitations. The arbitrators will have the authority to decide whether any such claim or controversy is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. 5. If there is a dispute as to whether an issue is arbitrable, the arbitrators will have the authority to resolve any such dispute. 6. The decision that results from an arbitration proceeding may be submitted to any authorized court of law to be confirmed and enforced. 7. This provision does not limit the right of the Borrower or the Bank to: (a) exercise self-help remedies such as setoff; (b) foreclose against or sell any real or personal property collateral; or (c) act in a court of law, before, during or after the arbitration proceeding to obtain (i) an interim remedy; and/or (ii) additional or supplementary remedies. 8. The pursuit of or a successful action for interim, additional or supplementary remedies, or the filing of a court action, does not constitute a waiver of the right of the Borrower or the Bank, including the suing party, to submit the controversy or claim to arbitration if the other party contests the lawsuit. This Agreement is effective as of the date stated at the top of the first page. MEDICAL SCIENCE SYSTEMS, INC. By: By: U. Spencer Allen, Chief Financial Officer By: By: Paul J. White, President By: By: Classification: Confidential BANK OF AMERICA - -------------------------------------------------------------------------------- SECURITY AGREEMENT (DEPOSIT ACCOUNTS) 1. GRANT OF SECURITY INTEREST. As security for any and all Indebtedness (as defined below) of MEDICAL SCIENCE SYSTEMS, INC. ("Debtors"), the undersigned MEDICAL SCIENCE SYSTEMS, INC. ("Pledgors") hereby irrevocably and unconditionally grant a security interest in and assign and transfer the Deposit Accounts (as defined below) to Bank of America National Trust and Savings Association ("Secured Party"). - ------------------------------------------------------------------------------ 2. INDEBTEDNESS. "Indebtedness" means all debts, obligations or liabilities now or hereafter existing, absolute or contingent, of Debtors or any one or more of them to Secured Party, whether voluntary or involuntary, whether due or not due, or whether incurred directly or indirectly or acquired by Secured Party by assignment or otherwise. Unless otherwise agreed in writing, "Indebtedness" shall not include such debts, obligations or liabilities which are or may hereafter be "consumer credit" subject to the disclosure requirements of the Federal Truth-in-Lending law or any regulation promulgated thereunder. - ------------------------------------------------------------------------------ 3. DEPOSIT ACCOUNTS. For purposes of this Agreement, "Deposit Accounts" means the following deposit account(s) opened by Pledgors with Secured Party, any renewals or rollovers thereof, and any proceeds thereof: DEPOSIT ACCOUNT NUMBER OPEN OR ISSUE DATE CURRENT PRINCIPAL AMOUNT MATURITY DATE - ---------------------- ------------------ ------------------------ ------------- 06945-01340
- ------------------------------------------------------------------------------ 4. NO OTHER SECURITY INTERESTS. Pledgors hereby represent and warrant to Secured Party that they own each of the Deposit Accounts free and clear of any and all liens, encumbrances, or interest of any third parties other than the security interest of Secured Party. - ------------------------------------------------------------------------------ 5. WITHDRAWALS; RENEWALS; ROLLOVERS. Pledgors shall not withdraw funds from the Deposit Accounts without Secured Party's prior written consent. Pledgors agree that, upon maturity of any Deposit Account with a maturity date, such Deposit Account shall be renewed at Secured Party's then prevailing rate of interest for successive ninety (90) day periods (or such other time period as may be agreed by Secured Party and Pledgors). - ------------------------------------------------------------------------------ 6. CERTIFICATES. Upon Secured Party's request, Pledgors shall deliver any certificate evidencing any of the Deposit Accounts to Secured Party, duly endorsed over to Secured Party, as necessary. - ------------------------------------------------------------------------------ 7. INTEREST PAYMENTS. Notwithstanding Secured Party's security interest in the proceeds of the Deposit Accounts, Secured Party will continue to pay to Pledgors interest accruing thereunder until the occurrence of an Event of Default under this Agreement. - ------------------------------------------------------------------------------ 8. COSTS. All advances, charges, costs and expenses, including reasonable attorneys' fees, incurred or paid by Secured Party in exercising any right, power or remedy conferred by this Agreement or in the enforcement thereof, shall become a part of the Indebtedness secured hereunder and shall be paid to Secured Party by Debtors immediately and without demand, with interest thereon at an annual rate equal to the highest rate of interest of any Indebtedness secured by this Agreement. Such costs and attorneys' fees shall include, without limitation, the allocated cost of in-house counsel. - ------------------------------------------------------------------------------ 9. EVENTS OF DEFAULT. At the option of Secured Party and without necessity of demand or notice, all or any part of the Indebtedness of Debtors shall immediately become due and payable irrespective of any agreed maturity upon the happening of any of the following events ("Events of Default"); provided, however, that all Indebtedness of Debtors automatically shall become immediately due and payable if a bankruptcy petition is filed with respect to any Debtor: (a) failure to keep or perform any of the terms or provisions of this Agreement; (b) default in the payment of principal or interest or any other default with respect to any Indebtedness of Debtors; (c) the levy of any attachment, execution or other process against any of the collateral; (d) the death, insolvency, failure in business, commission of an act of bankruptcy, general assignment for the benefit of creditors, filing of any petition in bankruptcy or for relief under the provisions of the Bankruptcy Code, of, by, or against any Debtor or Pledgor or any comaker, accommodation maker, surety or guarantor of the Indebtedness or any endorser of any note or other document evidencing the Indebtedness. Upon the happening of any of the foregoing specified events, any agreement for further financial accommodation by Secured Party shall terminate at its option. - ------------------------------------------------------------------------------ 10. REMEDIES. Upon the happening of any Event of Default, Secured Party may then exercise as to such collateral all the rights, powers and remedies of an owner and all rights, powers and remedies of a secured party under the California Uniform Commercial Code and other laws. Secured party may exercise any rights of setoff, without notice, against any funds in any Deposit Account. - ------------------------------------------------------------------------------ 11. WAIVERS. Pledgors waive any right to require Secured Party to (a) proceed against any person, (b) proceed against or exhaust any collateral, or (c) pursue any other remedy in Secured Party's power; and waive any defense arising by reason of any disability or other defense of any Debtor or any other person, or by reason of the cessation from any cause whatsoever of the liability of Debtors or any other person. Pledgors waive any right of subrogation, reimbursement, indemnification, and contribution (contractual, statutory or otherwise), including without limitation, any claim or right of subrogation under the Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute, arising from the existence or performance of this Agreement, and Pledgors waive any right to enforce any remedy which Bank now has or may hereafter have against Debtors or against any other person, and waive any benefit of, and any right to participate in, any security now or hereafter held by Secured Party. If any Pledgor is not also a Debtor with respect to a specified Indebtedness, such Pledgor authorizes Secured Party without notice or demand and without affecting Pledgor's liability hereunder from time to time to: (a) renew, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of, such Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security, other than the collateral herein described, for the payment of such Indebtedness or any part thereof, and exchange, enforce, waive and release the collateral herein described or any part thereof or any such other security; and (c) release or substitute Debtors, or any of the endorsers or guarantors of such Indebtedness or any part thereof, or any other parties thereto. - ------------------------------------------------------------------------------ 12. TRANSFER OF COLLATERAL. Upon the transfer of all or any part of the Indebtedness, Secured Party may transfer all or any part of the collateral and shall be fully discharged thereafter from all liability and responsibility with respect to such collateral so transferred, and the transferee shall be vested with all the rights and powers of Secured Party hereunder with respect to such collateral so transferred; but with respect to any collateral not so transferred Secured Party shall retain all rights and powers hereby given. - ------------------------------------------------------------------------------ 13. CONTINUING AGREEMENT. This is a continuing Agreement and all the rights, powers and remedies hereunder shall apply to all past, present and future Indebtedness of Debtors, including that arising under successive transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new Indebtedness after all or any prior Indebtedness has been satisfied, and notwithstanding the death, incapacity, or bankruptcy of any Debtor, or any other event or proceeding affecting any Debtor. - ------------------------------------------------------------------------------ 14. CONTINUING POWERS. Until all Indebtedness shall have been paid in full all rights, powers and remedies granted to Secured Party hereunder shall continue to exist and may be exercised by Secured Party at the time specified hereunder irrespective of the fact that the Indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of any Debtor may have ceased. - ------------------------------------------------------------------------------ 15. OTHER RIGHTS. The rights, powers and remedies given to Secured Party by this Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of any statute or rule of law. Any forbearance or failure or delay by Secured Party in exercising any right, power or remedy hereunder shall not be deemed to be a waiver of such right, power or remedy, and any single or partial exercise of any right, power or remedy hereunder shall not preclude the further exercise thereof; and every right, power and remedy of Secured Party shall continue in full force and effect until such right, power or remedy is specifically waived by an instrument in writing executed by Secured party. - ------------------------------------------------------------------------------ 16. PLEDGORS' RESIDENCE. Each Pledgor represents and warrants that Pledgor resides in, or, if Pledgor is not an individual, has its executive office in the state specified on the signature page hereof. Each Pledgor agrees to give Secured Party at least thirty (30) days' notice before changing its state of residence or chief executive office. - ------------------------------------------------------------------------------ 17. SINGULAR AND PLURAL. All words used herein in the plural shall be deemed to have been used in the singular where the context and construction so require, and the obligations and undertakings hereunder are joint and several. - ------------------------------------------------------------------------------ 18. TERMINATION. This Security Agreement shall remain in full force and effect until terminated by Secured Party. - ------------------------------------------------------------------------------ 19. CALIFORNIA LAW. This Agreement shall be governed by the laws of the State of California. IN WITNESS WHEREOF, Secured Party and Pledgors have executed this Agreement as of June 05, 1998 . MEDICAL SCIENCE SYSTEMS, INC. By: Pledgor(s) Address: U. Spencer Allen, Chief Financial Officer 4400 McArthur Blvd., #980 Newport Beach, CA 92660-2031 By: Paul J. White, President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: Bank Address: Bank of America NT & SA Business Lending Services #1738 P. O. Box 6012 By: Pasadena, CA 91102-6012 TAXPAYER INFORMATION (OWNER'S CERTIFICATION) My Taxpayer Identification Number (TIN) to be used for tax reporting purposes is: _______________________. Under penalties of perjury, I certify that the taxpayer information provided is true, correct and complete. x - ---------------------------------------------------------------------- Owner's Signature (Holder of TIN to be used for tax reporting purposes) Paul J. White, President (Check if Applicable) |_| EXEMPT FOREIGN PERSONS, INDIVIDUALS. I am neither a citizen nor a resident of, nor am I doing business in the United States, and I have not, and do not plan to be, present in the United States for 183 or more days during the calendar year.* |_| EXEMPT FOREIGN PERSONS, NON-INDIVIDUALS. The Owner is not a U.S. corporation, partnership, estate or trust and the collateral is not effectively connected (related) to any U.S. trade or business the Owner is currently engaged in or plans to engage in during the year.* |_| I am subject to backup withholding under the provisions of Internal Revenue Section Code 3406(a)(1)(C) as notified by the Internal Revenue Service. * Exempt Foreign Person status is valid for three years. Prior to the third year you will be required to recertify your status as an Exempt Foreign Person. EX-10.2 3 [Confidential treatment has been requested for portions of this exhibit. The confidential portions have been redacted and are denoted by [**]. The confidential portions have been separately filed with the Securities and Exchange Commission.] EXHIBIT 10.2 EXCLUSIVE INDEPENDENT REPRESENTATIVE This Agreement is entered into and made effective as of March 25, 1999, by and between Medical Science Systems, Inc., a Texas corporation with its Principal offices located at 100 N.E. Loop 410, Suite 820, San Antonio TX 78216-4749, United States ("MSS") and The Straumann Company, dba Straumann USA, a Delaware company with its principal offices located at 1601 Trapelo Road, Waltham, Massachusetts 02154. A. MSS has rights to a certain genetic test for evaluating patients for predisposition to periodontal disease, hereinafter referred to as the "PST Test," which is the subject of U.S. Pat. 5,686,246 issued Nov. 11, 1997 and titled "Detecting Genetic Predisposition to Periodontal Disease." MSS desires to have the PST Test marketed and promoted in Territory. B. Representative has expertise in the marketing and promotion of products in the dental market in Territory. Representative wishes to act as an independent representative of MSS for the marketing and promotion of the PST Test in Territory. The parties desire to define in this Agreement the terms and conditions upon which Representative will act as an independent representative of MSS. NOW, THEREFORE, MSS and Representative agree as follows: 1. DEFINITIONS. 1.1 "Dental Provider" means dental specialists and general dentists. 1.2 "Intellectual Property Rights" means patent rights, copyright rights (including, but not limited to, rights in audiovisual works and Moral Rights), trade secret rights, and any other intellectual property rights recognized by the law of each applicable jurisdiction. 1.3 "Launch Date" means the date agreed upon by the parties upon which Representative will begin the marketing of PST Tests and solicitation of orders for Sample Collection Materials (SCMs) in the United States, as set forth in Exhibit A. 1.4 "Marks" means those trademarks, tradenames, brand names, service marks, service names, and/or logos of MSS listed in Exhibit B hereto under which the PST Test may be marketed or promoted by Representative in accordance with Section 8.4 (Trademarks). Exhibit B may be amended from time to time to add new Marks of MSS that Representative is permitted to use in connection with the marketing and promotion of the PST Test hereunder. 1.5 "MSS Products" means any product or service of MSS that Representative markets and promotes pursuant to this Agreement. 1.6 "Sample Collection Materials (SCMs)" means the packaging, clinical materials and accompanying instructions to be used to obtain a Sample from a Patient for delivery to a laboratory. 1.7 "Representative" means The Straumann Company dba Straumann, USA. 1.8 "Sub-Representatives" means any sub-representative of Representative, approved by MSS in accordance with Section 2.2 (No Sub-Representatives Without Consent). 1.9 "PST Test" means the performing of the genetic analysis for evaluating patients for predisposition to periodontal disease and reporting of the result to the requesting Dental Provider. 1.10 "Territory" means the territories defined in Exhibit A. 2. APPOINTMENT AS INDEPENDENT REPRESENTATIVE OF MSS. 2.1 Appointment. MSS hereby appoints Representative, and Representative hereby accepts such appointment, as an independent sales representative of MSS for the limited purposes of promoting and marketing the use of the PST Test, and soliciting orders for SCM's to Dental Providers, in the Territory. Representative's appointment as an independent sales representative of MSS shall be exclusive for all Dental Providers in the Territory during the initial term set pursuant to Section 11.1 and shall thereafter remain exclusive so long as Representative meets the minimum annual sales goals set pursuant to Section 3.7. 2.2 No Sub-Representatives Without Consent. Representative has no right and agrees not to appoint any Sub-Representatives or to delegate any of its duties hereunder without the advance written permission of MSS, which MSS may grant or deny at its sole discretion. In the event MSS provides such permission, any such Sub-Representative shall comply with all of Representative's duties and obligations hereunder. Representative shall be fully responsible for any actions of any Sub-Representative, including breach by such Sub-Representative of any of the obligations under this Agreement, to the same extent as if Representative itself had engaged in such actions or committed such breach. 2.3 Independent Contractor. Representative's relationship with MSS during the term of this Agreement will be that of an independent contractor. Representative will not have, and will not represent that it has, any authority to bind MSS, to assume or create any obligation, express or implied, to enter into any agreements, or to make any warranties or representations, on behalf of MSS or in MSS' name other than as expressly authorized herein. Nothing contained herein shall be deemed to create the relationship of franchiser/franchisee, partnership, or joint venture between the parties, and neither Representative nor its employees are, or shall act as, employees of MSS. 2.4 Solicitation Outside the Territory. Representative will not solicit customers outside the Territory. 3. REPRESENTATIVE'S OBLIGATIONS. Representative will be responsible for carrying out the following activities at its own expense: [Confidential treatment has been requested for portions of this page. The confidential portions have been redacted and are denoted by [**]. The confidential portions have been separately filed with the Securities and Exchange Commission.] 3.1 Creation of Market Plan. Representative will create, with the participation of MSS, a detailed written market plan for promotion of the PST Test in the Territory. 3.2 Marketing Materials and Sales Tools. Representative will be responsible for the development of marketing materials and sales tools for promotion of the PST Test in the Territory. Representative will provide MSS with copies of all marketing materials and sales tools to review and approve prior to their use in the Territory. (MSS will review primarily for trademark, technical claims, etc.) MSS will not unreasonably withhold its approval and must provide a response within (5) working days of receipt of materials. MSS will make available to Representative marketing materials and sales tools developed to date for the U.S. market as well as draft copy of additional materials for use in the Territory. MSS will be responsible for the core images, indications and claims remaining consistent worldwide. 3.3 Attendance at Trade Shows. Representative will incorporate PST into all meetings, trade shows and exhibitions that it attends and that are relevant in the Territory. This includes making booth modifications, and incorporating PST into special offers, promotional, educational materials, sponsorships and other activities as are determined appropriate by the Representative. 3.4 Sales Efforts. Representative will use reasonable effort to (a) organize and incorporate the PST Test into its sales training program and; (b) diligently promote the PST Test and solicit orders for SCMs and follow-up to get and keep Dental Providers submitting tests in the Territory through its sales force. 3.5 Market Development Activities. Representative will incorporate the PST Test into appropriate market development activities in the Territory, including but not limited to continuing education and university programs, advertising, thought leaders and speaker programs, and marketing studies. 3.6 Shipping and Handling of Sample Collection Materials Kits to Dental Providers. Representative will be responsible for promptly shipping Sample Collection Materials to Dental Providers who have placed orders. Representative shall purchase Sample Collection Materials from MSS. Representative will be solely responsible for invoicing Dental Providers for SCMs, including shipping costs, at the agreed upon prices as set forth in Section 5, and for collection of invoices from such Dental Providers. 3.7 Annual Sales Goals and Minimums. Cumulative annual sales goals and annual minimum sales requirements to be met by Representative will be set on a yearly basis in accordance with the provisions of this Section. Representative will use its best efforts to meet the annual sales goals and minimums applicable for each annual period during the term of this Agreement. (a) Sales Minimums. [**] (b) Sales Goals. Sales goals will be set by mutual agreement, based on input from MSS and Representative, on an annual basis. [Confidential treatment has been requested for portions of this page. The confidential portions have been redacted and are denoted by [**]. The confidential portions have been separately filed with the Securities and Exchange Commission.] 3.8 Market Information. Representative will advise MSS promptly concerning any market information that may come to Representative's attention respecting MSS, the PST Test, MSS' market position, or the continued competitiveness of the PST Test, complaints, or claims by customers, or other persons about MSS or the PST Test. MSS will be solely responsible for the reporting of any complaints to the Food and Drug Administration (FDA). Representative will notify MSS in writing promptly of any opportunity for development or distribution within the Territory perceived by Representative, and MSS and Representative will discuss all such opportunities. 4. MSS' OBLIGATIONS. MSS will be responsible for carrying out the following activities at its own expense: 4.1 Assistance with Creation of Market Plan. MSS will assist Representative with the creation of the detailed written market plan for promotion of the PST Test in the Territory. 4.2 Technical Support for Creation of Marketing Materials and Sales Tools. MSS will review and provide input on all marketing material and sales tools developed by Representative including draft copy. MSS will make available to Representative marketing materials and sales tools developed to date for the U.S. market as well as existing draft copy of additional materials for use in the Territory. MSS will be responsible for the core images, indications and claims remaining consistent worldwide. 4.3 Sales Training and Technical Support. MSS will provide sales training to Representative's sales force at an agreed to scheduled sales training meeting. MSS will provide ongoing technical support by having MSS personnel available by phone to answer sales force and Dental Provider questions. MSS will also send an MSS representative to support Representative's efforts at exhibits and trade shows including continuing educational programs if deemed desirable by the parties. 4.4 Ongoing PST Brand Support and Advertising in International Journals. At its sole discretion, MSS will advertise in international journals to support the PST Test Brand and its ongoing representatives in various markets. MSS will also produce a PST technical bulletin summarizing clinical research developments on a periodic basis, but no less often than semi-annually, which it will provide to all of its representatives worldwide. 4.5 Shipment of Sample Collection Materials to Representative. MSS will ship an initial order of [**] Sample Collection Materials to Representative to be shipped in [**] lots of [**] each 30 days apart. MSS will ship subsequent orders of Sample Collection Materials to Representative upon request for delivery by Representative. The minimum quantity for subsequent orders shall be [**]. MSS will charge Representative an agreed upon price set forth under Section 5. 4.6 Handling of Samples; Reporting Results of PST Tests. MSS will be solely responsible, either directly or through its reference laboratory, for processing PST Tests and reporting the results back to Dental Providers. MSS will provide the Dental Provider [Confidential treatment has been requested for portions of this page. The confidential portions have been redacted and are denoted by [**]. The confidential portions have been separately filed with the Securities and Exchange Commission.] with information that will help him/her discuss the results with their patients (e.g., current MSS patient brochure). 4.7 Invoicing and Collection to Dental Providers, Patients and Insurance. MSS will be solely responsible, either directly or through its reference laboratory, for invoicing Dental Provider, patient and/or insurance provider for PST Tests at the agreed upon prices as set forth in Section 5, and for collection of invoices from such parties. 4.8 Regulatory Approval of the PST Test. MSS has taken responsibility for all regulatory approval or government licenses required to market, promote, sell or use the PST Test in the Territory. If additional approvals or licenses become necessary MSS will take all actions necessary to secure such approvals and licenses, Representative will provide reasonable assistance to MSS. 4.9 Marks. MSS will have sole control of the trademarks, trade names, brand names, service marks and/or service names under which the PST Test is marketed and promoted. 5. PRICING. 5.1 Pricing of the PST Test. The initial price for PST Test for Dental Providers in the US has been [**] excluding promotional offers. Any change to the PST test price will be jointly agreed to by Representative and MSS. MSS will discuss any anticipated increases or decreases of these prices with Representative. The Representative and MSS shall negotiate in good faith to reach an agreement on the price of the PST Test. Subject to the foregoing, MSS reserves the right, from time to time at its discretion and upon at least three (3) months advance written notice to Representative, to make reasonable adjustments to its prices and to any other matters relating to the sale of PST Tests. 5.2 Pricing of the Sample Collection Material Kits to Representative. The initial price for Sample Collection Materials Kits charged by MSS to Representative shall be [**] per Kit except that [**]. Any change to the Sample Collection Materials Kits price will be jointly agreed to by Representative and MSS. MSS and the Representative will discuss any anticipated increases or decreases of these prices provided that MSS shall have the ultimate authority and responsibility for setting and adjusting such price to the Representative. Subject to the foregoing, MSS reserves the right, from time to time and upon at least three (3) months advance written notice to Representative, to make reasonable proposals for adjustments to its prices and to any other matters relating to the sale of Sample Collection Materials Kits. The Representative will not unreasonably withhold its approval for these changes. Representative will have the option of procuring the Sample Collection Materials Kits from alternative sources. MSS will make a good faith effort to assist Representative in developing an alternative source. MSS has final approval for the Sample Collection Materials Kits from an alternative source and MSS will not unreasonably withhold its approval. 5.3 Pricing of the Sample Collection Materials Kits by Representative. The initial price for Sample Collection Materials Kits charged by Representative to the Dental Provider shall be determined by the Representative, but will be no greater than [**] per kit [Confidential treatment has been requested for portions of this page. The confidential portions have been redacted and are denoted by [**]. The confidential portions have been separately filed with the Securities and Exchange Commission.] without notifying MSS. The Representative shall have the ultimate authority and responsibility for setting and adjusting such price to the customer. 6. REPRESENTATIVE COMMISSIONS. In consideration of the services of Representative under this Agreement, MSS will pay Representative commissions as set forth below: 6.1 Criteria for Commissions. Representative is eligible to receive commissions only with respect to PST Tests that were submitted by Dental Providers in the Territory. In no case will commissions be paid on orders by Dental Providers from whom Representative is not authorized to solicit orders. 6.2 Commission Basis. As to orders meeting the criteria of Section 6.1, MSS will pay Representative commissions in accordance with the following and Exhibit C attached. (a) "Commission Basis" is defined as the amount invoiced by MSS for PST Tests submitted by Dental Providers in the Territory, except as set forth in subsection (b) below. Commission Basis will not include any amounts charged for SCMs or any associated with separately itemized incidental charges, such as shipping and handling of SCMs or Samples or prepaid revenue from Dental Providers (revenue invoiced and received from a Dental Provider for a PST Test which has not yet been submitted) as of the day before the Launch Date. (b) "Excluded Dental Provider PST Tests" [**]. In the event that any such Institution, including those listed in Exhibit D, agrees to cover the cost of, or to mandate the use of PST Tests for patients under its care or covered by its policy, then MSS and Representative will negotiate in good faith to determine whether Representative shall be entitled to a commission schedule, and to determine the rate of such commission, with respect to revenue generated from sales to such Institutions or reimbursed by such Institutions. The determination will be based on the business arrangement agreed to with the Institution, price per PST Test to be received by MSS and whether Representative would be supporting the use by the Dental Providers covered by the Institution. (c) Commission payable by MSS to Representative = Applicable Commission Rate x Commission Basis 6.3 Procedure For and Timing of Payment. On a monthly basis, MSS will provide a report listing all Dental Providers who have submitted test samples and the date that an invoice was prepared. MSS will pay Representative a commission based on PST Tests submitted by the Dental Provider and invoiced to the patient's insurance and/or directly to the patient. The commission rate will vary with volume, as described in Exhibit C. Payments will be issued by MSS within ninety (90) days after the close of each month and will be paid in US dollars. 6.4 Right to Audit. Upon at least ten (10) working days prior notice to MSS, Representative, and its certified public accountants and other auditors shall have the right to access, audit and copy, during normal business hours and no more than once per calendar year, those books and records of MSS pertaining to activities under this Agreement solely for the purpose of verifying the correctness of payments made by MSS hereunder. Such audit shall be at Representative's own expense, except in the event that such audit reveals an underpayment by MSS of five percent (5%) or more in any given month, MSS shall reimburse Representative for the reasonable cost of such audit. Representative and its certified public accountants and other auditors shall keep all such books and records, the information contained therein, and copies thereof, confidential and shall not disclose any of the foregoing to any third party or use any of the foregoing for any purpose other than to verify the correctness of commission payments made by MSS hereunder. Prompt adjustment shall be made by MSS to compensate for any errors or omissions disclosed by any such audit. 7. CONFIDENTIALITY. 7.1 "Confidential Information" means (a) the design, technology and know-how of the PST Test or of any other service or product of MSS, except insofar as disclosed by normal use of the product; (b) non-public information concerning MSS' financing, financial status, research and development, proposed new services or products, marketing plans and pricing, unless and until publicly announced; and (c) any information designated by MSS as confidential or proprietary in writing. "Confidential Information" will not include information that: (a) is in or enters the public domain without breach of this Agreement; (b) MSS customarily provides to others without restriction on disclosure; (c) Representative rightfully receives from a third party without restriction on disclosure and without breach of a nondisclosure obligation; (d) Representative develops independently without access to Confidential Information, which Representative can prove with written evidence; (e) any information that a party is required to disclose in connection with any legal proceeding. 7.2 Obligations. Representative agrees: (a) that it will not disclose to any third party or use, other than as expressly permitted hereunder, any Confidential Information of MSS; (b) that it will not disclose to any third party other than its attorneys, accountants and other professional advisors the terms of this Agreement, except as may be necessary to enforce this Agreement; and (c) that it will take all reasonable measures to maintain the confidentiality and to prevent the unauthorized use of all Confidential Information in its possession or control, which will in no event be less than the measures it uses to maintain the confidentiality of its own information of similar importance. 7.3 Injunctive Relief. Representative acknowledges that unauthorized use or disclosure of the Confidential Information would cause substantial harm to MSS that could not be remedied by the payment of damages alone. Accordingly, Representative agrees that MSS will be entitled to preliminary and permanent injunctive relief and other equitable relief for any breach of this Section 7. 8. PROPRIETARY RIGHTS. 8.1 MSS' Ownership. MSS is and will remain the sole and exclusive owner of all intellectual property rights in the PST Test and the Marks. 8.2 Representative's Duties. Representative will use its reasonable efforts to protect MSS' Intellectual Property Rights in the PST Test and will report promptly to MSS any infringement of such rights of which Representative becomes aware. 8.3 Third Party Infringement. MSS reserves the sole and exclusive right at its discretion to assert claims against third parties for infringement or misappropriation of its Intellectual Property Rights in the PST Test. 8.4 Trademarks. Subject to the terms and conditions of this Agreement, MSS grants Representative a non-exclusive, non-transferable license for the term of this Agreement to use in Representative's marketing of the PST Test only those Marks listed in Exhibit B, provided that such use is in accordance with MSS' trademark usage guidelines then in effect. Such use must reference such Marks as being owned by MSS. Nothing in this Agreement grants Representative ownership or any rights in or to use any Marks, except in accordance with this license. The rights granted to Representative in this license will terminate upon any termination or expiration of this Agreement. Upon such termination or expiration, Representative will no longer make any use of any Marks. Representative has paid no consideration for the use of the Marks and Representative agrees that it will not at any time (i) claim any interest in any of the Marks; (ii) register, seek to register, or cause to be registered any of the Marks, other than in MSS' name and at MSS' specific request; or (iii) adopt and use any trademark, tradename, brand name, service mark, service name, and/or logo that might be confusingly similar to the Marks. Representative will assist MSS, if requested and at MSS' expense, to register the Marks in MSS' name in the Territory. 9. INDEMNITIES. 9.1 Distribution Indemnity. Subject to the limitations set forth in Section 10 (Limitation of Liability), Representative agrees to defend (or settle) and indemnify MSS against any third party claims against MSS for loss, damage, liability, or expense (including but not limited to reasonable attorneys' fees) arising out of the gross negligence or willful misconduct of Representative or any Sub-Representatives in connection with the promotion or marketing of the PST Test under this Agreement. 9.2 Products Liability Indemnity. Subject to the limitations set forth in Section 10 (Limitation of Liability), MSS agrees to defend (or settle) and indemnify Representative against any third party claims against Representative for loss, damage, liability or expense (including but not limited to reasonable attorneys' fees) arising out of any defect or alleged defect in the Sample Collection Materials or the processing of PST Tests. MSS will provide Representative with a copy of the products liability insurance policy and notice to the insurance carrier adding Representative to the parties to be notified of any changes and/or cancellations to the policy prior to the Launch Date. Representative will propose any changes deemed necessary to the coverage and MSS will implement all reasonable changes. Representative will provide MSS with a copy of its products liability insurance policy and will add MSS as a recipient of notices of changes and/or cancellations of the policy. 9.3 Infringement Indemnity. (a) Duty to Indemnify and Defend. (i) Subject to the limitations set forth in Section 10 (Limitation of Liability), MSS will defend (or settle) and indemnify Representative against any third party claims against Representative to the extent that it is based on a claim that the use of the Marks or of the PST Test as delivered under this Agreement infringes any copyright, misappropriates any trade secret, or infringes any patent. (ii) Subject to the limitations set forth in Section 10 (Limitation of Liability), MSS will pay any and all costs, damages, and expenses (including but not limited to reasonable attorneys' fees) awarded against Representative in any such action or proceeding to the extent attributable to any such claim. (iii) MSS will have no obligation under this Section as to any action, proceeding, or claim unless: (A) MSS is notified of it promptly; (B) MSS has control of its defense and settlement; and (C) Representative provides MSS with reasonable assistance at the cost and expense of MSS in its defense and settlement. (b) Sole Remedy. THE FOREGOING ARE MSS' SOLE AND EXCLUSIVE OBLIGATIONS, AND REPRESENTATIVE'S SOLE AND EXCLUSIVE REMEDIES, WITH RESPECT TO INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS OF ANY KIND. (c) Exclusions. MSS will have no obligations under this Section 9.3 with respect to infringement or misappropriation to the extent arising from (i) modifications by Representative to the PST Test that were not authorized by MSS or (ii) the use of the PST Test in combination with products or processes not approved of or provided by MSS. 10. LIMITATIONS OF LIABILITY. 10.1 Failure of Essential Purpose. The parties have agreed that the limitations and exclusions of liability specified in this Section 10 will survive and apply even if any limited remedy specified in this Agreement is found to have failed of its essential purpose. 10.2 Basis of the Bargain. Representative acknowledges that MSS has set its prices and entered into this Agreement in reliance upon the limitations of liability and the [Confidential treatment has been requested for portions of this page. The confidential portions have been redacted and are denoted by [**]. The confidential portions have been separately filed with the Securities and Exchange Commission.] disclaimers of warranties and damages set forth herein, and that the same form an essential basis of the bargain between the parties. 11. TERM AND TERMINATION. 11.1 Term. The term of this Agreement will begin on the Launch Date and will continue for a period of [**], counted from the Launch Date unless it is terminated earlier in accordance with the provisions hereof. [**] 11.2 Events of Termination for Cause. Either party will have the right to terminate this Agreement if: (a) the other party breaches any material term or condition of this Agreement and fails to cure such breach within sixty (60) days after written notice; (b) the other party becomes the subject of a voluntary petition in bankruptcy or any voluntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors; or (c) the other party becomes the subject of an involuntary petition in bankruptcy or any involuntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors, if such petition or proceeding is not dismissed within sixty (60) days of filing. 11.3 Rights to Negotiate a License. In the event a condition described in Section 11.2 (b) or (c) above occurs against MSS, or in the event is deemed to have breached this agreement pursuant to Section 11.2 (a) above, as determine under procedures set forth in Section 13, Representative will have the following options: For a period of ninety days (90) from the event listed in Section 11.2 (b) or (c), or the final arbitration ruling under Section 11.2 (a): (1) Representative may terminate this Agreement as set forth in Section 11.2; or (2) Representative and MSS will negotiate in good faith to enter into an exclusive license agreement in the Territory to: (a) assist and enable Representative to continue business in the Territory on a basis comparable to that which existed prior to the breach. (b) grant Representative a license for exclusive rights to MSS' intellectual properties pertaining to the PST Test. (c) provide Representative with all specifications and vendor information for all materials used in the Sample Collection Materials Kit and the PST Test and to inform vendors of Representative's right to purchase any proprietary material. (d) provide Representative with a list of all laboratories that have performed the PST Test in the Territory. (e) provide Representative with current customer account information for processed PST Tests and introduce Representative to the organization managing the collection process in the Territory. (f) to establish a royalty agreement to be paid by Representative to MSS for all PST Tests processed in the Territory. 11.4 Termination by MSS for Failure to Meet Minimum Sales. Effective at any time after the first two (2) years after the Launch Date, MSS may terminate this Agreement upon six (6) months written notice to Representative in the event that Representative fails to meet the preceding year's annual minimum sales requirement set pursuant to Section 3.7 (Annual Sales Goals and Minimums), unless during such six (6) month period Representative cures such failure by reaching a level of sales that makes up the previous year's deficit to the minimum, and is on track to meet the current year's minimum. 11.5 Commission Rights on Termination. Upon termination of this Agreement, Representative will be entitled to commissions on PST Tests that satisfy the requirements of this Agreement only if samples are received by MSS within (90) days of the effective date of termination. 11.6 Effect of Termination. Upon termination or expiration of this Agreement: (a) Representative will immediately return to MSS all copies of Confidential Information in its possession or control, and an officer of Representative will certify to MSS in writing that Representative has done so; (b) Representative will immediately cease to use any and all of the Marks; (c) Representative will immediately return all marketing material provided to Representative by MSS; (d) Representative and MSS will reconcile commissions paid pursuant to Section 6 (Representative's Commission) and (e) Representative will return all SCM Kit inventory to MSS for full refund. 11.7 No Damages for Termination. NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY KIND, INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE TERMINATION OR EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS. REPRESENTATIVE WAIVES ANY RIGHT IT MAY HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS ON TERMINATION OR EXPIRATION OF THIS AGREEMENT UNDER THE LAW OF THE TERRITORY OR OTHERWISE, OTHER THAN AS EXPRESSLY PROVIDED IN THIS AGREEMENT. Without limiting the generality of the preceding sentence, neither party will be liable to the other on account of termination or expiration of this Agreement for reimbursement or damages for the loss of goodwill, prospective profits or anticipated income, or on account of any expenditures, investments, leases or commitments made by either party or for any other reason whatsoever based upon or growing out of such termination or expiration. 11.8 Nonexclusive Remedy. Except as otherwise provided in this Agreement, the exercise by either party of any remedy under this Agreement will be without prejudice to its other remedies under this Agreement or otherwise. 11.9 Survival. The rights and obligations of the parties contained in Sections 7 (Confidentiality), 8 (Proprietary Rights), 9 (Indemnities), 10 (Limitations of Liability), and 11.6 (Effect of Termination) will survive the termination or expiration of this Agreement. 12. COMPLIANCE WITH LAW. 12.1 General Compliance. Each party agrees to comply with all applicable laws, rules, and regulations in connection with its activities under this Agreement. 13. ARBITRATION. 13.1 Agreement to Submit. Except as provided below, the parties agree to submit disputes between them, or their respective successors and assigns, relating to this Agreement and its formation, breach, performance, interpretation and application (collectively, the "Disputes" and individually, a "Dispute"). 13.2 Procedure. Arbitration will be in San Antonio, Texas. Except as provided below, all Disputes will be submitted to and settled by arbitration in accordance with the provisions of the Federal Arbitration Act, 9 U.S.C. ss.ss.1-15, as amended. The terms of the commercial arbitration rules of the American Arbitration Association (The "AAA") shall apply except to the extent they conflict with the provisions of this Section 13. The arbitration shall be conducted by a single independent arbitrator. The parties shall endeavor to select an independent arbitrator by mutual agreement. If such agreement cannot be reached within 30- calendar days after a Dispute has arisen, the selection of the arbitrator(s) shall be made in accordance with Rule 13 of the Rules as presently in effect. The arbitrator shall be a member of a state bar engaged in the practice of law in the United States or a retired member of a state or the Federal judiciary in the United States. The award of the arbitrator shall be based on the evidence admitted and the substantive law of the State of Texas and shall contain an award for each issue and counter claim. The award shall be made 30 days following the close of the final hearing and the filing of any post-hearing briefs authorized by the arbitrator. The award of the arbitrator shall be final and binding on the parties hereto. Each party shall be entitled to inspect and obtain a copy of non-privileged relevant documents in the possession or control of the other party. All such discovery shall be in accordance with procedures approved by the arbitrator. Unless otherwise provided in the award, each party shall bear its own costs of discovery. Each party shall be entitled to take five (5) depositions. Each party shall be entitled to submit one set of interrogatories which require no more than 30 answers. All discovery shall be expedited, consistent with the nature and complexity of the claim or dispute and consistent with fairness and justice. The arbitrator shall have the power to compel any party to comply with discovery requests of the other parties and to issue binding orders relating to any discovery dispute which shall be enforceable in the same manner as awards. The arbitrator also shall have the power to impose sanctions for abuse or frustration of the arbitration process including, without limitation, the refusal to comply with orders of the arbitrator relating to discovery and compliance with subpoenas. The arbitrator may require the non-prevailing party to pay the prevailing party's attorneys' fees and costs incurred in connection with the arbitration. It is further agreed that any of the parties hereto may petition the United States District Court for the Western District of Texas, San Antonio Division, for a judgement to be entered upon any award entered through such arbitration proceedings. 13.3 Evidence. Each party agrees to supply to the arbitrator in accordance with a timetable to be established by the arbitrator such materials as the arbitrator may reasonably require in order to render a decision. Each party shall supply to the other party hereto copies of any and all materials which are supplied to the arbitrator concurrently with delivery of such materials to the arbitrator. In addition, each party shall supply to the other party at least ten (10) business days prior to the commencement of any hearing in the arbitration copies of any and all documents which such party intends to introduce or upon which such party intends to rely in connection with such hearing, as well as a list of any and all witnesses whose testimony such party intends to introduce in connection with such hearing. Additional documents or witnesses may be introduced only if the arbitrator determines that good cause has been shown. Each party shall also have the right to submit written briefs to the arbitrator in accordance with a timetable to be established by the arbitrator. All testimony of witnesses at any arbitration proceeding held pursuant to these provisions shall be taken under oath. To the extent either party maintains in good faith that any documents submitted or testimony introduced in connection with such arbitration contain confidential information or trade secrets, the parties shall negotiate in good faith in an effort to reach agreement regarding terms and conditions for keeping such materials and testimony confidential. If the parties are unable to agree upon such terms, the arbitrator shall have the right to impose appropriate restrictions to maintain the confidentiality of any confidential information or trade secrets in connection with the arbitration. 13.4 Burden of Proof. For any claim submitted to arbitration, the burden of proof shall be as it would be if the claim were litigated in a judicial proceeding in the federal district courts of the State of Texas. 13.5 Payment of Costs. Each party hereby agrees to pay one-half of the compensation to be paid to the arbitrator in any arbitration under this Section 13 and one-half of the costs of transcripts and other expenses of the arbitration proceedings; provided, however, that the prevailing party in any arbitration proceeding as determined by the arbitrator shall be entitled to an award of its direct costs and reasonable expenses of attorneys, accountants and other professionals incurred in connection with the proceeding (but not including reimbursement of the compensation paid by such party to the arbitrator), to be paid by the losing party. In the event of a dispute as to whether a party qualifies as a prevailing party under this Section 13.6, the arbitrator shall resolve such dispute and may apportion such costs, fees and expenses between the parties as the arbitrator deems just and equitable. 13.6 Attorneys' Fees in Related Actions. In the event of any legal action relating to the arbitration, including any action to stay the arbitration, to vacate, modify or correct any award or otherwise, the prevailing party in the action as determined by the court will be entitled to recover from the other its court costs and reasonable fees and expenses of attorneys, accountants and other professionals incurred in connection with the action, including such costs, fees and expenses upon appeal. 13.7 Exceptions. Neither party will be required to arbitrate any dispute relating to actual or threatened: (a) unauthorized disclosure of Confidential Information or (b) violation of MSS' Intellectual Property Rights. Either party will be entitled to have injunctive, preliminary or other equitable relief, in addition to damages, including reasonable attorneys' fees and costs, to remedy any actual or threatened violation of its rights with respect to which arbitration is not required hereunder. 14. GENERAL. 14.1 Assignment. This Agreement will bind and inure to the benefit of each party's permitted successors and assigns. Neither party may assign this Agreement, in whole or in part, without the written consent of the other. Any attempt to assign this Agreement without such consent will be null and void. 14.2 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Texas, U.S.A. 14.3 Severability. If any provision of this Agreement is found invalid or unenforceable, that provision will be enforced to the maximum extent permissible, and the other provisions of this Agreement will remain in force. 14.4 Force Majeure. Except for payments due under this Agreement, neither party will be responsible for any failure to perform due to causes beyond its reasonable control (each a "Force Majeure"), including, but not limited to, acts of God, war, riot, embargoes, acts of civil or military authorities, denial of or delays in processing of export license applications, fire, floods, earthquakes, accidents, strikes, or fuel crises, provided that such party gives prompt written notice thereof to the other party. The time for performance will be extended for a period equal to the duration of the Force Majeure. In the event a Force Majeure lasts for more than sixty (60) days, the parties shall discuss how best to overcome the Force Majeure. In the event a Force Majeure lasts for more than one-hundred-and-twenty (120) days, either party may terminate this Agreement with immediate effect. 14.5 Notices. Each notice required or permitted to be sent under this Agreement shall be given by telecopier transmission or by certified mail (return receipt requested) or recognized commercial overnight courier to MSS and to Representative at the addresses and telecopier numbers indicated below. Either party may change its address and/or telecopier number for purposes of this Agreement by giving the other party prior written notice of its new address and/or telecopier number to be confirmed by telephone conversation with the recipient. MSS Paul J. White,President,100 N.E. Loop 410, Suite 820,San Antonio, TX 78216 Phone: 210-349-6400 Fax: 210-384-3356 Representative William J. Ryan, President, 1601 Trapelo Road Waltham, MA 02154 Phone: 781-890-0001 Fax: 781-890-6464 14.6 Waiver. No failure of either party to exercise or enforce any of its rights under this Agreement will act as a waiver of such rights. 14.7 Entire Agreement. This Agreement and its exhibits are the complete and exclusive agreement between the parties with respect to the subject matter hereof, superseding and replacing any and all prior agreements, communications, and understandings (both written and oral) regarding such subject matter. This Agreement may only be modified, or any rights under it waived, by a written document executed by both parties. 14.8 Press Release. The parties agree to issue a mutually agreeable joint press release with respect to this Agreement. Each party agrees that it will not issue a press release with respect to this Agreement until such joint press release has first been issued. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly-authorized representatives set forth below as of the Effective Date. MEDICAL SCIENCE SYSTEMS, INC. STRAUMANN, USA By: By: Printed Name: Paul J. White Printed Name: William J. Ryan Title: President Title: President Date of Signature: Date of Signature: Facsimile: 210-384-3356 Facsimile: 781-890-6464 [Confidential treatment has been requested for portions of this page. The confidential portions have been redacted and are denoted by [**]. The confidential portions have been separately filed with the Securities and Exchange Commission.] EXHIBIT A Territory: Dental Providers located in the United States of America and Puerto Rico Launch Date: April 9, 1999 EXHIBIT B Marks Mark Serial Number (if registration secured or applied for)PST75/177259 (United States) EXHIBIT C Commission Rates MSS shall pay Straumann a commission [**] EXHIBIT D [**] EXHIBIT E [**] EX-27 4
5 3-MOS DEC-31-1999 MAR-31-1999 1,183,787 0 134,784 20,999 0 1,442,858 797,782 385,087 2,385,553 1,167,478 0 0 0 16,730,396 0 2,385,553 36,967 36,967 17,237 389,196 0 0 7,164 (376,042) 0 0 0 0 0 (376,042) (.22) (.22)
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